Insurance and the polar vortex: recovering losses from the big chill of 2014

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By Peter M Gillon and Matthew D Stockwell

The first two weeks of 2014 ushered in an extraordinary weather disaster affecting most of the US, causing extensive property damage and business interruption as a result of freezing temperatures. On 3 January 2014, a ‘polar vortex’, a circulating pattern of cold air originating in the Arctic north, was drawn south into the US, bringing with it unusual frigid conditions, ice storms and snow. The big chill froze pipes and sprinkler systems, interrupted chemical manufacturing and disrupted transportation systems. In fact, all 50 states experienced freezing temperatures — even Hawaii. Temperatures were so cold that a polar bear kept at Chicago’s Lincoln Park Zoo was moved inside.

Preliminary estimates indicate that the polar vortex will cost the US economy approximately $5bn (£3bn). As in any natural disaster, impacts varied by industry sector and location. Real-estate assets were hit particularly hard. One of the most common impacts of the cold weather was freezing pipes. Pipe freeze-up and unfreezing damages were particularly severe in southern climes, where piping systems lack freeze protection more common in the north. Even in the north east, property owners saw significant pipe failures. In some cases, fire sprinkler systems froze, allowing fire to spread due to the lack of fire protection. Malls, restaurants and other walk-in retail establishments suffered business interruption, and some lost power as well as other utility services. Travel-dependent businesses were also affected. Approximately 20,000 flights were reportedly cancelled. At JFK Airport in New York, a plane slid off a runway, causing the airport to close for almost two hours. Temperatures were reportedly cold enough in some places to render jet fuel unusable. Major airlines are expected to suffer approximately $50m to $100m each in lost revenue, according to one report. Of course, the freeze had corresponding impacts on hotels and tourism, among other industries.

In response, insurers are already gearing up for anticipated polar-vortex-related business interruption and property damage claims. From early responses, it is clear that numerous contentious issues will emerge from this event…

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