Florence's hit to insurers starts early as businesses shut down
Mass evacuations in the Carolinas and Virginia are starting the clock ticking on business-interruption policies.
(Bloomberg) – Hurricane Florence is still hundreds of miles off the U.S. East Coast, but insurers are starting to see their potential costs from one type of claim mount as companies halt operations to let employees flee.
Mass evacuations in the Carolinas and Virginia are starting the clock ticking on business-interruption insurance policies, which help replace lost income for companies when natural disasters strike. Hartford Financial Services Group Inc. and FM Global are among insurers with exposure in the region that are sending staff to help with anticipated claims.
Prolonged disruptions expected
“You’d have to expect, just based on the forecast, that it’s going to be a significant impact to businesses,” including prolonged disruptions, said Rick Miller, head of the U.S. property practice at Aon Plc. “Certainly businesses that take a direct hit, their facilities could be impacted for months.”
Making matters worse for insurers, forecasters say that Florence may stall over land, potentially dumping rain for days and causing power failures. The storm, expected to make landfall late Thursday or early Friday, may trigger “catastrophic flash flooding,” the National Weather Service said. Companies from agricultural firm Cargill Inc. to carmaker Daimler AG suspended operations in Florence’s path.
Florence could become the most powerful storm to hit the area in more than 60 years if its intensity continues. One estimate pegged the potential total costs of the storm at $30 billion.
Florence has dragged down shares of insurers. Allstate Corp. and Travelers Companies Inc. are both down by more than 2% this week through 10:30 a.m. Wednesday in New York. Hartford is down 1.3%. The Standard and Poor’s 500 Index is up less than 1% in the same period.
As Florence closes in on the U.S. East Coast, its track has shifted slightly to the south, threatening to batter a wide swath of coastline as it makes landfall near Myrtle Beach.
Early evacuations could boost business-interruption claims
Banks are among companies curtailing operations. Already by Tuesday afternoon, PNC Financial Services Group Inc. had closed 24 branches in the Carolinas and coastal Virginia, according to spokeswoman Marcey Zwiebel. Wells Fargo & Co. closed 20 North Carolina and Virginia branches and announced plans for 46 other early closures in the Carolinas, spokeswoman Ann Wasik said.
While the early evacuations could boost business-interruption claims, they can also allow firms the leeway to button up properties ahead of the storm.
Related: The ins and outs of business interruption insurance
“The better prepared anybody is, it can potentially reduce the impact of the claims if you can better harden your facilities against damage,” said Robert O’Brien, a managing director in the national property-claims practice at Marsh, a unit of Marsh & McLennan Cos.
Commercial insurer FM Global said it has a team in Atlanta, including more than 30 claims adjusters who are helping companies prepare for the storm and are ready to deploy into the area after Florence hits.
Supply chain worries
The effects of storms can ripple throughout the economy, especially if some companies hit by the hurricane are crucial suppliers to other firms, said Gary Love, vice president of operations underwriting at FM Global.
“It’s easy to think about the roof blowing off, the windows being shattered, but there’s more subtle parts of business interruption,” Love said. “You may not be physically damaged but you now don’t have electricity, or you don’t have water or you don’t have gas, so you can’t operate.”
Bryan Wood, a meteorologist and storm-damage analyst for Assurant Inc., said that Florence will hamper businesses even after it degrades from hurricane status.
Persisting rain is going to be dangerous
“You look at power outages after hurricanes, they can last for a week more,” Wood said. “The winds themselves will decay pretty quickly, it’s just that persisting rain that’s going to be pretty dangerous.”
John Kinney, chief claims officer at Hartford, said three-quarters of the small businesses hit by Superstorm Sandy in 2012 had to close their doors for at least a day, with the average duration being about seven days. Only 11% percent of those businesses endured structural damage.
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