Home insurance companies say they were prepared for Hurricane Sandy, but the same may not be true for flood insurers who are feeling increased pressure as the storm caused more water damage than normally expected in such storms.
Hurricane Sandy's overall toll on the economy could be as high as $20 billion, according to estimates released before the storm, with traditional insurers on the hook for about $5 billion to $10 billion of damage. That would make the storm more devastating than last year's Hurricane Irene in dollar terms, but not nearly as bad as Hurricane Katrina in 2005.
The National Flood Insurance Program, however, which is administered by the federal government, may be facing some large bills. While most hurricanes produce heavy winds and rain, Sandy brought with it the highest water levels in New York Harbor since the 1960s, causing massive flooding on the city's streets, subways and buildings. Depending on the extent of the damage, which has yet to be determined, that could be very expensive.
"I would say the estimates I saw come out before the storm looked low to me," said Ryan Ogaard, senior vice president of product management at Risk Management Solutions, a California-based company that specializes in catastrophic risk modeling used by insurers. "I don't think anyone realized what was going to happen with the level of flooding. It really was a worst-case scenario in some places."
Insurers have yet to release their damage estimates, and it may take days or weeks to compile the information. But Risk Management and Eqecat, another firm that calculates the industry's disaster exposure, expect it to be worse than Irene, which cost insurers about $4.5 billion in losses.
Those figures would have little impact on overall health of the industry, which could potentially withstand damage up to $100 billion, which is twice the tab from Hurricane Katrina, according to Eqecat President Bill Keogh.
"That's certainly something the insurance industry can absorb," Mr. Keogh said. "It would be really hard to do a lot of damage to the industry. It really isn't getting to the point of stressing the capital structure of the industry."
Insurers prepared for the storm over the weekend, sending emergency crews to central locations that were expected to be hit the worst.
Agents are setting up mobile units where policyholders can come to file claims for the next few weeks. Insurers also will send adjusters out to affected homes to assess the damage.
Bob Hartwig, president and economist at the Insurance Information Institute, said insurance companies are deploying "armies of adjusters" to affected neighborhoods.
"They will bring in thousands of adjusters from all over the country, from parts of the South and the Midwest that were not impacted," he said. "Thousands of adjusters who will be working very, very long hours and nights and weekends."
He said homeowners can prepare by surveying the damage, documenting it with "before" and "after" pictures, and making temporary repairs.
State Farm Insurance Cos. spokeswoman Anna Bryant agreed.
"If you've got damage, go ahead and make the temporary repairs to prevent any future damage," she said. "Save those receipts, because some of those costs will be reimbursed."
Where most homeowners will have problems is with flood insurance, which is not typically included in most homeowners' insurance policies.
"It's likely that you're going to have a lot of this uninsured storm surge," Mr. Keogh said.
Hurricane Sandy delivered storm surges worse than most previous storms, with water surging nearly 14 feet above normal in New York City, so the flooding is expected to be greater than usual.
For Hurricane Irene, insured flood losses accounted for only about $1 billion of the devastation, but for Hurricane Katrina the number was closer to $20 billion, according to Mr. Hartwig.
As of June, the National Flood Insurance Program had about 5.5 million policyholders with $1.2 trillion worth of coverage.
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