Responding to Major Storms – Autos and Property Claims

take note augustIn 2012 Superstorm Sandy devastated New Jersey and New York City causing ramifications that will continue for years to come, especially in underwriting and rating of property insurance policies where properties are near the shore. While much of the extensive damage was to government-owned facilities such as subway lines or to major corporations such as utilities, millions of homeowners also suffered direct wind and water damage and indirect losses due to power outages, and in at least one case, from uncontrollable fire. Few beyond the coastline had federal flood insurance for the water damage, hence many will have to take that need into consideration for future storm losses.

The hurricane, initially a Category 5 that was downgraded when it approached the shore, ripped up the coastline for hundreds of miles. It combined with heavy rain, high tides and a blizzard in a “perfect storm” system that devastated much of the Northeast. Many were left at the mercy of a Congress that reacted hesitantly to pleas for aid. Whether or not the effects of global warming were a direct factor in Sandy, the known potential for rising sea levels over the next few decades will have to be taken into consideration in underwriting of both windstorm and flood insurance.

Along with Hurricane Katrina, the 1906 San Francisco Earthquake, and the 1930s Dust Bowl, Superstorm Sandy has taken its place in the annals of disasters. In a special issue of National Underwriter, “Sandy: One Year Later,” the publication gave wide coverage to all the many issues that surrounded the storm, from small business interruptions to the number of salt-water “totaled” autos that have ended up in used car lots being sold to unsuspecting buyers. {Read More} “We can’t know for certainty” the number of such flood-damaged cars being sold, the publication quoted Frank Scafidi of the National Insurance Crime Bureau, but “there are a lot of different ways it can happen.” He notes that selling a flood-damaged auto isn’t a crime if the damage is disclosed to the buyer.

The problem is, knowledge of that damage is often hidden by those in the business of selling used cars. The National Salvage Vehicle Reporting Program says it knows of cars being sold on eBay, Craigslist or donated to charities. Others have been transferred to second parties and sold through auctions or used car dealers with title rebranding or a record of flood loss,” reported Chad Hemenway in the October, 2013 issue of National Underwriter. In a companion article by Dave Postal, a state-by-state comparison of various types of claims by number and value indicated greater loss in New York than in New Jersey. While the New Jersey coastline and cities did sustain both flooding and wind damage, New York sustained even more such damage in areas like Staten Island, Long Island and Manhattan.

About 501,450 homeowners and residential claims in New York cost $2.1 billion, compared with 328,946 claims costing $1.66 billion in New Jersey. Commercial property claims were about even in both states, over 30,000 in New York and nearly 40,000 in New Jersey, but with costs of only $1.2 billion in New Jersey compared to $1.38 billion in New York. Auto claims numbering 109,833 in New York cost $1.5 billion, compared to only $530 million in New Jersey for 54,642 claims.

National Flood Insurance Program claims were more costly for residential claims in New York than for commercial claims in New Jersey. There were just 1,933 claims costing $241 million in New York, while New Jersey had 3,075 commercial claims costing $315 million. Residential flood claims were about the same in both states at $3.1 billion on 54,894 claims in New York and 70,787 claims costing $3.2 billion in New Jersey, according to the Hurricane Sandy Rebuilding Task Force.

The massive number of claims produced by Sandy was also a topic of discussion at the Property/ Casualty Insurance Joint Industry Forum held in early 2013 and reported in the April, 2013 issue of Claims Management. Speakers suggested that storms like Sandy may be “the new normal,” and that Sandy might have been even worse had the wind strength been higher. They noted that the storm will have an impact on premium rates in the Northeast for the future.

Another area of concern was the number of business interruption claims prompted by Sandy, primarily because of long delays in restoring power to many areas.” Other complaints from insurers included the waiver of hurricane deductibles by state insurance departments, with insurers “criticizing the deductible denial as politically expedient. By nullifying the deductible, some predicted, these states might ultimately prompt higher premiums for consumers while undermining market stability by perhaps discouraging some carriers from writing property coverage in the region.”

Direct and indirect property and water damage coverage and claims are primary topics of study in Crawford & Company Educational Services classes and Knowledge Management Center on Demand Courses. Special training on the software needed for catastrophe claim handling and qualifications for handling National Flood Insurance Program claims is also taught at Crawford & Company in coordination with its Catastrophe Services Department.

Learn more about these and other valuable courses at KMCOnDemand.com.

This article comes from Take Note, the newsletter of Crawford Educational Services. You can subscribe here.

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