In the aftermath of Superstorm Sandy, many corporate riskmanagers whose organizations had experienced a flood loss foundtheir companies facing a new exposure. Because the financial limitsof their existing insurance policies were exhausted, they were onthe hook for additional financial losses in the event of anotherflood.

Following Sandy's catastrophic losses, many insureds were unableto access additional capacity, or were forced to reinstate limitsof existing policies at much higher costs, stricter coverage termsor substantial increases in deductibles. One year removed fromSandy's destruction, this threat continues. Massive flooding hasalso devastated the cities of Calgary and Toronto in Canada, aswell as Boulder, Colorado, providing a stark reminder of the needfor broad property insurance protection.

For businesses experiencing losses caused by severe flooding,financial impacts come from multiple sources — from the deductiblesthey pay, the vertical shares of risk they absorb in the coreprogram and the risks they assume above the insured limits of theprogram. The potential inability to reinstate much-needed insurancelimits is an added financial strain that can occur after a floodloss like Superstorm Sandy. Insureds may have very little to noinsurance protection remaining until their property policies arerenewed, and even then they may not be able to acquire the samelimits as before.

As the insurance market's reaction after Superstorm Sandydemonstrated, once the financial limits of protection afforded bythe property insurance policy are exhausted or have eroded, theinsured may experience difficulty reinstating these limits to theprevious levels of protection immediately or even upon renewal oftheir policy.

Reduction in coverage after a large catastrophic event is not anew phenomenon, and should not come as a surprise to risk managers.Before Superstorm Sandy, many carriers provided large flood limitsin a perceived low hazard flood zone. This proved to be a misstep,given the substantial concentration of risks in Manhattan that allwere subject to correlated losses.

Following Superstorm Sandy, this practice was unsustainable. Oneimportant improvement in coverage is the availability of floodreinstatement coverage, which provides insurance above theremaining limits of protection in the underlying property insurancepolicy. This policy can be customized to each organization'sspecific risk profile and risk appetite. Risk managers have theoption to buy additional high hazard flood insurance if the currentcoverage is sub-limited upon renewal, or if the high-hazard flooddeductible in the primary program has dramatically increased. Thecoverage terms, conditions and premium charged are based on eachinsured's high-hazard flooding exposures.

Additionally, in cases where a company building may be financedthrough a bank, flood limit reinstatement insurance provides anadditional layer of financial protection that can assist inattaining lower interest rates at refinancing. In most cases, thelending institution bank may request the borrower's proof ofinsurance as part of the bank's due diligence process and as acondition for obtaining the loan. If the certificate or evidence ofinsurance indicates $5 million of flood loss protection on abuilding worth five times that amount, the chance of obtaining amore favorable loan is greatly reduced, if not eliminated in itsentirety.

Flood reinstatement insurance specifically addresses the dilemmafaced by some risk managers in the aftermath of SuperstormSandy—inadequate insurance capacity to absorb their remainingexposure to weather-related flood risks. When extreme rainfalldeluged Boulder, Colorado in September 2013, drenching some regionswith at least 21 inches of rain—more than the average for an entireyear—company risk managers in the affected areas had immediateaccess to flood loss reinstatement limits.

Flood reinstatement insurance comes at a time of great need,providing additional insurance above the remaining limits ofprotection in the underlying property insurance policy. Riskmanagers, many of whom were unable to access additional insurancecapacity in the wake of Superstorm Sandy, now have the option topurchase additional insurance prior to future events occurring toproactively manage their risk.