The Aftermath

When we last spoke, we were chatting about an earthquake, Hurricane Irene, and even a rare sonic boom that all had an impact over the eastern United States, and in the instance of the sonic boom more specifically over eastern Long Island, New York. Although I made light of some of the aspects of those extraordinary events, what they left in their wake to many of us ranged from an “unusual experience” to complete devastation. As of this writing, the numbers on insured and non-insured losses are still coming in, however there are some facts that I can share with you right now.

As I am certain you know by now, Hurricane Irene was an extremely huge storm that caused many deaths, a tremendous amount of injury, and mass destruction. It downed thousands of trees along its path, taking down power lines with it, destroyed roofs and the contents that were protected by them, and left millions of homes and families without electrical power as it moved its way through some of the most heavily populated areas of our country. But what I found to be most interesting, however, is that the most amount of injury, damage and destruction, was a direct result of the massive flooding caused by the storm, which as we all learned when we took Werbel’s Insurance 101 licensing course is typically not covered under most standard homeowners’ policies. The majority of the flooding occurred in the stretch of land from North Carolina to Vermont, where so many homes are still sitting in high levels of polluted water. According to Property Casualty 360, there are three professional hurricane modelers that collect and distribute hurricane loss estimates after a “named storm” strikes land and causes damage, loss of life, injury and/or destruction. However, sometimes the gap between their estimates may be as large as the hurricane itself. One of the modelers, Eqecat, says that insured losses in the United States from Hurricane Irene will range somewhere between $1.5 billion and $2.8 billion. This estimate is significantly lower than the low end of insured losses predicted by another hurricane modeler, AIR Worldwide, who estimates the insured damage somewhere between $3.5 billion to $7.1 billion in the United States and the Caribbean. Now, why is this so, that two professional hurricane modelers, looking at the same set of details, will arrive at different estimates that vary not in small amounts but in huge differences? Does it remind you of anything that you use on a daily basis?…no? How about home cost estimators? Why is it that one carrier will review the information that you provide them when requesting a quote for homeowners’ coverage and provide you with an estimated replacement cost value, and then every other carrier you submit the quote to will give you their own estimate of the same set of facts and details? Then you go to a professional company that all they do is estimate the cost of rebuilding a home and they send you a totally different amount? Anyway, these differences may be explained “By a lack of available data and the assumptions modelers made off this limited data in order to come up with an estimate”, says Karen Clark, President and CEO ofKaren Clark & Co., a risk-management firm in Boston, MA. “They [modelers] are looking at exactly the same data, but very little is available,” Ms. Clark says. “The modeling is highly sensitive to any change in assumptions.” For example, if you “Overestimate wind speed by a couple of miles-per-hour and the loss estimate can change 50-to-100 percent”, Ms. Clark adds as an example. She goes on to say that Karen Clark & Company has determined an estimate of a $3 billion loss for the insurance industry. This estimate she says was arrived at through the use of a product that was developed by her company that they call “RiskInsight”.

What that basically translates to, is that these modelers often apply a different theory off of the same but many times just a few points of information. For that reason, many estimates of insured losses that follow an event such as a hurricane may differ by many dollars…sometimes into the billions of dollars. Mr. Tom Larsen, who is the Senior Vice President of Eqecat says that “We’re a little confused as well,” regarding the disparity in insured loss estimates between his firm and another’s. “We can only speculate.” when speaking of the huge difference.

From what I have been able to ascertain about how these firms conjure up an insured loss estimate, these modelers will look at the maximum wind speed that a hurricane will produce within itself, and combine that information along with the radius of the wind in combination with the speed in which the storm is moving, and where it is currently traveling over and what its predicted path will be. In addition, Mr. Larsen says that Eqecat also will utilize what is commonly known to them as “IED” (insured exposure database) to establish the value of homes and insurance conditions, along with homes that have federal flood insurance and the varying wind deductibles of the areas that the hurricane affects. “The process is fairly complex” he says, while admitting that even the slightest overestimation may have a significant effect on damage predictions.

