Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Who Pays for Hurricane Sandy Damages? More Than Just Your Insurance Company


Reinsurers, a.k.a., insurance for insurance companies, will foot a large portion of the Sandy bill. So will taxpayers.

"Though physical damage claims will also be sizeable, the fact that Sandy hit such a business-dense area and has now disrupted normal operations for several days, with several more still likely to come, will increase the magnitude of the claims," Henlin tells Minyanville.

"The critical question will be how property insurance carriers that wrote business in the affected areas reinsured their books," he continues. "Particularly in the case of certain smaller insurers who have reinsured under excess of loss treaties, the percentage of losses passed on to reinsurance companies could be as high as 90%."

Taxpayers on the Books as Well

While reinsurers will cover a large part of insured losses stemming from Sandy, taxpayers will actually end up sharing some of the financial losses, too, though this burden does not come up in Eqecat's loss estimates. Homeowner insurance policies do not cover flood damage, which was, of course, significant in the tri-state area. Instead, private insurance companies offer flood damage policies that are underwritten by the Federal Emergency Management Agency's (FEMA's) National Flood Insurance Program (NFIP), which is ostensibly funded by taxpayer dollars.

The NFIP has some $4 billion in cash and borrowing authority, but it will probably not end up dispensing much of it because only up to 25% of at-risk properties in the Northeast have flood protection, insurance experts told the Mississippi Sun Herald.

"Most surprising though, is that residents who have a federally-backed mortgage and live in a flood plain, who are required to have insurance against flood, very often don't have the required insurance. Other people might also think they will receive governmental disaster relief, and this may also be a reason why some do not purchase insurance," explained Erwann Michel-Kerjan, managing director of the Wharton Risk Management and Decision Processes Center at the University of Pennsylvania, to the Sun Herald.

Twitter: @sterlingwong
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos