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Business interruption losses, a common source of claims following major events, could increase substantially in the wake of Hurricane Ida, depending on how long it takes to restore power to New Orleans and southeast Louisiana, experts say.
Hurricane Ida, which made landfall near Port Fourchon, Louisiana, Aug. 29 as a strong Category 4 storm, with maximum sustained winds of 150 miles per hour, took out eight transmission lines delivering power to New Orleans. One transmission tower collapsed sending power lines into the Mississippi River.
While progress has been made in restoring power to certain areas, including parts of New Orleans, as of Sept. 6 there were 568,000 outages still affecting homes and businesses in Louisiana, according to the U.S. Department of Energy. As a result, many were without access to basic services like water and gas.
Disruptions caused by lack of power, mobile data services and water could lead to Ida becoming a long-tailed event when it comes to claims reporting and payouts, catastrophe modeler AIR Worldwide, a Verisk Analytics Inc. business, said in a note last Friday.
“The challenge of whether power will be restored in the coming weeks and how long (it takes) will have an impact on the tail of this loss and if it will increase substantially due to business interruption,” said Martha Bane, Glendale, California-based managing director of the North America property practice at Arthur J. Gallagher & Co.
Many commercial facilities may have sustained some level of damage but not enough to close their operations, Ms. Bane said. “It’s the lack of power that’s going to keep them shuttered, possibly for several weeks,” she said.
In New Orleans itself there was more wind damage than flooding, but outlying areas saw extensive flood damage. “We’ve seen everything from massive roof damage to extreme flooding across manufacturing, public entity, real estate – all types of business,” Ms. Bane said.
The longer that the power is out the longer the indemnity period is going to be from a business interruption standpoint, said Rob Gall, Sacramento, California-based chief property claims officer at Marsh LLC.
Long-term power outages can create many issues for manufacturing and facilities that can’t start up, he said. “It’s total disruption while the power is out. If they can’t get in and do the cleanup it increases the physical damage side as well. Not having power, not having water is a major issue,” he said.
In this event there are going to be multiple causes of loss interacting simultaneously, said Tom Carstens, senior vice president of global technical services at Crawford & Co. in Atlanta.
“Businesses can have direct damage. They can have off-premises power outage; there is a civil authority impact. There are currently ingress/egress issues as well,” Mr. Carstens said. Various coverages are available for recovery of these multiple causes of loss, and off-premises power outage coverage is one of them, he said.
Most large commercial policyholders will have a service interruption or utility interruption type of coverage, said Maryann Johnson, Philadelphia-based senior managing director, property and energy claims, at Beecher Carlson Insurance Services LLC, a unit of Brown & Brown Inc.
Typically, the coverage has a dollar sublimit and a day limit, and there is usually a waiting period of anywhere from 24 to 72 hours, she said.
“Most of the day limits are going to be 30 days, and if the power outage were to go beyond 30 days there would be no more coverage if that was the only issue at that facility,” Ms. Johnson said.
Retail stores, hotels, habitational facilities and research operations will try to secure rental generators to get some power going to mitigate damages, she said. “From an extra expense standpoint, protection and preservation of property can increase costs,” she said.
Service interruption coverage is nuanced, and the coverage triggers vary by policy, Mr. Gall said. “Some policies just require an accidental occurrence, which a hurricane or storm damage is, but certain policies may have distance limitations” that require the physical damage to the utility supplier’s facilities to be within a certain number of miles of the policyholder’s premises, he said.
Some policies exclude losses caused by damage to certain types of equipment, such as transmission and distribution lines. A business “may have service interruption coverage, but the trigger may or may not apply depending on each client’s specific circumstances,” Mr. Gall said.
Prolonged power outage will likely amplify the commercial insured losses in terms of business interruption and additional property damage that may occur due to the inability to make timely repairs, David Smith, senior leader of science and analytics at CoreLogic Inc. in Irvine, California, said in an email.
“The more significant this issue becomes, the higher the likelihood the losses will come in toward the higher end of our ranges,” Mr. Smith said.
Insured flood and wind losses from Hurricane Ida are estimated at between $14 billion and $21 billion, according to CoreLogic’s estimates released Sept. 1.
“Some specific damages in the New Orleans area may extend the power outage to longer than normal and we’ll have to see how that plays out with regard to how fast they can recover,” Mr. Carstens said.
There’s always a high demand for contractors to perform the restoration, which can further extend the time to complete the repairs for any direct damage or (damage to) the transmission lines and the power supplies that support a business, he said.
(Reuters) — Insurers are bracing for $15 billion to $30 billion in claims from Hurricane Ida, but the figure could jump higher, in part because of pandemic pricing that has pushed up the cost of lumber and labor to rebuild, insurance experts said Monday.