Planet Money
2:16 pm
Tue November 6, 2012

A Hidden Safety Net, Made Visible By The Storm

Originally published on Thu November 8, 2012 2:54 pm

The Fairway supermarket in Red Hook, Brooklyn is the sort of place New Yorkers, accustomed to cramped spaces, talk about with amazement. It's an actual, full-size supermarket, right at the edge of New York Harbor.

It's a beautiful setting, but one that was diastrous last week, when Sandy came through.

"There were five feet of water throughout the store," Bill Sanford, the president of the company told me. "Everything was submerged."

They had to throw out dumpsters worth of food. Chicken, fish, vegetables.

Fairway is a local business with about a dozen stores, not some big national chain. The flooding in Red Hook really seems like the worst possible scenario — a terrible, expensive mess. But it turns out, there is a hidden backup system that has already kicked into action.

"We have business-interruption insurance," Sanford said. "It basically pays what your business would have been earning. It pays for your wages for your employees."

That's not all. Fairway also property and casualty insurance. Which covers all the stuff — equipment, rotten food, destroyed refrigerators, whatever.

This is one reason why, when a rich country gets hit by a natural disaster, it barely shows up as a blip on the national economy. There are all these backup systems in place.

Even the insurance companies have a backup system. It's called re-insurance.

"We are the insurance company to the insurance companies," says Eric Smith, CEO of Swiss Re Americas. The "Re" is for reinsurance.

As bad as Sandy has been, Smith says it's been a pretty average year for disasters around the world. Swiss Re alone has $200 to $300 billion in reserves.

"As you look around the world around you, there's really nothing you can see that is not covered by reinsurance," Smith says. "A person's life, every building, every business, everything people own."

Insurance obviously doesn't cover everything. But by one estimate, it could pay for a third of the total damages from the storm. After that insurance and reinsurance will go back to being invisible, hopefully for a long while.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

LYNN NEARY, HOST:

A storm like Sandy can make you grateful for the basics: electricity, gasoline, buses and trains.

NPR's David Kestenbaum, of our Planet Money Team, has this story about one more thing people are not taking for granted after the storm.

DAVID KESTENBAUM, BYLINE: The Fairway Supermarket in Red Hook, Brooklyn is the sort of place New Yorkers, accustomed to cramped spaces, talk about with amazement because it's an actual, full-size supermarket - like you can get lost in it. Unfortunately it is also right on the water.

I biked over and found a man at the gate.

You guys not open yet?

UNIDENTIFIED MAN: No, we're not open. We won't be open for a while.

KESTENBAUM: How bad is it inside?

UNIDENTIFIED MAN: It's pretty bad but we're not going to comment on anything right now.

KESTENBAUM: I wanted to know more about just how bad. Fairway is a local business, has about a dozen stores. So I called the president of the company, Bill Sanford, from my cell phone on the street. He said it was bad.

BILL SANFORD: There were five feet of water throughout the store, literally everything from our refrigerated cases to the checkout counters, the machines and the computers, everything submerged.

KESTENBAUM: He said they had to throw out dumpsters worth of food - chicken, fish, vegetables. You could still smell it all in the parking lot.

This really seems like the worst possible scenario - a terrible, expensive mess. But it turns out there is a hidden backup system that has already kicked into action.

SANFORD: Well, we have business interruption insurance. It basically pays what your business would have been earning. So it pays for your wages for your employees.

KESTENBAUM: As if the cash registers are still ringing.

SANFORD: Yes, in most senses.

KESTENBAUM: That's not all. Fairway also has property and casualty insurance, which covers...

SANFORD: All the equipment, all the physical plants, all the inventory - anything that was lost in the store.

KESTENBAUM: All the inventory - all the food, all the refrigerators, the cash registers?

SANFORD: Correct.

KESTENBAUM: And this is one reason why when a rich country gets hit by a natural disaster, it barely shows up as a blip on the national economy. There are all these systems in place - all these Plan Bs. For instance, if you ask the insurance companies what happens if they run out of money, they have a Plan B. It's this guy, Eric Smith, CEO of Swiss Re Americas. The Re is for reinsurance.

ERIC SMITH: We are the insurance company to the insurance company.

KESTENBAUM: Eric Smith says as bad as this storm has been, it's been a pretty average year for disasters if you look at things globally. Swiss Re alone - and there are other reinsurance companies - Swiss Re alone has 200 to $300 billion in reserves. Most people don't think about reinsurance but he says it's all around us.

SMITH: As you look around the world around you, there's really nothing that you can see that isn't probably covered by a form of reinsurance. An individual's life, every building, every business, everything that people own - if you look up into space at the satellites, you know, space launches and so forth - there's reinsurance that comes into play.

KESTENBAUM: Insurance obviously does not cover everything. But by one estimate, it could pay for a third of the total damages from the storm. After that, insurance and reinsurance will go back to being invisible, hopefully for a long while.

David Kestenbaum, NPR News. Transcript provided by NPR, Copyright NPR.