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Commercial insurance industry may experience an unprecedented number of claims as Hurricane Sandy approaches the Mid-Atlantic coast.
“It's fair to assume this will create serious claim issues,” said Rick Miller, chief broking officer with Aon Risk Solution's U.S. property practice in Boston, a unit of Aon P.L.C. “We are bracing for significant damage.”
While it's too early to tell, flood damage from Hurricane Sandy is expected to be a significant portion of potential claims, industry experts say.
Large commercial businesses most likely are well-prepared for potential flood and wind damage through their commercial property policies, said John Dempsey, managing partner of Wilton, Conn.-based Dempsey Partners L.L.C.
“Most large companies with risk managers will have the proper insurance in place,” he said. “The industry usually does a good job in the face of big disaster.”
Coverage for flood damage is typically covered under commercial property policies, usually sublimited further inside the policy, Mr. Miller said. Flood-susceptible areas are commonly excluded and under a commercial policy, “it is common to have higher deductibles for hurricanes and tropical storms.”
While the magnitude of potential individual losses may not be all that significant, the number of claims from Hurricane Sandy “could be unprecedented,” Mr. Dempsey said. “It could really tax the system of adjusting claims.”
Howard Mills, chief adviser with Deloitte L.L.P.'s insurance industry group in New York and former superintendent of the New York State Insurance Department, said the insurance industry is well-prepared to handle potential Hurricane Sandy claims, and already is mobilizing underwriters and adjusters to respond.
“The industry is very well capitalized and their reserves are very healthy,” he said. “They've been suffering through a soft pricing market for years — this could be the event that actually helps to harden the market in terms of pricing. But they have the capital; they have the reserves to withstand even this type of loss.”
Homeowners under personal lines of insurance may find themselves without flood insurance coverage because while wind damage is typically included in a homeowners' policy, flood is often excluded, industry experts say.
The National Flood Insurance Program, administered by the Federal Emergency Management Agency, offers flood insurance to homeowners, renters and business owners.
The coverage is available through a partnership with nearly 90 private insurance companies and can be purchased through property/casualty insurance agents.
“Flood insurance coverage through the NFIP is very affordable,” Mr. Mills said, noting that anyone is eligible for the coverage.
“The NFIP is really meant for personal lines because the standard homeowner's policy doesn't cover flood,” he said. “Because commercial flood coverage is commercially available, the NFIP is really geared toward personal lines.”
Businesses do take advantage of NFIP and can buy more coverage than residential owners, said Mr. Miller of Aon.
“Commercial buyers have higher deductibles for flood-prone areas, they may have coverage under a commercial policy, but because the deductibles are higher, NFIP is kind of a way to buy down the deductible,” he said.
Total 2001 written premiums under the NFIP as of Aug. 31 is $3.5 billion, according to FEMA's website.
Loss dollars paid by the NFIP for 2011 and 2010 is $1.8 million and $768,000, respectively.
To learn more about the NFIP, click here.
As Hurricane Sandy approaches the Mid-Atlantic coast, catastrophe modelers are beginning to get a better sense of the damage the storm may inflict in insured properties.