Sandy, the Atlantic superstorm that caused flooding, damage andblackouts throughout the U.S. Northeast this week, may lead tohigher insurance rates and tighter terms in the affected areas.

Carriers that underwrite business property may be “pushing rate”in the aftermath of Sandy, said Al Tobin, managing principal of theproperty practice at Aon Risk Solutions, the insurance brokeragearm of London-based Aon Plc. Insurers and their commercial clientsare still assessing damage.

“I also suspect they're going to be looking hard at deductibles”and limiting the amount of flood coverage they write, Tobin said ina phone interview. Aon, the world's largest insurance broker, helpsarrange coverage for business customers.

Sandy, responsible for at least 70 deaths in the U.S., knockedout power to more than 8 million customers in 20 states from SouthCarolina to Maine and disrupted travel and transit systems,including New York City's subway. New York Governor Andrew Cuomosaid Oct. 30 that losses from the storm and Hurricane Irene lastyear show that the region should rebuild in a way that canwithstand future disasters.

“We have 100-year floods every two years now,” Cuomo said at anews conference in Manhattan. “We have a new reality when it comesto these weather patterns and we have an old infrastructure, andthat is not a good combination.”

Insured losses from Sandy may be $7 billion to $15 billion,including damage to property, business interruption costs andexpenses for displaced residential customers, according tocatastrophe modeler AIR Worldwide. The higher figure would makeSandy the third costliest U.S. hurricane, after Katrina, whichcaused more than $40 billion in losses in 2005, and 1992'sHurricane Andrew.

“Insurers respond to events such as this,” said Linda Kornfeld,a partner at Jenner & Block LLP who represents businesses ininsurance coverage disputes, said in an e-mail. “Hurricane rateschanged after Katrina. So, too, did terrorism coverage after9/11.”

American International Group Inc., Travelers Cos., LibertyMutual Holding Co. and Zurich Insurance Group AG are among thelargest providers of commercial coverage in the U.S. Travelers, theonly insurer in the Dow Jones Industrial Average, said businessinsurance contributed $720 million in pretax operating income inthe third quarter.

At AIG, the bailed-out insurer, the figure was $594 million inthe three months ended June 30. The New York-based company is setto announce third-quarter results today.

The industry has enough capital to shoulder claims and capacityto continue writing policies, said Michael J. Hudson, propertyplacement practice leader for Marsh Inc., the insurance brokeragearm of Marsh & McLennan Cos. Insurers including Travelers andChubb Corp. benefited from reduced natural-disaster costs this yearcompared with 2011's record losses.

Market Impact

“There'll be some impact on the market,” Bart Hedges, chiefexecutive officer of Greenlight Capital Re Ltd., said in aninterview about Sandy on Bloomberg Television. “There'll be someuptick, but I don't think it's going to be a big, market-changingevent.” Greenlight is the reinsurer that has hedge-fund managerDavid Einhorn as its chairman.

Before Sandy, commercial property insurance rates looked likethey might hold steady or rise as much as 5 percent through the endof the year, said Dave Finnis, a national property practice leaderat the North America division of broker Willis Group HoldingsPlc.

“I don't think that's going to change,” he said in a phoneinterview.

Commercial-property insurers had already begun to increaseprices in the Northeast before Sandy as a result of a catastrophemodel change, said Marsh's Hudson. Insurers may study the amount ofrisk they've underwritten in certain areas to limit future claims,he said.

“This is falling on the heels of a rate increase,” Hudson said.“It's not to say that the industry won't try for more.”

Bloomberg News

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