14 Feb 2014
Commercial insurance rises after Hurricane Sandy
Since Hurricane Sandy’s destruction of the East Coast in late 2012, some businesses, real estate owners and insurance companies are still feeling the hit. While NYC alone estimated $19B in losses, the majority of these were related to business interruption, flood and property damage.
For insurance companies, losses had to be assessed as to whether the damage was caused by a covered hazard or water from the flood.
Building owners who were covered for business interruption and if they had the correct coverage, ie. if flood was the determined to be the reason for the loss, owners would’ve been subjected to a waiting period, aka deductible, that had to be exhausted. Most of these were approximately 72 hours from the time of loss.
President of Schaefer Enterprises, Greg Schaefer says, “Utility service language came into play on most policies. Each insurance carrier has particular language that describes the coverage in detail, eg. distances from building, physical damage to the premises, etc.”
As a result, owners and operators in the areas affected are now taking more measures to protect the operations of their building, rewriting policies and changing flood barriers, facing reconstruction costs as they evaluate how some of these damages can be avoided in the future.
Greg says, “We are currently seeing the expenses associated with this to be tremendous. All new piping, mechanical equipment and especially the rigging is very costly. In most cases, back-up generators and utility hubs are also being moved from the basement to the mid-level floors.”
According to Vice President of Risk Placement Services, Michael Mulvey, “The policies written prior to Sandy are now in their renewal cycles and some operators have already seen an increase in their premiums. Due to the hurricane damage, more of the higher hazard flood mapped areas are also being redrawn.”
These higher premiums will cut into overall cap rates and in some cases, insurance companies have completely pulled out.
This has further created a supply and demand issue and driven prices to a new level, especially for flood.
Michael says, “It’s time for a wake up call. The damage caused by Sandy was widespread and entire neighborhoods and areas were affected. Some of the rebuilding has taken a long time and even now, there are some parts of the city that have just recently been back up and running, finishing their repairs in early November.”
It will take a few years to relax the reinsurance rates and trickle back down to the end user, but by moving things around and being aware of an area’s flood zone you can reduce business loss and minimize a building’s impact from a natural disaster.
Photo by: Zach D Roberts.