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04:39 PM
Nathan Golia
Nathan Golia
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Sandy's Lesson: There's No Substitute for Real Data

All insurers -- not just P&C -- should learn from Hurricane Sandy that you can always better understand the risks to which you are exposed.

We did lots of reporting on Hurricane Sandy this week, covering catastrophe models, business continuity, claims response, coastal development, and climate change, among other things. But something CoreLogic's Tom Jeffery told me in an interview about storm surge stuck out as a sort of overarching theme:

"The fact is, until you have the event come through, it's really hard to give an accurate representation," he said when I asked why storm surge estimates varied so widely before the storm. "This will give scientists more data and help us to understand if our models were correct."

Sandy's storm surge, Jeffery added, was within the upper boundaries of what has been traditionally expected from a category 1 hurricane, which it was before mixing with a northeaster and becoming a non-tropical event. But the surge burst through the boundaries of New York's flood zone A into zone B in some places, paralyzing the city -- just another visitor who didn't understand their map, I suppose.

As someone who lives on the border of zone B and C, seeing this happen has changed my outlook. Zone B is supposedly vulnerable to a category 2 storm, which C is for 3 and up. But if a strong category 1 can break through in some areas, how strong does a category 2 need to be to cross the border? The lesson: If the storm is stronger than a category 1, I need to get the heck out.

Insurers -- really, anyone with an IT organization -- that are located outside the tri-state area can learn a similar lesson from some of the unluckiest carriers in our area: You can never be too over-redundant when it comes to business continuity and disaster recovery. Celent's Chuck Johnston told I&T's Anthony O'Donnell this week that "The geographical range of this storm exceeded the distance between some companies' home offices and backup facilities... The fragility of infrastructure has been demonstrated to be an issue as companies have lost not only wireless but Internet communications." If a category 2 was on it's way, I would just go even though the map doesn't say I'm in storm surge's path -- and just because conventional wisdom might say that X amount of miles is enough space between home and backup, that doesn't mean there's no reason to go X+100 or more just to be sure.

The P&C industry will be grappling with the implications of this storm for months or years -- or until the next, even worse, event. Is New Jersey the new Florida, getting battered and rebuilt regularly? Conversely, have currents changed enough to make Florida itself less of a risk? How long might New York be shut down from the next major storm? But all insurers have some amount of "unknown unknowns" in their lines of business. The best hope is that each new data point brings that number down.

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio

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