PRINCETON, N.J.--Demand surge has little to do with economicfactors after the storm and everything to do with quality and costof claims settlements, said Anna Olsen, a researcher at theUniversity of Colorado.

Her observations came yesterday during a conference at PrincetonUniversity sponsored by insurance broker Willis on "Cat 3 Hurricanein the Northeast: Willis Insurers' Summit." The conference broughttogether members of the Willis Research Network, a group of 18universities that study risk.

Ms. Olsen, also a Willis Research Fellow, reviewed herhistorical analysis of demand surge that she has done with KeithPorter, associate research professor in civil, environmental andarchitectural engineering at the University of Colorado in Boulder,Colo.

According to her research, a hurricane hitting the Northeastwould result in an estimated 30 percent demand surge, which istypically defined as a sudden increase in labor and materials, shesaid.

However, a review of three major hurricanes and two majorearthquakes indicates that the cause of demand surge for insurershas less to do with labor and materials and more to do with the wayclaims are settled, she said.

In her examination of labor and material costs surroundingHurricanes Hugo, Andrew and Katrina and earthquakes Loma Prieta andNorthridge, demand surge did not correlate to price increases inconstruction materials. In all but Loma Prieta (which experiencedno demand surge) the events produced demand surge ranging from 20to more than 40 percent.

There was also no indication that wages increased from theevents or that there were strains on employment since some of theseevents occurred when unemployment figures were high.

"There was no rise above normal volatility," said Ms. Olsen.

She said there were other reasons for demand surge figures thatshe contributes to a combination of lack of insurer's resources tosettle claims and insurers settling claims for more than thelimits.

Insurers did not have enough claims adjusters to properly settleclaims. Poorly trained adjusters do a poor job evaluating claims,resulting in higher payouts later.

She also attributed demand surge to insurer's having to payoutmore than they originally insured a property for because ofinfluential and sophisticated customers who did not the initialsettlement and were willing to fight the insurance companies overthe claim.

"The expectation of loss cause assumption is wrong on costs,"she said.

What this means for insurers in the New York area is that shoulda hurricane strike, claimants will be willing to fight insurers,and in turn have to make bigger payouts.

Mr. Porter addressed the issue of business interrupt, but in avery wide sense of interruption of "life line" services, such aselectric and other utilities.

He said while a business may be prepared to be operational in afew days, because a storm or earthquake can knock-out largesections of vital services, it can take dramatically longer for abusiness to bet back to operation. In many cases, business wereunable to operate for many days or weeks until electricity wasrestored to begin water flowing and allow businesses tooperate.

From his study of other earthquake and hurricane events, he saida category 3 hurricane on the Saffir-Simpson Scale striking theNortheast could cost $113 billion in physical damage and $96billion in business operations expense. The figures do not reflectinsured losses, but over all loss.