Business Insurance, September 29, 2022
Jared Zola and Kyle P. Brinkman ●
Hurricane Ian and its aftermath are wreaking havoc in the Caribbean and Florida. While the situation is developing rapidly, Ian has moved through Florida after initially making U.S. landfall as one of southwest Florida’s most intense hurricanes in history. It produced catastrophic storm surge exceeding 10 feet in certain locations, destructive winds packing maximum sustained winds of more than 140 mph and relentless rainfall.
The economic impact of the storm will be felt by businesses and individuals across Florida and the southeastern United States for some time. Many businesses have and will continue to suffer direct damage to property and lose income due to the resulting interruption of their operations, but many other businesses are also likely to lose substantial income due to evacuation orders, disruption of utility service and disruption of the operations of key suppliers or customers. Florida is home to many businesses in the real estate, retail, hospitality, senior living, distribution and entertainment sectors that may face significant exposures to their operations.
Businesses should examine their insurance policies closely and not indiscriminately accept coverage denials premised on flood exclusions, or other excluded perils.
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The insurance market has proven to be a difficult environment for buyers in 2019. The long tenure of the soft insurance market cycle is changing, and is presenting challenges with pricing, capacity, and sustainability of favorable coverage terms. Coming out of difficult natural catastrophe years in 2017 and 2018, the property insurance market took a sharp turn to protect insurers’ bottom lines. While hardening of the property insurance market was expected, the broader casualty market has taken this opportunity to drive corrective action on their portfolios as well, leaving insurance buyers with little leverage.
The National Oceanographic and Atmospheric Administration recently released its early forecast for this winter, predicting below-normal temperatures in the southern states and more snow and ice in the Southeast.
Contingent business interruption (CBI) insurance reimburses lost profits and added expenses resulting from interruption of a supplier’s or customer’s business. This insurance protects the policyholder against lost sales or higher production cost based on an inability to purchase from or sell to that third party. A CBI policy may target one supplier or customer, or broadly cover all of the insured’s customers and suppliers. CBI coverage is usually triggered by physical damage to the covered customer’s or supplier’s property.