One year later: Lessons learned from Hurricane Sandy
Just over a year ago, Hurricane Sandy ravaged the East Coast. The storm killed nearly 300 people, destroyed over half a million homes and cost $70 billion in total economic loss. Insured losses totaled nearly $26 billion, with private insurance companies accounting for 70% of the total. Businesses made up just under half of that 70% leaving many middle-market employers who did not have flood/wind insurance facing hundreds of millions of dollars in damages.
Below is a summary of key takeaways and lessons learned from Sandy, and should serve as a checklist for industry professionals going forward for handling future extreme storms.
- Policy Review of Coverage Terms and Conditions: Before anything else, review your policy: what type of property damage is covered? Is there any coverage for wind/flood? Are there any specific carve-outs or exclusions? Among the most important to note are anti-concurrent causation clauses (ACC) provisions, which allow insurers to deny claims based on excluded causes like flooding, if they occur at the same time as other covered causes, such as wind damage. It is also important to note that named storms may trigger or reduce coverage under various policies, it is critical to review the specific policy language.
- Disaster Recovery Plan: In addition to reviewing current policy language and exclusions, be sure to have duplicates of policies and records. In addition, it’s a good idea to photo document any damages that will be required from adjusters.
- Business Interruption and Contingent Business Interruption Claims: Be sure to check whether your policy includes coverage for BI and CBI claims and have a plan in place to handle these claims should they arise. Keep in mind that BI and CBI claims can be very time-consuming- claims professionals and risk managers often face causation issues when applying policy terms, making it all the more important to be sure to have backup records, photo evidence and proof of damages on hand.
- Coordination between departments:
- Work with your supply chain managers to establish emergency backup procedures, (i.e. having extra fuel supplies in case of power outages, IT security backup systems, back up generators, etc.)
- Educate employees on proper safety measures and establish clear guidelines and procedures for emergency evacuations.
- Make sure to have cell phone numbers and emergency communication plans in place for all regional offices in case company phone lines are down.
- New Technology: Risk managers are now using blackout modeling services that use weather information and decisional analytics to help better gauge the likelihood of future power outages and other emergencies.
- Public Funding: Some organizations are taking advantage of public grants from agencies like FEMA to help build storm mitigation improvements on their property. For example, some businesses with high flood risks have built dune and pipe systems that allow for the movement of water in and around buildings.
- Alternative insurance coverage for extreme weather: Post-Sandy, many businesses were hit hard when their flood limits were reduced on renewal, causing them to have to buy excess limits. Work with your broker to look for alternative ways to source primary flood insurance that do not participate in NFIP. Other methods include manuscript policy forms that are customized for each client and can include coverage excluded by standard forms, like peril of flood.)
About the Author
Ann Mizner McKay is the General Counsel and Senior Vice President at WGA. She manages the legal affairs of the company and also manages the Claims Department.