Hurricane Sandy is a storm with little precedent on the East Coast and is likely to trigger a significant volume of commercial-property claims, according to officials at insurance broker Willis North America.
"Given the size of the storm, its potential impact will likely be widespread. The entire insurance industry on high alert," says Dave Passman, national director of national property claims for Willis' Strategic Outcomes Practice, based in New York.
Moreover, because there are widespread power outages in high-density, high-value areas in New York, New Jersey and Connecticut, "each day major facilities are closed will cost the insurance industry millions of dollars through business interruption coverage," says Joe Picone, Willis' chief claims officer.
At the same time, Picone says that "the primary commercial-insurance industry is prepared. We have significant capacity in the property market."
Picone says it is "too early to tell what the financial impact will be and the impact on future premiums."
But he adds, "The property value concentration is much higher than for most storms; New York has not had a hurricane in years."
He states, "It is a 100-year event, and it will be 10 days or more before we can fully gauge the impact. This storm is somewhat unique because of the location of New York as the epicenter. A high concentration of people and a lack of power is the recipe for disaster."
He says damage in Maryland is mostly limited to rain and in the Philadelphia area, just minor property damage.
But, Picone notes, "Along the New Jersey shoreline and in the New York City area, there is devastation."
Specifically, officials at utilities in New York say it could be up to a week before power is fully restored to customers. And a fire burned 50 houses in one flooded section of Queens.
The New York Stock Exchange, which last closed for weather in 1985 after Hurricane Gloria, has already closed for two days, Picone says, the first time it has closed for that long since 1888.
"It is unclear if the NYSE can open Wednesday, and moreover, people will have difficulty getting to work even if is reopened," Picone says.
That's because the subway and other parts of the New York transportation system have suffered unprecedented damage, according to officials.
"The New York City subway system is 108 years old, but it has never faced a disaster as devastating as what we experienced last night," Joseph Lhota, the chairman of the Metropolitan Transit Authority, said in a statement early Tuesday.
In its "Law Now" e-newsletter, London law firm CMS Cameron McKenna questions how business-interruption claims will shake out, given that some claims may not be due to actual damage on an establishment. "Insurers will need to consider whether their policies cover business interruption as a consequence of government action or as a preventative measure, or whether business interruption is contingent on material damage," the newsletter says. It cites the tourism industry as an example, noting the probability of reduced visitors even in parts of the city that remain untouched by Sandy.
Picone says business-interruption insurance could be triggered by a number of factors, depending on policy language. This includes civil authorities ordering businesses to shut down; inability of workers to get to work; and because customers don't have access to the property, for example, because an airport or train station is shut down.
Picone says that a high volume of commercial property claims is expected by Willis. He said that as of 4 p.m. Monday, Willis had been contacted by seven policyholders; by early Tuesday, the number of claims had risen to 30.
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