Ace Ltd. and insurers at Lloyd's of London are betting a Sandy-level superstorm won't strike twice. The insurers have partnered with broker Aon PLC to sell insurance to companies that just suffered from flooding as Sandy rolled across the Northeast.
Waterlogged businesses may find the offer compelling because of a quirk in the way many commercial insurance policies work. Flooding losses for each year are typically aggregated, meaning the cost of each flood claim erodes the amount of flood coverage available for the rest of the year.
Some companies that suffered severe flooding during Sandy exhausted the amount of flood coverage they had for the year and may decide to buy more so they are covered if another storm strikes before their policies run out. Even companies whose flood coverage wasn't totally used up by Sandy may still want to buy more protection to replace what they have drawn down because of the superstorm.
Often, companies that suffer from flooding will negotiate with their existing insurer over how much the replacement coverage should cost. But the just-announced Flood Secure program from Aon offers businesses a place to turn if their existing insurer is moving too slowly or asking for too much for the replacement coverage.
"It gives them [customers] leverage," said Rick Miller, the chief broking officer for the U.S. Property Practice at Aon Risk Solutions.
While the wording of business insurance policies can vary widely, Aon says the coverage available under the Flood Secure facility will match the wording of whatever policy it is replacing. Mr. Miller said Ace's London arm, Ace Global Markets, is acting as the lead underwriter for a group of Lloyd's insurers that will back the policies.
The facility aims to replace coverage for policies expiring between January and June of next year. Since the replacement coverage will be for just a few months, it will cost less than it normally would. But otherwise, Mr. Miller said the price of the coverage will vary depending on the needs of the company.
"There is not one rate," he said. But because the companies interested in the coverage will have just suffered from a loss, "it's going to have a fairly hefty price tag."