Hurricane Sandy Sets the Stage for Insurance Battles

While the wind versus water is sure to be a contentious issue given the widespread damage, Freitag isn't sure the debate will be as stormy as it was post Katrina.

"We had much higher winds with Katrina, nothing was left. What you are seeing in New York and New Jersey is not quite the same. Water did not come as far and the winds were not that high."

Others also believe that homeowners won't have much luck winning the" wind-carried water" argument. "Five years ago, you did not have this many video cameras. You see a big wall of water flooding the city and there is nothing left in its wake. It is very difficult to argue it wasn't a tidal surge," says Darras.

Carriers could emerge the winners in the wake of the crisis. While estimates of total damages range between $15 billion to $20 billion, most of the insurers are likely to find the losses manageable. "

The three carriers with the largest property & casualty underwriting business in New York State are all publicly traded: Berkshire Hathaway (BRK-B) ith a 7.9% of direct premiums written in 2011, followed by Allstate (ALL) with a market share of 7.7%, and The Travelers Companies (TRV) with a 6.3% share.

For the Northeast, Liberty Mutual had the highest 2011 market share, with 9.65% of direct premiums written during 2011, followed by Travelers, with a 7.08% market share.

All the major disasters since Katrina have taught the carriers some valuable lessons. Insurers have strengthened and solidified their exclusions from the policy and protected their exposure in standard policies.

"These policies are as clear as mud," says Darras.

Freitag too has his doubts about the effectiveness of the argument.

At first, he was a little perturbed by the decision of some states to waive the hurricane deductible on the grounds that the hurricane has been downgraded to a post-tropical cyclone before it made landfall in New York.

"At first I was encouraged by the waiver of the deductibe,: says Freitag. " But now I wonder if we are going to see insurance companies get out of paying some of the wind damage on that argument?"

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