Dixon: This event is similar to Hurricane Katrina when it comes to how it has impacted claims operations. While the average paid loss will not be as large as Katrina, the number of losses is very similar in size. So, the U.S. insurance industry has not seen an event of this size in seven years. It is difficult for an insurance company claim operation to staff and train for an event of this size since they do not happen with a lot of frequency. If the insurance company is large enough, then it may have a national catastrophe team that travels the country to deal with events of this magnitude. At the other end of the spectrum are smaller companies that might have to ask underwriters, executives, accountants and other staff to help the claims team when an event of this size strikes. What types of damages caused the most issues in terms of claims management?

Dixon: The initial claims management issue after this event was dealing with the number of properties damaged. ISO's Property Claims services estimated the number of homeowners' claims at over 1 million, and the number of auto claims at over 250,000. Couple that with some of the state insurance departments shortening time requirements for insurers to respond to their insureds, and it was a real test for insurers and their catastrophe plans. Insurers had to call upon all of their resources for triage claims so the most urgent situations could be dealt with first.

Commercial claims will present a whole different set of issues for claims management. Commercial claims that arise from this event are going to prove to be very complicated because of the nature of the business suffering damages. I see two categories of businesses that I am sure will prove to be very complicated. The first category is the infrastructure providers. Insurers of the entities that provide the trains, subways, bridges, tunnels and utilities will be sorting through very complicated and unusual business interruption claims as well as property damage claims. The second category is financial service companies. Lower Manhattan is the most important financial district in the world. Many of the companies based here do very sophisticated transactions that may or may not be covered by business interruption coverage.

Discuss some of the main claims issues that were raised as a result of the superstorm.

Dixon: First and foremost, insurers have to sort out the peril, either flooding or wind, that caused the damages. Both commercial and personal lines policies can respond differently to damages from these two different perils. Insurance policies contain different policy language in the insuring clauses, deductibles, exclusions, sublimits and limits that apply based on the peril that caused the damage. In some cases, like homeowners insurance, there is no coverage at all if flooding caused the damages.

Second, I think business interruption (BI) claims will be difficult to adjust after this storm. As I mentioned earlier, many of the companies that suffered interruption are sophisticated financial companies. Figuring out the loss of income (if any) and the extra expense incurred by insured in this area will be very complicated. Some insureds may claim they suffered a business interruption (BI) loss even if they did not suffer physical damage. This can occur in areas where there was a government order to shut down an area, or if all the businesses around the insured were shut down due to physical damages. Typically, the insured who suffered no physical damage would not have coverage, but you can bet they will be looking at all four corners of their insurance policy to find coverage.

Looking forward, how can we learn from this and be better prepared to mitigate this substantial risk in the future?

Dixon: Certainly, this was a wakeup call for the northeast. It had been a while since a significant hurricane or “superstorm” had made landfall in this area, and I think people tried to ignore the risk. I think the single most important thing to be done is for the insurance industry and the government to work together to update the mapping for flood zones. The public needs to know if they own property that could flood. I also suspect insurers will reconsider deductibles and rates especially for property close to the coastline. I would hope that these efforts might discourage developing expensive property in flood prone zones, but I admit that is unlikely in such a highly populated area.

Certainly much thought needs to be given to improving our infrastructure. Many people were without power for too long. Are there cost effective ways to protect or build a stronger electrical grid?

There are all kinds of things I think individuals have learned from buying generators to getting a full tank of gas as a storm approaches. Businesses should have learned the importance of having a business continuity plan, making sure electronic data is backed up and having a good insurance policy.

What do you hope the audience will take away from your talk at the America's Claims Event?

Dixon: I hope they will take away an understanding of what made this event unique, but a realization that it could easily happen again. I want the audience to have a healthy respect for the great job the insurance industry has done in dealing with this event. I want to shine the light upon a few claim issues and offer some suggestions for handling claims properly. Finally, I hope I can trigger the audience to think about what we learned form a claims standpoint in this event, so we can apply that knowledge in dealing with future events.

The aforementioned presentation—After Sandy: Dealing With Superstorm Claims Issues—will take place on June 20, 2013 at 10:00 a.m. To register to attend or to learn more about superstorm claims, click here.

About ACE

America's Claims Event (ACE) brings together senior claims managers and a wealth of industry practitioners & experts to examine tactical strategies intended to improve all aspects of claims handling. This year's event will take place in Austin, Texas, where more than 400 professionals and decisionmakers from midsized to large Fortune 500 companies will exchange ideas and foster solutions for the most perplexing operational challenges.