31 October 2012 Insurance

Hurricane Sandy: Expect significant BI losses, says Goldberg Segalla

Business-interruption losses resulting from Hurricane Sandy are likely to be significant. This is the view of Daniel Gerber, co-chair of the global insurance services practice group at Goldberg Segalla.

Gerber believes the key issue will be determining applicable coverage for claims and appropriate restoration periods. In his opinion, insurers also need to be careful when looking at causation and calculating damages.

"In the aftermath of Sandy, a number of complicated issues will arise when insurance companies assess the level of pay-out they are facing on business interruption claims," he says.

"These include: is the lost income claimed based on historical figures or figures in the post-damage community; and did the market circumstances change after the disaster that would have rendered the business more valuable and profitable if it had been open?"

When assessing loss of profits for a business, it is crucial that accurate calculations are made. This will require insurers to involve a forensic accountant at an early stage, according to Gerber.

"Business interruption insurance requires a suspension or interruption to the insured’s business to trigger coverage, and most courts have ruled that the cessation of business must be total, not merely a slowdown or decrease in expected profit, unless the policy specifically provides otherwise," he said.

The latest update from catastrophe modeller Risk Management Solutions (RMS), indicates that the storm surge associated with Sandy has been particularly significant for a cat 1 hurricane.

The firm noted that the proportion of surge versus wind driven losses will likely be greater than in other cat 1 hurricanes, and that flooding will penetrate further inland along waterways and canals, not just along the coast.

This will have a particularly large impact on any commercial or industrial plants located along these waterways, according to RMS.

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