From the December 2012 issue of Claims Magazine • Subscribe!

Sandy Crashes Ashore

Putting the Superstorm’s Wrath into Sharper Focus

The PropertyCasualty360.com staff (of which Claims is part) is accustomed to hearing and writing about catastrophes. However, it is rare for so many of us to be smack in the middle of a severe weather event ourselves. Those working out of Summit Business Media’s Hoboken, N.J. office, for example, simply do not witness the types of extreme weather with which many of our constituents to the south, west, and even north regularly contend.

So when “Superstorm” Sandy struck, it was jolting for us. Scarier still is the thought that other areas of the country are almost annually under threat from hurricanes with far higher wind speeds.

There are many lessons to be learned, and we emerge from the devastation with a deepened understanding of the empathy, fortitude and resourcefulness claims adjusters must possess in order to serve insureds in traumatic situations. In some cases, editors and claims professionals lost both homes and cars but nevertheless earnestly reported for duty. Crawford & Company CEO Jeff Bowman spoke of one office alone where seven colleagues lost their homes but took great strides to continue working. This is a testament to the resilience of claims professionals working in the trenches.

In the immediate aftermath of the storm, those of us with access to power and computers documented our firsthand experiences with Sandy by providing images and accounts of the damage. We encourage you to read our individual perspectives, as well as the accounts of catastrophe adjusting teams in the affected areas on PropertyCasualty360.com. We also want to hear about your experiences, so please get in touch at claims_editor@sbmedia.com.

NFIP Borrowing Authority May Need to Be Raised to $30B

By Arthur D. Postal, regulatory and compliance news editor for LifeHealthPro.com.

However, Don Griffin, vice president, personal lines, for the Property Casualty Insurers Association of America and head of an industry coalition on the Federal Emergency Management Agency, cautions that initial estimates are rarely accurate.

Currently, the Obama administration plans to ask Congress to raise the National Flood Insurance Program’s borrowing authority to $25 billion, or $4.025 billion over its current borrowing authority during the current lame-duck session, according to federal, state and industry officials.

But, a higher cap may be necessary, state insurance regulators concluded during a meeting held in Mobile, Ala.in mid November, according to Michael Chaney, Mississippi insurance commissioner and head of the Flood Insurance Working Group of the National Association of Insurance Commissioners.

Chaney says current estimates by risk modelers are that the storm could cause $55 billion in economic losses. Chaney says modeling estimates predict Sandy will generate $12 to $15 billion in flood claims. “That means there should be a $30 billion cap,” he says.

At the same time, Chaney acknowledges that “we are seeking more information to ensure that what we are advocating is correct.”

PCI’s Griffin, though, was more cautious. “Often, either before or after a significant storm, there are estimates of the financial impact on insurers,” he says.

“These estimates, while useful, are often later significantly revised,” he said.

Griffin adds, “PCI suggests that a more useful estimate comes from the actual data and claims being reported, as provided in this case by Ed Connor, deputy associate administrator at the NFIP.”

Another industry official, who asked not to be named because of the sensitivity of the issue, says he understands that the Office of Management and Budget is “still vetting the request [for an increase in the NFIP’s borrowing authority] on behalf of FEMA, and what [the office is] most concerned about is that they are asking for the right number.”

The industry official says, “It is understandably difficult to estimate what the total cost to NFIP will be as a result of Sandy because the claims process is really just getting started.”

The official says the industry position at the moment “is that FEMA and OMB need to be as accurate as they can possibly be on what the estimate is so that Congress has the best information available.”

He cautions, “I think that OMB needs to be given the time they need to assess the situation and put a number forward to the Congress for approval.”

However, industry officials also acknowledge that a politically tough decision to raise the cap will have to be made by Congress even as begins the process of raising taxes and cutting programs in order to bring the deficit under control.

“It’s likely that Congress will once again have to raise the borrowing limit for the National Flood Insurance Program, perhaps going beyond $25 billion, to cover claims from Superstorm Sandy,” says Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies. “This should be a clear and convincing sign that we need to do more to prepare and harden our nation against the risk of natural disaster.”

