Insurance, Superstorm Sandy, and Real Estate

EisnerAmper recently caught up with Philip Glick, Senior Vice President at Conner Strong & Buckelew Companies, to get his insight into the real estate insurance industry. This, part one of a two-part series, discusses the lingering effects of Superstorm Sandy on the insurance industry.

EA: What are some of the lingering issues attributable to Superstorm Sandy?

Philip Glick: More than two years after Superstorm Sandy, there are still some storm-related claims that are not completely settled. This includes flood losses to property that was damaged by the inundation of salt water causing subsequent corrosion of metal surfaces and late developing electrical damage. Losses were also related to some of the following issues: physical damage to structures and facilities, loss of power, and areas deemed uninhabitable by civil authority. The loss of rents/ business income portion of some losses are still pending settlement. Some insurance companies are using external forensic accountants, such as EisnerAmper, to verify the rent/business income loss claims. Each line item of the financial statements is being carefully scrutinized to verify the valuation of the business loss.

Property owners may also need help with the insurance examination process: identifying policy coverages, calculating covered losses and damages, and compiling documents and records to support claims. There also may be work to be done in negotiating with the insurance carrier as to the amount of a covered claim where there may be areas of dispute in coverage calculations, all the way through litigation.

From a historical perspective, flood insurance premiums continue to be very high, particularly for excess limits that are needed to supplement through the commercial property insurance marketplace the maximum $500,000 limit available per building under the National Flood Insurance Program/ FEMA. Coverage for flood damage which caused loss of rents/ business income losses are not available from the NFIP at all.  Many property owners have also seen their NFIP flood rates go up due to recent updates by FEMA of the flood insurance maps and zones for many properties.

EA: How may the most recent election affect the insurance industry?

PG: Recent legislation has postponed significant premium increases to the current flood premiums that were set to go into effect on many high hazard flood locations.  With the recent wins by the Republican Party for additional House and Senate seats, it’s very possible that the new Congress may revisit the flood program early next year with the possibility for reintroduction of legislation to put the flood program on a sound fiscal footing with large premium increases possible.

In addition to these flood problems, windstorm deductibles for claims due to high winds from named storms have remained extremely high -- typically 2% to 5% of total insured values per building for any buildings near the water, including most near the harbor in NYC.  These deductibles were increased substantially to these levels compared to the prior wind deductibles that were the same as those for fire-related losses, typically $25,000 to $50,000 per occurrence for losses at most larger properties; $10,000 per occurrence for losses at smaller property locations.  Windstorm-related property rates also remain fairly high.

EA: How do you minimize the effect of post-Sandy insurance premium increases?

PG: The solution to these premium increases continues to be placing property insurance on existing buildings and builders’ risk coverage on new construction and renovation with agents and brokers with substantial experience and market volume to mitigate the impact of these increases. Similarly, placing coverage under blanket (multi-location) policies including coverage on non-flood-and-windstorm-exposed locations to help minimize the impact of higher flood and windstorm premium loadings for properties in NYC and across other non-catastrophe exposed locations.