Chris Jones, an insurance underwriter, says insurance rates will definitely increase, but possibly not as much as would be believed. “Even though the areas hit were not historically hurricane prone areas, they were still coastal and some most likely in a flood zone and probably underwritten accordingly. Many of the properties damaged may have been part of a reinsurance treaty with reinsurers taking a substantial amount of the losses,” Jones explains. “Reinsurers will raise their rates when primary carriers negotiate when their treaties expire. Some smaller carriers that may have taken losses may restrict their underwriting in the areas hit going forward.”
Jones does not think that there will be any significant policy or form changes such as what happened with Katrina, unless major lawsuits arise from the damage. “Katrina was significant since insurers challenged what is considered flooding and wind driven rain coverage,” he says. “Sandy should amount to moderate rate increases, some underwriting restrictions, and possibly some carriers pulling out of the stricken areas.”
Insuring You offered these issues to consider:
- Inland properties that suffered wind damage should not have any major issues with their carriers.
- Business suffering from business interruption due to power outages will have to carefully review their policies for coverage and exclusions (power loss from overhead wires is often excluded).
- Many people do not know that the National Flood Insurance Program (NFIP) does not pay replacement costs on contents but Actual Cash Value (ACV).
- Building coverage must be insured to at least 80 percent of the value in order to be covered for replacements cost.
- There is very little coverage ($30,000) for increased cost of construction due to new codes for flood plain management.
- There is no coverage for additional living expenses (costs for temporary housing).
- There are also some coastal setback laws that may not allow some residents to build back on some of the beach font properties.
Gary Rafaloff, a solar renewable energy consultant and principle of a commercial real estate investment and management company, says that Superstorm Sandy has already had a severe negative impact on businesses inMonmouth County,New Jersey, and he expects that it will get worse throughout the next few quarters before seeing any improvement by mid year 2013. “Our real estate portfolio serves primarily small local companies. All of our properties were closed for at least one week and several are still not fully functioning. Many of the business owners have told me their revenues are down significantly and will likely stay low for several months. Some have asked us for short or long-term rent concessions,” he says. “The solar development business has also seen a significant negative impact due to the storm. Every ongoing project has been delayed. Several pipeline projects have been cancelled. All of our producing portfolio projects were down for at least one week and several are still not operating. Total system production will be lower than projected for the 4th quarter. I have heard anecdotal stories of problems with many solar installation companies in NJ.”
Tracy Sullivan, an insurance agent, says that while her area was not affected by Hurricane Sandy, the effect on insurance rates may be similar to the Colorado wildfires that happened in the summer of 2012. “We have found that the homes affected were not insured with the amount of coverage needed nor did businesses have the correct coverage on their insurance. I foresee the insurance market needing to revamp the current tools that agents and companies use to determine insurance-to-value for building, contents, and additional living expenses. Business will need to do a thorough review of their policies to add or adjust their business income lost while the business was shut down,” she says.
Sullivan reports that in Colorado Springs there are lengthy debates going on between insurance companies, the city (primarily building departments and utilities), and the homeowners on who is responsible for the replacement of roads and sidewalks that were destroyed or damaged. “We are also looking at revamping building codes for the homes being rebuilt,” she says. “As with any disaster, time equals money, and a lot is being spent to reach resolutions. The markets here have hardened, and it is more difficult to place high-risk accounts with a reasonable premium. I assume this trend will occur on the East Coast as well.”
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