Hurricane Sandy’s destruction along the Jersey Shore and the wreckage it left behind underscores the exposures properties face so close to the coast. Now many are rethinking the development that has taken place along the Shore over the last two decades and whether changes should be made to coastal land-use regulations and building codes. What’s more, the National Flood Insurance Program (NFIP), which absorbed nearly $18 billion in debt following Hurricanes Katrina and Rita seven years ago, insures more than $41.3 billion of coastal property in the state, the third highest in the nation after Florida and Louisiana, putting it on the hook for potentially enormous losses.

Sandy is just the latest in extreme weather conditions that is challenging the insurance industry and its forecasting and modeling. A report released in September 2012, “Stormy Future for U.S. Property/Casualty Insurers: The Growing Costs and Risks of Extreme Weather Events,” highlights how local governments and taxpayers would face growing financial risks if insurers withdraw from high-risk regions. “The report makes clear that extreme weather losses are escalating and pose enormous challenges for U.S. insurers that they should pay far more attention to,” said Mindy Lubber, president of Ceres, a nonprofit group advocating for sustainability leadership from businesses and investors. “A small number of insurers have stepped to the plate in mobilizing a response to this global threat, but far broader engagement and action from the industry is needed.”

In a recent article [February 5, 2013] in industry publication PropertyCasualty 360 where more than 30 executives, including carriers, agents/brokers, reinsurers, risk managers, were interviewed about climate change, there was agreement that “severe weather events already are increasing in frequency and severity and that this trend is going to worsen. This raw reality requires any organization involved with insurance in any capacity to start taking decisive action now.”

“Push politics aside. To us it is very clear: The risk of climate change is very real, and it has a real potential to be disruptive to our business,” says Chris Lewis, the senior vice president of insurance risk management at The Hartford.

Will insurance rates go up?

 All in all it’s estimated there will be industry losses of up to $25 billion from Sandy in the regions affected. As of yet, however, Sandy’s affect on Property rates is still not known. Richard Kerr, CEO of MarketScout, feels Property rates may further pick up particularly for Catastrophe Exposed Property. Dr. Robert Hartwig, president of the Insurance Information Institute (I.I.I.), believes the size of rate increases for personal and commercial properties won’t change post-Sandy. A Marsh broker, according to PropertyCasualty360, sees “Sandy’s full impact on Property insurance markets likely to be felt in the first half of 2013, with insurers expected to be less agreeable to rate decreases and to tighten policy wordings around flood, storm surge and windstorm.”

At least one insurer, Chubb, when it comes to homeowners coverage does plan to seek higher rates in the Northeast following Sandy. The storm set records for the insurer in terms of claims and net catastrophe loss—$882 million pretax. Dino Robusto, president of personal lines, explained during an earnings conference call, “We plan to file for rate increases up to the low teens in some areas of the Northeast.” About 90% Sandy claims came from New York, New Jersey and Connecticut, he says. About 53% of the losses were from Chubb’s commercial segment. The balance was from its personal lines segment.

IPOAUSA offers markets and products for their industries in three distinct areas: Standard Markets, Surplus Lines, and Programs. Our Surplus Lines division focuses niche industries that includes: Large Layered Property Programs, Coastal & Earthquake exposed risks, Monoline Windstorm, Wind-buy Backs, Excess Flood, and Builders Risk. Give Stefan Burkey a call at 877-653-IPOA (4762) to help you place your insureds’ coverages.

Sources: Reuters, Huffington Post, PropertyCasualty360, Ceres