by Joan Verdon, The Record
Hurricane Irene, which closed stores, restaurants and other businesses in North Jersey, emphasized the importance of adequate insurance coverage and produced a spike in calls from companies to insurers looking to upgrade their policies.
The insurance industry is a likely winner in the weeks and months after Irene, as brokers are receiving inquiries from businesses looking to buy more wind, flood or business-interruption insurance.
J.C. Sparling, executive vice president of Mercator Risk Services Inc., a subsidiary of Preferred Concepts, a leading national insurance program administrator, said Irene produced as surge in calls from businesses looking to increase their coverage.
Because of the weak economy, many businesses were skimping on insurance to save money, said Sparling, who is based in Atlanta.
“So a storm blows through, they see that people are flooded, or people are out of business, so all of a sudden they call back and say, ‘Remember you offered me flood, and I said I didn’t want it? I might want it,’ ” he said. His office this week was responding to a request from an Atlantic City casino for information on additional wind coverage.
Businesses can expect the cost of new policies for wind and storm coverage to go up as a result of Irene, Sparling said. “When Irene has blown through and Katia is swirling off the cost, it’s probably a little bit more expensive time to purchase insurance,” he said. Property and casualty rates fluctuate when disasters like Irene occur, he said.
Irene, Sparling said, has also dramatically demonstrated the need for business interruption insurance — coverage that protects businesses from lost revenue. Business interruption insurance is a standard part of property insurance. It generally covers events such as fires, storms or other natural disasters.
“A lot of people don’t buy business interruption because they don’t understand the coverage or they think it’s too expensive. Or their agent doesn’t understand it and doesn’t try to sell it to them. Almost everybody needs business interruption insurance,” Sparling said. “Everybody understands if the wind blows and your windows break and your door blows down, what it costs to repair that. People don’t generally understand what it takes to get your business up and running and the impact to your balance sheet that being out of business for five days, seven days, 30 days, 90 days has.”
Deborah Dowdell, president of the New Jersey Restaurant Association, said the organization has “historically advised our members to obtain business-interruption insurance.” Since Irene, she said, Dowdell has spoken with some members who had that insurance and some who didn’t, although the majority of affected restaurants were covered.
Business-interruption insurance is especially important for restaurants, Dowdell said, because “our margins are so slim that we can not afford to be closed for two days.”
“When you’re in a business with a net profit average nationwide of 2 percent to 4 percent,” Dowdell said, being closed just two or three days could eliminate that. At the Jersey Shore, “literally 20-plus percent of its 16-week season was wiped out” because of Irene, she said.
Sparling said there also is “extended period of indemnity” or EPI coverage that protects businesses not only for the days they are closed, but for the time it takes to get their business back to the sales volume they had before an incident.
Willowbrook Mall’s business was interrupted for nine days because of Irene and to flooding caused by the additional rainfall last week. However, malls and shopping centers generally wouldn’t fall under typical business-interruption coverage because in most cases tenants are still required to pay rent when a mall or shopping center is closed because of a natural disaster, insurance professionals said. A mall spokesman could not comment on the mall’s insurance coverage or tenant leases.