According to the spokesman for AIR, Kevin Long, he says that the huge difference in the estimates of insured losses due to a hurricane “further reinforces the point that not all models are the same. There can be differences in the approach/methods to modeling and how certain building types perform under different wind speeds,” Mr. Long says. “Exposure data is vital to the quality and completeness of the data used.” However, as additional data has filtered in over the course of the past few weeks, according to the modeling firm Risk Management Solutions Inc., Hurricane Irene’s insured losses may reach amounts of $2 billion to $4.5 billion in the United States, and $500 million to $1 billion in the Caribbean. Fortunately for those who live in the affected areas and the carriers who insured them, these insured losses are not even close to some of the losses from other recent disasters. Swiss Reinsurance Co. Ltd. recently released an estimate that due to earthquakes in Japan and New Zealand, these catastrophes alone within the first six months of 2011, cost the insurance industry about $70 billion. In addition, according to data from Swiss Re, tornadoes that struck the United States this year may also have cost more in insured losses than Hurricane Irene, as may the many tornados that touched down this past April as their insured losses may top numbers of $6.6 billion. Most of these disasters occurred in Alabama and other areas of the “Tornado Belt” while the tornados this past May that landed in Missouri and a few other states cost $5.9 billion versus the estimates previously released from AIR Worldwide, which stated the insured losses from Hurricane Irene would range from $3.5 billion to $7.1 billion in the United States and the Caribbean. Once again, the home cost estimator disease! As the summer of 2011 is now just a memory like sands through the hourglass, so are The Days of Our Lives…insurance lives, that is, this “thing of ours” as I have been affectionately calling it over the past three and a half years. Speaking of which, on the event/convention front, The New York Young Insurance Professionals held a fall networking reception on September 22nd at Butterfield 8, in Manhattan. Well over 60 people attended this wonderful event, ranging from agents, brokers, insurance carriers, wholesalers, re-insurers and life and health agents. It was an incredible networking event, where we all shared stories, tips, and laughs while enjoying some downtime with our friends and associates with the industry. As Adam Rostkowski of Proactive Brokerage so warmly remarked, “We had a great time!” Many thanks to everyone who attended, such as Michael Honig, Michael Conte, Anthony Luparello, and Bill Fleisher, along with those from The Council of Insurance Brokers of Greater New York (CIBGNY), along with Morstan General Agency of New Jersey, New York, and Florida; Demetriou General Agency of Hicksville, NY; and Honig Conte Porrino Insurance Agency of New York, NY. It was wonderful to see everyone, and a special thank you to Michael Plafker of Member Brokerage and the entire YIP event committee for facilitating this event. As Michael said to me at a recent New York Islanders hockey game, “It was a fantastic turn out, with so many new faces in the mix. As President of the NY YIP’s I am extremely proud of the recent successes of The New York Young Insurance Professionals, and I am excited about where we are going as an organization and what we are doing to build tomorrow’s insurance leaders today.” Well said, Mikey, and my daughter Jessica said “…thank you so much for the hockey game!”

Speaking of The Council of Insurance Brokers of Greater New York (CIBGNY), in memory of Theodore P. and Peter T. Demetriou, CIBGNY has established a scholarship fund in recognition of both Theodore and Peter’s unwavering support of the insurance industry. The award recipient must be a full time employee of a current CIBGNY member’s office. They must demonstrate an interest in the insurance industry by becoming involved in the industry and by furthering their insurance education. The award recipient will receive $250 in cash, a one year CIBGNY membership complimentary commencing on November 18, 2011 and expiring on September 30, 2012, and complimentary attendance to all dinners, including the Annual Dinner Dance on November 18, 2011, and membership meetings. The award will be presented at the Annual Dinner Dance on Friday, November 18, 2011, at theEl Caribe Country Club, Brooklyn, NY. The recipient must be in attendance at the Annual Dinner Dance to be eligible to win. An application to apply for the award and for CIBGNY membership may be found on the CIBGNY website at www.cibgny.com

One more note of a personal nature that I want to share with you…I am extremely proud and excited to announce that I have joined the team of Webcetera, makers of EZLynx, as theirRegional Sales Manager responsible for product sales in New York and Connecticut. This is a very exciting time for me in my career as I provide our industry with the cutting edge tools required to help ensure that those in the business of selling insurance have everything they need to offer the finest products to the families they serve. My sincere thanks and appreciation goes out to Fiserv/StoneRiver/FSC for the many wonderful years that I was affiliated with their firm, and I wish them tremendous success in their future endeavors.

For the last decade Webcetera- EZLynx, has delivered innovative software solutions to the insurance industry and has established the de facto leadership position in the market with their commitment to pushing the boundaries of technology to fully automate the exchange of information between insurance company, independent agent, and the end consumer. “Mike brings to Webcetera over 3o years of insurance experience from both the agency and technology side of the business and we look forward to him helping us to grow our network of clients in the northeast. Welcome Michael!” said Gerry Keeley, Regional Head of Sales for Webcetera-EZLynx. Thank you, Gerry, for the kind words and I am very excited to be a part of the Webcetera-EZLynx team! Well, until next time… “Ciao for now!”