It's not just the hurricane winds that are a problem. It's the flooding that comes with it.
Superstorm Sandy receded Monday, after breaking windows, uprooting trees and knocking out power for millions of people along the East Coast. But the most damage could come from the massive flooding it caused, and more is almost guaranteed as rivers swell and storm drains back up.
When storms hit the Northeastern U.S., flooding usually causes the most damage and accounts for the biggest bills for insurers. "It's rarely about the wind; it's about the water," said Duncan Ellis, U.S. property practice leader at Marsh, a major insurance broker.
How flood insurance works:
Most homeowners insurance policies do not cover damage caused by flooding, and Sandy is a potent reminder of that. Instead, homeowners have to buy flood insurance separately. It's usually underwritten by the government's National Flood Insurance Program, which is managed by FEMA, the Federal Emergency Management Agency.
Some homeowners are legally required to buy flood insurance. For example, if you buy a house in an area that the government has designated a flood plain, the bank that lends you money for your mortgage is supposed to make sure you buy flood insurance, said Robert Klein, associate professor of risk management and insurance at Georgia State University. But that doesn't always happen.
If you've paid off your house and don't have a mortgage, or if you don't live in a flood zone, there is no such requirement. But catastrophic storms can bring flooding even to areas outside the flood plains.
"Unless somebody lives right next to a river," Klein said, "they generally don't think of it."
There's often a 30-day waiting period for flood insurance to take effect, said Chris Hackett, director of personal lines policy at the Property Casualty Insurers Association of America, or PCI.
"If you wait until the storm is on the Doppler radar, it's probably too late," Hackett said.
Several analysts said it was too early to estimate the insured losses that would be caused by Sandy.
The most expensive storm recorded in the U.S. was Hurricane Katrina in 2005, which caused more than $46 billion in losses that had to be covered by insurance. PCI provided the estimates, which were adjusted for inflation. (It's difficult to estimate the amount of uninsured losses, but they are also usually significant.)
The 10th biggest storm was Irene, which also menaced New York last year. It caused about $4 billion worth of insured losses, according to the estimates provided by PCI.
Will insurers be able to handle this?
Greg Locraft, an insurance analyst at Morgan Stanley, said that insurance companies' fourth-quarter earnings could take a hit if damages are anywhere near those of Hurricane Irene last year. Companies usually budget less money for hurricane losses in the fourth quarter, when the hurricane season is winding up, than in the third quarter.
New York's dense population and high concentration of wealth could also make insurance losses more expensive, Locraft said.
However, insurance companies have a few factors in their favor. This year has been lighter on U.S. natural disasters than 2011, allowing them to shore up their budgets, Hackett said.
And for flood claims, Klein said, the government will pick up much of the tab. The biggest threat to the industry, he said, was that "one or two small insurers might go bankrupt" if they don't have enough reserves to pay their claims.
Chubb, Allstate and Travelers are the insurers most likely to suffer losses, said Locraft, the Morgan Stanley analyst. They claim a large share of the market in areas where the storm hit.
"As an insurance event, Sandy is going to be a blip on the balance sheet," said Marsh's Ellis. "2012 has been a relatively catastrophe-free year. It may be a bruise but it should be easily covered. Not that they're going to happy about it."