January 20, 2019

Lessons of Hurricane Sandy: 7 Questions to Boost Preparedness

Recently, the CLM’s editorial staff at Claims Management magazine contacted me, asking me to offer some brief thoughts on the lessons of hurricane Sandy. They were looking for a sound bite on very short notice.

My initial takeaway offering: Dig your well before you’re thirsty, as the “100-year flood” seems to now arrive annually.  Sandy is another wake-up call that freakish disasters are “the new normal.” Those insurance carriers who develop financial and claims-handling capacity proactively will be best positioned to weather the storm, figuratively and literally.

We now know that black swans increasingly congregate. They are not as rare as once thought. Whether the recurring freakish weather is due to global warming, sunspots or other phenomenon, the irreducible reality seems to be that freakish and severe weather is increasing. This exacts a toll in property loss and occasional loss of human life. In turn, the reverberations from Mother Nature’s episodes of acting out have profound insurance industry and claims-handling implications.

Certainly another consequence, as Spring follows the appearance of swallows, is that there will be a secondary way of bad-faith lawsuits against insurance companies for the ways that they have allegedly handled or mishandled claims following damage inflicted by Sandy. Already, there are rumblings about the application of hurricane deductibles on property loss policies. Many homeowners policies contain hurricane deductibles. However, the National Weather Service downgraded Sandy and recategorized it as not of hurricane qualifying force when it hit landfall. Some governors and state insurance commissioners have cautioned insurance companies who might otherwise be tempted to apply hurricane deductibles.  On a macro basis in the corporate world, we know we need insurance, contingency plans and redundancy to cushion the blow of disasters.

On “micro” basis, Sandy reinforces the need for some personal risk management. It’s always best to dig your well before you’re thirsty. The best time to repairing your roof is when the sun is shining.

Likewise, the time to find and fix holes or soft spots in your insurance coverage is before a hurricane or tropical storm hits. Nobody enjoys focusing on insurance. For most people, it has to be one of the most boring topics imaginable. As one of Woody Allen’s characters says in his movie, Love and Death, “There are some things worse than death — if you’ve ever spent an evening with an insurance salesman, you know what I mean.”

As a result, they buy coverage without a clear understanding what they have bought. Best to know the contours of what the insurance coverage does and does not encompass before a loss. Then, you at least have an opportunity to either purchase additional coverage, make financial arrangements, or to be armed with realistic expectations when and if you suffer a loss.

Questions that every policyholder should be thinking about posing to their insurance agent or carrier before a loss include the following:

  1.  Do I have hurricane coverage and, if so, can I purchase more?

            2.  In the event of a hurricane, is there a hurricane deductible on my policy? Is there any way to lower that deductible?

            3.  Am I covered for flood?  If not, how much would it cost?

            4.  If strong winds lift my roof shingles and break the seal, does the insurer consider that a covered or excluded loss?

            5.  Do I have replacement cost coverage or coverage based upon actual cash value? If the latter, what would be the cost of upgrading to replacement cost coverage?

            6.  If I suffer a claim or a loss, who will be an advocate and resource for me in processing my claim? Who was the first person that I call?

            7.  What resources does your company have to ensure that — in the event of a large loss like a storm or hurricane — there is adequate staff and I don’t have to wait an unreasonable amount of time to get help?

You may not like the answers to these questions. You may not get compelling answers to these questions. In some cases, you may have to pay more money to get more coverage. Paying more for higher quality product is a phenomenon that we encounter in every other realm of commerce. Insurance is not exempt from this economic reality.

Nevertheless, one of the lessons of Sandy is that we all need to do a better job of personal risk management in understanding what we are buying before the loss hits. Learning these truths amidst a disaster inflicts a double layer of tragedy.

Q:  What else do YOU see as the claim-related “lessons” of Sandy?

Comments

  1. Daniel Barnett says:

    One might also ask the question ” Is water damage covered, Whether driven by wind or not” .
    Many times, overflowing bodies of water, whether coastal, inland rivers, or lakes cause substancial damages but are denied because the policy didn’t cover “Flood”…..when in fact the water was driven by wind….such as in a hurrricane.

    • Mushtaq Ahmed says:

      Daniel – your comment reminds me of Hurricane Katrina, where many insureds in New Orleans are to-date waiting for insurers to settle their valid insurance claim(s). A dilemma is still lingering – and insurers are debating as to whether wind was followed by rain OR rain followed by wind. This makes question makes handling claims difficult.

  2. Ahmed Suleman says:

    I guess it would come down to the technical definition of the proximate cause of the loss and how one would either motivate it to have a claim payable in terms of the policy or how one would motivate it in the case of a claim being rejected in terms of the policy.

  3. Tired Claims Employee says:

    I think a good claims lesson to take away from Hurricane Sandy is not to have a claim in the first place. Focus on loss mitigation. I don’t think anyone will argue that we have seen more black swan type events in recent history and I think that trend will continue. Homes have to be built to much higher standards than just meeting basic building codes. Read about IBHS’s Fortified Standards. Insurance companies should be offering significant discounts on these types of risks. If you build stronger homes you prevent losses from occurring. Install back-up generators to run critical circuts to keep you in the home and comfortable when power goes out. Prevent sewer back-ups from overtaxed municipal systems by installing a backwater valve on your main drain line. Remove any large trees that could fall on the house and cut back overhanging branches. Build high above the flood line – and don’t rebuild or develop in swamps and tidal flats that once provided us a natural protection against storm surges. Take responsibility and become more self sufficient so that you can weather the storm on your own.

    • Grant Gerrond, CPCU, AIC says:

      Excellent point Tired! The backup preventer valve is a very economical solution to a common problem. Also trimming back the trees. Trees are great for the shade, etc, but they require “maintainance”. Also most people do not appreciate how easily a large tree can come down when the soil it is rooted in is saturated. A word of warning on the backup generator however. First they are only good as long as you have fuel, second they have to be installed correctly (best done by a licensed electrician) otherwise you put the utility repair crews at risk, lastly backup generators need to be “exersized” (run briefly) on a monthly basis and have their oil changed at proper intervals.

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