On May 29, 2013, Property Claims Services (“PCS”) released its third re-survey of Superstorm Sandy insurance industry loss estimates based on information gathered from affected insurers. The updated loss estimate was $18.75 billion, which remains unchanged from PCS’s first and second re-survey loss estimates released in January and March 2013, respectively. PCS’s first loss estimate related to Superstorm Sandy, released in November 2012, was $11 billion.
PCS, an independent company which investigates reported disasters and determines the extent and type of damage, normally considers the third re-survey loss estimate to be final and closes down an event after the industry loss estimate remains the same for two consecutive surveys. However, PCS has elected to allow for one more re-survey within 60 days due to the complexity and severity of Superstorm Sandy. PCS noted that the extended time would allow it to further analyze large commercial losses related to the Superstorm – such as transportation system losses and large commercial properties losses in downtown Manhattan – to address any remaining questions about the size of these losses, including business interruption losses.
With respect to Superstorm Sandy loss estimates, the $20 billion mark is a crucial industry loss figure for non-traditional reinsurance products, such as industry loss warranty (ILW) contracts and cat bonds. Should the loss estimates reach the $20 billion mark, as determined by an independent third-party such as PCS, then ILWs would be triggered and would have to be paid out.
Other Notable Developments
Last week, the New York Assembly Insurance Committee approved bill A. 7455, which would ban the use of anti-concurrent causation (ACC) clauses in insurance policies. ACC clauses typically exclude coverage for a loss that results from multiple contributing causes where at least one of the causes is excluded by the policy. In states like New York where ACC clauses are generally enforced, the clauses have been interpreted to exclude coverage for property damage where the loss is caused by both wind, which is typically a covered peril, and flood, which is typically an excluded peril under many first party property policies.
In the wake of Superstorm Sandy, where countless losses were caused by a combination of wind and water, proponents of A. 7455 believe the bill would bring New York in line with more catastrophe-prone states that have refused to enforce ACC clauses. Notably, however, hurricane prone states along the Gulf Coast of the United States tend to enforce ACC clauses. Opponents of the bill believe that it would force insurers to cover damages that were never intended to be insured and drive up premiums. Other commentators believe that a modified version of the ACC clause may result from the proposed legislation, noting that when causes of large natural disasters are so indistinguishable an ACC clause may be appropriate.
A similar bill seeking to ban the use of ACC clauses has also been introduced in the New York State Senate (S. 5581) and is currently before the Senate Committee on Insurance.
At this juncture, it is too early to determine whether the proposed anti-ACC legislation will ultimately become law, but the approval of A. 7455 by the New York Assembly Insurance Committee signals that some change to the wording and/or enforceability of ACC clauses is likely in the months ahead.