"The last time we saw anything like this was never." That's how Connecticut governor Dan Malloy described the scope and likely impact of Hurricane Sandy, which as I write this has made its turn toward the East Coast. Those of us who live and work in the Northeast already are getting reports of rising water levels and beach erosion. It's going to be a long two days as this monster storm -- part hurricane, part Nor'easter, part blizzard -- wends its way towards the Northeast.
Insurance companies, of course, also will be dealing with a catastrophe of historic proportions -- in Gov. Malloy's words, something without precedent. FEMA is predicting that wind damage alone could total at least $3 billion. It's way too early to know what the total claims costs will be, but expectations are that they will be huge -- although some of those costs will be the responsibility of the federal government, in the form of flood insurance-related claims. Still, the bill will be huge, a fact that at least today wasnegatively affecting European insurance company stocks (in the U.S., trading was halted today because of the storm).
The so-called Frankenstorm will put to the test everything the industry has learned about catastrophe response, and will put their use of technologies such as mobile response units, social media, geo-location, and remote communications in the spotlight. Fortunately, insurers have come a very long way in the past 20 years, not only in terms of their use of leading-edge technology but also in terms of their thinking about catastrophes, as I&T reported in its recent coverage of the 20th anniversary of Hurricane Andrew. As Marsh chief operating officer Bill Pieroni told me:
"Today the average carrier, broker or reinsurer is better at this … People understand how important it is. They have learned by going through something like [Hurricane Andrew] -- that gets embedded in the DNA of the organization, and they get better at it."
In the post-Andrew era, Pieroni pointed out, insurance industry professionals came to recognize that a storm of Andrew's magnitude was not an aberration -- "it is no longer a 'black swan' event. It created an increased level of awareness and preparedness." Unfortunately for all of us, it appears that Sandy is going to be that notorious black swan.
Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio