--> Gill Blog: Insurance Uncertainty No Laughing Matter

Gill Blog

Wednesday, October 22, 2003

Insurance Uncertainty No Laughing Matter

I couldn’t help but get a little nostalgic recently when I noticed my four-year-old daughter taking a break from her usual diet of modern children's programs on PBS Kids (Barney, Dragon Tales, Dora et al) and trying to make sense of an old Warner Brothers cartoon. She was watching Daffy Duck as a slippery insurance salesman who was using every hard-sell tactic imaginable to sway Porky Pig into purchasing an insurance policy. Despite all best efforts, Porky finally relented and signed on the dotted line, at which point he heard the particulars of the policy’s fine print stating a claim could only be triggered if a concurrent series of events occur, including among other things, a herd of stampeding elephants running through the living room. Although we didn’t realize it when we were kids, the short was making a point about the realities of the grown-up world (not surprising, given the fact these shorts were originally targeted to adults and shown in movie theaters before the featured attraction). Those little screen gems were often as business savvy as any White Paper.

Getting back to work, I recently read this paper about the insurance fallout associated with the August 14th blackout, which was recently published by Marsh & McLennan. I recommend it to any organization currently assessing their insurance coverage as well as their general state of preparedness for such an event. It presents a useful overview of the insurance nuances that need to be considered. The paper points out that the number of blackout-related claims filed has been low, as many businesses are still waiting to find out the cause of the blackout. Indeed, most claims will not be able to be addressed until a precise cause is pinpointed, and even after this is determined, the question of who should be compensated will be addressed on a case by case basis -- the issues are quite mind-boggling. That paper is timely not only because of the blackout, but also because the insurance industry today finds itself at a crossroads.

Set against this backdrop, today we are releasing an abstract and multimedia presentation of our fourth paper: The Rippling Effects of Insurance Uncertainty on Commercial Real Estate. The thesis of our paper is that events over the past two years have thrown a wrench into the way insurance policies are written, and this has a direct effect on occupancy costs. Although the Bush Administration signed TRIA into law in late 2002 that provides the industry some relief, it is only a temporary measure.

Ultimately, insurance uncertainty is another area that contributes to a movement toward decentralization. The complexity of what does or does not constitute the basis for a claim, and how this in turn is affecting occupancy trends in the future, makes this a very important area for us to focus on. Given the complexity of the prevailing insurance environment in the new normal, Warner Brothers' stampede of elephants seems to be a fair metaphor for what might be a risk.


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