How Can You Prepare for Hurricanes?

Al Tobin, of Aon Risk Solutions, says one of the most important lessons learned from Sandy is the most basic: Read your policy!

When Hurricane Sandy struck the Northeastern United States in October 2012, many corporate risk managers and insurance companies were taken by surprise. Few were prepared for hurricane-force winds in Atlantic City, New Jersey, or for the storm surge that hit New York City. Total damages are estimated at more than $50 billion, making “Superstorm Sandy” the second-costliest hurricane in U.S. history.

As a result, insurers are reconsidering the pricing and terms of policies for businesses up and down the East Coast. Now that the 2013 hurricane season has arrived, Treasury & Risk asked Al Tobin, national property practice leader for Aon Risk Solutions, what finance and risk managers should be doing to prepare their businesses for the next major storm.

So the first thing risk managers should do to prepare is to look into the NFIP. For corporations, they generally have a reasonable cost. And the insurance companies are going to raise flood deductibles, so clients will want to mitigate that deductible change by buying flood insurance. Secondly, risk managers need to make sure they know the limits that they’re buying and the sub-limits for flood coverage. If they aren’t comfortable with those limits, they can consider buying what we call “excess flood insurance.”

Suppose you’re a business in Flood Zone A. You might have a program that starts with the National Flood Insurance. That basically picks up your deductible for a broader business policy that you purchase from, let’s say, Insurance Company A. But Insurance Company A will only provide a $5 million sub-limit for floods, because that’s their maximum. If you think you’re susceptible to a loss greater than the limits of the NFIP and the $5 million, you can add another policy, maybe $10 million of excess flood insurance placed in the open market.

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