This past week, Bloomberg News reported that U.S. utility companies are struggling to restore power in the areas affected by Hurricane Irene. Over 1.7 million homes and businesses will remain without power for days to come. Entire towns are still underwater and the phrase “business as usual” will not be heard for months in those areas.

Catastrophe losses are hard to estimate, especially after only a few days. In some areas of the Eastern seaboard, Irene broke flood records. I like to say that the insurance industry is in the business of making certainty out of uncertainties. Actuaries and risk managers are already heralding and attenuating Irene’s impact on the claims industry, but Irene’s final chapter is yet to be written.

The National Underwriter reported: “Irene: No Large Commercial Losses, but Justification for Recent NE Rate Increases,” stating:

Irene will not be enough to create a hard market turn because capacity remains available, but the pricing impact will most likely come to property and business interruption insurance coverage.

“This is a market that we already see in transition,” says Ellis. “There is ample capacity, but what will we pay for it?”

For the Northeast region, he says it also proves some modelers’ assertions that the area is susceptible to hurricane and tropical storm activity, justifying underwriting increases for those types events for commercial accounts.

“This is not a big enough loss to change the market, but the definition of catastrophe just got a little broader,” notes Ellis.

For wind exposures, risk managers can now expect to see higher rates on the risks they pay for, he says.

In fairness, National Underwriter recognizes that loss estimates will continue to rise in the flood claims arena, but they are not predicting business interruption to play a big role in CAT adjustment because this was not an event of “widespread devastation” with destroyed buildings or points of entry. The article also downplays the role of business interruption coverage, stating that:

Ports aren’t destroyed, trains and airlines are up—so there will probably be less of a business continuity aspect to losses,” he explains. “The average loss will be for short-term clean-up and spoilage.

I am still feeling the human impact and captivated by the devastation. Millions of businesses will suffer beyond actuary imagination. I anticipate a fierce battle in the adjustment and accounting methods in business interruption claims. The state of our economy will certainly have an impact in business income claims; the question will be “how do we account for it” — in favor of or against the insured? For those keeping score of this trend in business income claims, I urge you to study this issue. A good place to start are my previous posts,

If you have questions or comments on this issue, feel free to contact me or post a comment to engage in an open discussion.