Initially dubbed as “Frankenstorm” by the media, the hurricane known as Sandy eventually became a post tropical cyclone as it passed through the North Eastern coastal states and for now at least insurers have settled on the tag “super storm” as they start to go public on its impact. An exercise in pedantry it may seem but how the event is ultimately categorised might have implications for the extent to which insurance policies will respond; specifically which deductibles are triggered. Whilst the words are being crafted with caution, there has been no such restraint when it comes to the numbers.
Filling the news vacuum in its immediate aftermath; quenching the thirst for information about the financial impact of Sandy has tempted several of our leaders into speculation and supposition on national television and via the trade press on and off the record. The modelling companies have hardly helped with one leading firm providing estimates even before the weather system had reached the coast. In official statements, reinsurers understandably reluctant to admit they simply have no idea; have engineered new ways to hint at the potential losses they could face: double-digit euro millions being one of the most convoluted.
On 5 November one of the largest US insurers, State Farm, said that they had received 81,260 claims arising out of Sandy; one of the only FACTS currently in the public domain whilst pretty much everything else remains guesswork. Clearly Sandy is a big loss event that is sure to have its share of complications not least in the evaluation of the business interruption element of commercial claims. Nevertheless compared to Hurricane Katrina or the Thai floods, where access to the affected area proved to be a major obstacle over a long period, the process of claims adjustment in New York and New Jersey will hopefully be quicker. There is every chance here that we will know soon enough with a fair degree of certainty the bill that insurance and reinsurance companies will face.
What the last couple of weeks have taught us is that until we all have a strong fact base, it is better to avoid uninformed predictions. Grabbing a few headlines to promote a business proposition or motivate the market into a certain way of thinking runs the risk of creating confusion with our stakeholders and casting doubt on the industry’s reputation. Unfashionable in the modern-day but a little patience is most definitely a virtue we should remember the next time there is a clamour for numbers.
One thought on “On Sandy in Words and Numbers”
Roger – I quite agree with your concerns about the problems associated with issuing loss releases too quickly. You may have noticed that no loss estimate was issued by RMS for two weeks after Hurricane Sandy. This is a deliberate strategy to ensure that the characteristics of an event, and the insurance exposure, are well understood before we make an estimate. WIth Sandy the hurricane model gives a good representation of the wind damage and loss, but there is alot of uncertainity about the impact of the flood and in particular the scale of losses for certain large individual commercial exposures where the policy conditions are not widely known. We issued a loss estimate on 15th November to our clients (only) along with a 10 page report giving specific guidance on where the uncertainties are in the loss estimate, and possible ranges that this implies by different business lines and geographical regions. As a client of RMS you have access to that report, and I will send it to you under separate cover.