REMINDERS FROM DISASTERS LIKE SUPERSTORM SANDY

Don't it always seem to go,
that you don't know what you've got
til it's gone?
— Joni Mitchell, Big Yellow Taxi

Superstorm Sandy. Blackouts, Ice storms. Hurricanes. Tsunamis. Fire. As disaster looms, we change our priorities. The email can wait. Laundry too. Safety of our families and ourselves becomes the priority.

Do we have food, fuel, heat, water? Do we have flashlights, batteries, a radio and our mobile phones?

We can't stop the devastation but can take steps for our protection. You may find you’re not as ready as you thought. At home, we encountered issues which caused us greater harm than Sandy.

Immobilized

Sometimes we don't know what to do. In groups, the bystander effect (Wikipedia) leads to inertia.

The northeast blackout of 2003 affected 50 million people (Wikipedia), I was working at National Life in downtown Toronto. We were told to go home. I checked to make sure my floor was clear first. I found staff in one department huddled with a radio, unsure what to do. We figured out ways to get them home. I didn’t know how I’d get home. Luckily, the President was still there and lived in my neighborhood. I got a ride — much better than walking 18 km home in dress shoes.

Scientific American looked back at the mega-blackout five years later and found little changed. Where is the “smart grid”? Blackouts affecting 50,000+ people remained as frequent as before. Another mega-blackout could happen each 25 years.

Afterward

At the time of turmoil, we know what we’d do differently. Scientists have suggestions for how New York can prepare for the next Sandy (Scientific American, Nov 5, 2012). Perhaps insurers can also help by demanding higher standards and more protection (Wired, Oct 31, 2012). Will much really change once routine life returns?

We’re not good at preparing for serious-but-rare outlier events (“black swans”). What do we overlook, discount or delay at the personal level?

Preparation

Advance preparation is a form of insurance. Insurance is a form of advance preparation. Coverage is often mandatory for our vehicles and strongly encouraged for our homes.

We aren't required to insure our health or lives. Not everyone has income replacement insurance, critical illness insurance, medical expense reimbursement insurance or life insurance. Affording all types gets costly. We often need to compromise.

Qualifying

There's also the problem of qualifying. When insurance is optional, the insurers get suspicious of motivated buyers. They worry about “anti-selection”: you know more than you tell the insurer, which leads to more claims. A study of denied critical illness claims found that in 40% of the cases clients misrepresented the facts.

Timing

You can’t easily buy a generator and fuel the day of a big storm (even if you get to the store). You can't get insurance the moment you want it either. You must apply in advance before anyone can tell there may be a claim.

Claim

You may never make a claim. That's ideal because money can never replace a loss. There are three keys to getting your claim paid.

Surprises

When disaster hits, we find out how well protected we really are.

Insurance contracts have exclusions. Sometimes riders can add what’s missing. Other times, we're stuck and bear the risk ourselves. Deductibles save premiums but also increase our out-of-pocket expenses at a less-than-ideal time. Trade offs.

Following Sandy, 1/2 to 2/3 of homeowners found they were underinsured (San Francisco Chronicle, Nov 3, 2012). That can’t be fixed now. A homeowner policy may not cover flooding without flood insurance. Also, “many insurers have added hurricane and wind deductibles that can run as high as 5 percent of the covered value of the home” (Insurance Journal, Nov 2, 2012).

Life insurance and critical illness insurance don't have deductibles. Disability insurance does. Any of these plans could have exclusions. It’s best to find out in advance. Maybe you can strengthen the protection.

Sometimes disaster strikes without warning. The scale can be large (like 9/11) or confined to our families. We can’t tell but can prepare. If not now, then when?

Links

• What would you grab if your house was on fire? (Squawkfox, Sep 2012)
• Greater harm than superstorm Sandy
• 9/11: the end of innocence
• 9/13: prepare your disaster recovery plan now
• income replacement: a guide to disability insurance
• critical illness insurance: the basics
• image courtesy Life Goes Through: lighthouse, taxis

Podcast 194

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PS How have you prepared better after the last disaster?