The subject of Hurricane Sandy dominated a conference of insurance professionals in Southern California on Tuesday – it was heavily used in speeches, a constant topic on panels and it even made its way into meeting rooms, where attendees stared intently at televisions watching footage of the storm slam into the U.S. East Coast.
The Property Casualty Insurers Association of America annual meeting in Dana Point took place in a gloomy environment of concern. That concern was not just for insured losses, but insurance industry colleagues on the East Coast weathering what some were calling a “superstorm.”
“I think the industry will respond well to the storm,” said Terrence Cavanaugh, president and chief executive officer of Erie Insurance Group, who was moderating a panel that addressed a variety of topics, including regulators and their role in the middle of consumers and insurance companies.
Fellow panelist Bill Churney, senior vice president of modeler AIR Worldwide, said Hurricane Sandy’s destructive force is already making itself known.
“It will be more significant that Irene was last year,” he said.
Hemant Shah, president and CEO of Risk Management Solutions, expressed concern over what’s not known about the hurricane.
“There’s going to be a lot of uncertainty in this storm,” he said.
Storm talk could be heard in the halls, meeting rooms and even at coffee stations at the conference.
Sherry Thomas, head of catastrophe management of the Americas for Guy Carpenter, said the reinsurer, which has its offices headquartered in New York, was still taking assessment not only of their insured losses, but their own employees on Tuesday.
“We’re still assessing the impacts from Sandy,” Thomas said.
Guy Carpenter employees were attempting to account for their own people with several of them being kept busy calling fellow employees on their cell phones, while emergency phone systems at the offices had kicked on, and power outages at Guy Carpenter were being reported.
“We’re taking it all in,” she said. “We’re still looking for our people.”
Thomas was at the conference not only to hear people speak, but to showcase Guy Carpenter’s new GC ProfitPoint+ product, a portfolio management system.
They did 10 demonstrations of the product on Monday, and often while they pitched the product they had to share the stage with a TV in the room with people watching the storm as it reached the East Coast, Thomas said.
The conference runs through Wednesday. Several speakers had to be switched out on Monday, and several meetings were canceled because people couldn’t get flights out of the East to the West, or they were forced to stay put and deal with storm-related issues.
Former White House speech writer and current Wall Street Journal columnist Peggy Noonan had her flight canceled, according to a spokeswoman for PCI.
Most speakers, however, did show, and those who showed had Sandy on their minds.
Matt Mosher, senior vice president and chief rating officer for A.M. Best Co., talked about the importance of modeling, and said it has evolved so that more companies are using modeling as a tool to take on better risks.
“Models don’t give an answer, models are a tool,” Mosher said, adding that A.M. evaluates companies on how companies use those models, as well as looking at the overall risk they carry and their understanding of that risk.
Because he’s a California resident, Shah also had another type of catastrophe on his mind.
Shah, who lives in the San Francisco area, noted how few homes in the state are insured against earthquakes, which by comparison has the potential of making a large and damaging quake occurrence in California look worse than catastrophes where insured losses were much lower than total losses.
“When the next (big) earthquake happens it’s going to make New Orleans look like it was insured,” he said, referring to the $74 billion in losses related to Hurricane Katrina, which yielded more than $110 billion on total losses. “The whole system is not working well from a catastrophe standpoint.”
According to the Insurance Information Institute, roughly 11 percent of homes in California have earthquake insurance.
Frank Nutter, president of the Reinsurance Association of America, blamed the secondary housing markets, Fannie Mae and Freddie Mac, for not making earthquake insurance mandatory like flood insurance for people who live in areas with such risk.
“The secondary market is not requiring them to have earthquake coverage and that doesn’t make sense,” Nutter said.
Shah boiled that down to the industry finding more creative ways to bring risk into the insured purview
“The story is over long periods of time the insurance industry has participated in a smaller and smaller percentage of overall GDP,” Shah said.
According to Nutter, in 1985, paid losses as a percentage of GDP was 3.15 percent. In 2011, it was 2.2 percent.
One of the best ways to improve that number is through the regulatory process, he said, by allowing companies to provide risk at “financially responsible rates.”
Anthony Trivella executive vice president of The Hartford Steam Boiler Inspection and Insurance Co., said that while it may not be obvious, equipment breakdown losses from Hurricane Sandy will take a toll on the insurer.
Trivella counts among the losses anticipated claims from emergency generators that don’t work, suges in electrical equipment and submerged equipment.
“This will be a significant claim event for us,” he said.
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