He adds, “Policies promoting smarter land use, stronger building codes and allowing the NFIP to charge rates that match the risk all need to be implemented. As they take effect, the NFIP reforms passed by Congress and signed into law earlier this year will be a first step in addressing these concerns, but more can be done to protect our communities from the next major storm.”

Experts Debate Impact of Infrastructure Damage on  Loss Estimates

By Chad Hemenway, PropertyCasualty360.com

Insurance implications due to damage to infrastructure from Superstorm Sandy are still difficult to estimate at this point, but most infrastructure is not privately insured. 

Meyer Shields of Stifel Nicolaus recently said insured losses from Sandy could be higher than modelers’ estimates once infrastructure losses are added.

Sandy’s storm surge and high winds wreaked havoc on the New York and New Jersey train systems. Buses were also shut down for some time after the storm. Roads were washed away in some places, and the entire Northeast succumbed to massive power outages. Not to mention damage to municipal, state and federal buildings, airports and harbors.

But Tom Larsen, senior vice president at catastrophe modeler Eqecat, says the firm “generally views infrastructure in the U.S. as uninsured.”

Robert Hartwig, president of the Insurance Information Institute, says he isn’t aware of private insurance for infrastructure such as roads that were damaged or destroyed during the storm. They are typically owned by city, county, or state governments, he says.

Private insurance could be purchased on structures such as municipal buildings and schools--or they belong to a self-insured group--but Hartwig says he is unaware of any private insurance for these types of properties in New York City.

Bloomberg Businessweek reports that New York’s MTA started its own captive insurer, First Mutual Transportation Assurance Co., in 1997. It covers the first $25 million in property damage before falling back on up to $1 billion in additional coverage from reinsurers. After that, the MTA will rely on Uncle Sam. And it is likely, according to officials, that the cost to fix the New York Transit system will certainly eclipse $1 billion.

Ronald Morano, spokesman for Jersey Central Power & Light, a FirestEnergyCo., says he didn’t know if any repair costs would be recovered via insurance. Morano says the utility defers the cost of repairs from the storm, but later it could ask officials to recoup some or all of the costs with rate hikes.  

Typically, power lines are not insured. Larsen adds that the “advent of private toll roads has led to some infrastructure projects having private insurance,” but “damage to roadways has not been sufficiently extensive to cause large insured losses.”

Municipal bonds, as well as taxpayers and other fees, fund a lot of infrastructure projects and Larsen says he’s heard some payments could be missed. Some of the bonds are insured but a loss here can not be equated to a property insurance loss. “A skipped payment is made up by extending the duration of the loan,” Larsen explains.

Damage to infrastructure will be blamed for business interruption (BI) claims, say some industry experts. Some BI policies include endorsements for loss of utilities, says Larsen. Because of the extent of damage, repairs were (or remain) delayed.

Sandy-Damaged Vehicles Hit 230,000 Mark 

By Christina Bramlet, PropertyCasualty360.com

On Nov. 26, the National Insurance Crime Bureau (NICB) revised its projections about the total number of vehicles damaged by Superstorm Sandy. Based on information provided from the Insurance Services Office, Inc. (ISO), a subsidiary of Verisk Analytics, the NICB estimates that 230,000 vehicles were damaged by the storm. Not surprisingly, New York logged the most damaged rides with 130,000, while New Jersey generated 60,000 claims.

The remaining 40,000 claims analyzed and reviewed by insurers were filed by insureds in Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, North Carolina, Ohio, Pennsylvania, Rhode Island, Vermont, Virginia, and West Virginia.  

It is important to note that these are preliminary figures and may change as additional claims are received and processed. Moreover, there is no determination as to the extent of damage to these vehicles. They could have sustained minor paint scratches from flying debris, or have been under water for days and rendered total losses. 

In addition to the NICB, several industry organizations and consumer advocacy groups are forewarning consumers about the potential resale of flooded—and otherwise “totaled”—vehicles.

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