Increased frequency of devastating events means higher premiums, restricted coverage in effected areas By Peter Buxbaum, AJOTOn October 29, 2012, Hurricane Sandy made landfall at the New Jersey coast, colliding with a nor’easter to form what has been called a superstorm. The superstorm brought surges of over 11 feet high, killing over 100 people and destroying or damaging thousands of homes. Over 8.5 million customers in New York, New Jersey, and Connecticut, and more elsewhere, were without electricity, some of them for many days. Six-hundred million gallons of water infiltrated transportation systems and roads.
The unloading of the first vessel to call on the Port of Authority of NY/NJ after it reopened on November 4th.
Hurricane Sandy was the eighteenth named storm of the 2012 hurricane season, and the tenth hurricane. Its tropical-force winds reached out 580 miles, making Sandy was the second-largest Atlantic storm on record. Besides affecting the east coast of the United States, from North Carolina to Maine, Hurricane Sandy was felt as far inland as West Virginia, Ohio, and Indiana. Damage estimates reach into the tens of billions of dollars. As the storm approached the New York area, the port of New York and New Jersey closed on October 28 and didn’t reopen until November 4. Port Newark Container Terminal, Port Elizabeth Marine Terminal, Port Jersey Marine Terminal, Howland Hook Marine Terminal on Staten Island and the Brooklyn-Port Authority Marine Terminal were all shuttered during that interval. Deep draft vessels departed the terminals and headed to sea in advance of the storm while the Port Authority provided a safe berth for many barges, dredges and floating cranes. On October 29, all port properties were evacuated. The Elizabeth Port Authority Marine Terminal reopened for business on November 4, while other terminals, including Port Newark Container Terminal and Global Terminal in Jersey City, began to do business on November 5 as electrical power was restored to the area. The port has faced unprecedented challenges as a result of Superstorm Sandy. The storm surge pushed nearly four feet of water throughout the port, while hundreds of shipping containers were displaced and rail lines and electrical systems were damaged. It was only a few years ago, in 2005, that hurricanes Katrina and Rita devastated the Gulf Coast. Since these catastrophic storms, by their very nature, attack primarily coastal areas, at least in the first instance, the question arises about how the frequency of such storms impact maritime activity, and, by extension, marine catastrophic insurance rates and coverage. The insurance industry doesn’t grapple with the issue of climate change as such, but does endeavor to model the chances of sustaining losses by geography and other criteria so that its coverage and rates are appropriate to the risks involved. “Sandy had an enormous impact on maritime commerce in the New York-New Jersey area,” said Michael Brown, executive vice president at Avalon Risk Management, an insurance brokerage in Salem, Mass. “Not only were area businesses engaged in maritime transportation affected by the flooding, power failures and wind damage but supply chains of companies elsewhere were impacted when shipments were damaged, destroyed or delayed. Because a large number of ocean shipments transit through transportation corridors like New York/New Jersey, an event impacting an area like this can have far reaching consequences. We could just as easily be talking about a major earthquake that caused severe damage to the ports of Los Angeles and Long Beach.” Estimates of total insured losses from Sandy are still somewhat fluid, according to Brown. “Estimates now range from $15 million to 25 billion dollars,” he said, “making Sandy the second costliest storm for the insurance industry after Hurricane Katrina. Those estimates are up from $5 billion to $10 million dollar