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Business interruption insurance helps Superstorm Sandy victims out of debt

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Natural disasters, such as strong storms, can result in an interruption to business operations, property damage and lost income. Without business insurance, it might be difficult for businesses to recoup their losses from natural disasters. However, the insurance industry has been diligent in processing claims from policyholders who endured Superstorm Sandy. As insurance firms work to clear a backlog of claims left over from Superstorm Sandy, the complexities of handling a large amount of claims and applying them to policies become more apparent, according to Business Insurance.

After Superstorm Sandy devastated the whole Eastern Seaboard in October 2012, six months later, 93 percent of the 1.5 million claims filed have been settled, the Insurance Information Institute (III) said in a statement. More than half of the total number of claims were filed by homeowners and businesses in New Jersey and New York.

In the April report, III said Sandy was the third-costliest storm in U.S. history, as the insurance industry is projected to pay approximately $18.8 billion in claims to policyholders, behind the $48.7 billion paid out for Hurricane Katrina and $25.6 billion for Hurricane Andrew.

While business claims made up 13 percent of all insurance claims, with 200,000 claims, the amount paid out to firms made up 48 percent of the total value of these claims. III said the reason for companies accounting for almost half of all payouts is because commercial property values are usually higher than home property values, making commercial property more costly to repair or rebuild.

"While there are some very large losses that have not yet been resolved, there is an effort to get them resolved by year's end and there have been an awful lot of settlements," said John Dempsey, managing director and global practice leader with Aon Global Risk Consulting.

Dempsey said it might be difficult for policyholders and insurance companies to come to an agreement if policyholders have high expectations.

Importance of business interruption insurance
Dempsey said 30 percent of commercial claims were for business interruption, which is difficult to work through because claims personnel and risk managers must wade through causation issues and apply policy terms and conditions. As companies are unable to operate due to their property being in disrepair or other causes, interruption insurance helps businesses stay out of debt by covering their costs, including fixed costs and relocation expenses. III said business interruption contributed to the high costs of claims, also saying interruption insurance reimburses owners for lost income from their company being shut down.

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