Atleast the executives at risk manager and insurer Aon understandwhat the victims of Hurricane Sandy are going through. Aon'sbuilding in lower Manhattan was taken out by the storm as the aptlynamed Water Street location was swamped by Sandy's 12-foot stormsurge.

“It's a good thing Aon is a big company with offices in NewJersey, Chicago and Boston,” says Rick Miller, chief brokingofficer at Aon Risk Solutions' U.S. property practice, speakingfrom a dry Aon office in Boston. “There are a lot of companies inlower Manhattan where their whole business was in one building thathad to be closed down because of the flooding.”

Estimates of insured losses from the huge late-season tropicalstorm are likely to pass $20 billion, while the overall impactreportedly could top $50 billion, meaning a huge portion of thelosses will not be covered by insurance. A fair share of both theinsured losses and the uncovered losses, Miller says, will involvebusiness interruption, or BI.

“For commercial property, the impact of this storm on the BIside could be as big as the property losses,” says Duncan Ellis,U.S. property practice leader at Marsh. “Some of the buildings inlower Manhattan could be empty for some time, which could triggerlease terminations or abatements. A lot of the buildings on WaterStreet still have four feet of water in their lobbies.” (Marsh'sManhattan building was also closed for several days after thestorm.)

Ellis, pictured at left, saysmany office towers in the financial district have their basementsand sub-basements filled with water. Because most of them hadheating oil stored in the basement and in many cases parkinggarages full of vehicles as well, the water is contaminated withoil and gas and cannot simply be pumped out into the surroundingriver. It will have to be trucked out —a long slow process—beforecrews can begin to repair elevator motors and electric grids.

The financial district was not the only area that lost power.Brooklyn, Queens and Staten Island did as well, and even two weeksafter the storm, parts of Long Island and New Jersey remain withoutpower.

“I think a lot of companies were caught by surprise by theextent of the damage and disruption,” Ellis says.

Despite the chaos and supply chain disruptions that were causedby the dramatic flood in Thailand earlier this year and theFukushima earthquake and tsunami disaster last year, “I think theattitude here was, 'That is not the kind of thing that happenshere,'” Ellis says, adding that there may also have been anattitude in the New York metropolitan area that, “We're resilient.We can handle anything.”

“There should have been lessons learned fromThailand and Japan,” agrees Tom Teixeira, practice leader forglobal markets at Willis. “Clearly they weren't.”

He warns that many companies that suffered business interruptionlosses because of power failures, supply chain interruptions, lossof entry and egress for workers or loss of access to customers mayfind that the BI coverage they thought they had isn'tthere.

Teixeira cites the example of a company that lost money becauseits employees couldn't make it in to work. If “their loss coverageis for power outages, they won't have BI coverage,” Teixeira says,explaining that typically BI coverage only applies to interruptionscaused by types of damage listed in the property coverage. “Ifyou're covered for the damage that causes the interruption, your BIcoverage applies, too,” he says. “If not, you don't have BIcoverage.”

That said, there are stepscompanies that suffered BI losses from the storm should be takingnow to boost the chances of recovery through their insurancecoverage.

“Documentation is key, and that means saving things like e-mailand other correspondence with suppliers and customers to be able todemonstrate that any financial documentation of loss is supportedby ancillary documents,” says Drew Olson, senior manager at BDOConsulting in Chicago. “The key is being able to show that lossesare related to Sandy, and to covered damage.”

“Obviously risk managers are not the ones communicating withcustomers and suppliers,” says Olson, pictured at left. “So theyneed to tell the departments that are communicating with them thatthey need to be collecting those documents.”

Going forward, Teixeira notes that many companies have skimpedon insurance because they're trying to cut costs. Others ran intosupply problems because they reduced back-up inventory, also in thename of cutting costs. He advises companies to do a full riskassessment in the wake of Sandy. “They need a strategy,” Teixeirasays. “How much risk are you going to maintain? Will you cut costsor increase your buffer stocks? They also should do stress tests,not just on the company, but on the suppliers.”

Olson also offers a word of understanding. “This was a veryunique storm—a 100-year phenomenon that would have been hard toanticipate.”

“Risk management is a cost/benefit affair. You try tothink up doomsday scenarios and plan for them, but there are costsof doing that too,” Olson notes. “You could re-engineer youroperations at great expense and buy coverage and then never needit, because this won't happen again for decades.”

For more coverage of the storm, see Lower Manhattan Quiet as Sandy Shuts Skyscrapers andPlanning Pays Off During Superstorm.