Hurricane Katrina Three Years Later
P-C Trends - Hurricane Katrina Three Years Later
Looking back at lessons learned and what comes next.
Tomorrow marks the three-year anniversary of the single largest natural disaster loss in the history of the insurance industry: Hurricane Katrina. And with Gustav getting ready to make landfall, the memory of Katrina still haunts the Gulf Coast.
When Katrina hit the Gulf Coast on Aug. 29, 2005 the storm caused more than $40 billion in damages from 1.7 million claims and irrevocably changed the face of the insurance industry. Years later, the hurricane’s multi-faceted effect is still being felt by independent agents, brokers and their customers.
Katrina undoubtedly altered the way insurers do business, but in the aftermath the two biggest consequences were availability and affordability. Carriers retreated from hurricane-prone areas and those that stayed raised rates, making it difficult for agents to find affordable coverage for customers.
“Katrina initially had a major impact on the availability and affordability of coverage,” says Angelyn Treutel of Treutel Insurance Agency, Inc. in Bay St. Louis, Miss. “Many major direct carriers chose to pull out of the impacted zones. However, the good news, that never seemed to get much publicity, was that our independent agent Trusted Choice® companies continued to provide coverage in the affected areas.”
The affordability or pricing of insurance post-Katrina was largely due to the risk that was magnified by the damage caused by the storm. Since Katrina, insurers have faced the imminent threat of another mega-catastrophe and the challenge of projecting future losses ---especially in hurricane-prone states. Prior to the storm, insurers recognized the coast’s vulnerability; however, the risk was quantified in the wake of Katrina. Today many insurance companies are still fighting courtroom battles with state insurance departments over whether risks and the rate increases associated with them are legitimate. And there is likely little reprieve in site as this year’s hurricane season expected to be above average and the frequency and severity of storms is predicted to increase for an indeterminable amount of time. Add to the equation the rising value of coastal property and the quest for determining true risk is far from over.
“While 2005 was by far the worse year ever for insured catastrophe losses in the U.S., future storms could prove even costlier, reaching upwards of $100 billion,” says Robert Hartwig, president of the Insurance Information Institute (III). “Disaster losses along the coast are likely to escalate in the coming years because of huge increases in development and rising building and repair costs.”
Another big lesson learned from Katrina was the need for preparedness. When the storm hit the Gulf Coast many agents weren’t ready to handle a Category 5 hurricane and were left scrambling, not only to help insureds, but also to manage damage at their own agency.
“The industry was clearly overwhelmed by the magnitude and scope of Katrina,” says Randy Lanoix of the Lanoix Insurance Agency in Lutcher, La. “Hopefully they (the carriers?) learned that they need larger response teams when they have these types of mega-catastrophes. There was clearly a lack of adjuster capacity...they need to be ready with the resources to apply to a big events like this.”
Treutel also stresses the need for agents to be ready for any situation and says technology is a critical component of disaster preparedness.
“I encourage all agencies to take advantage of the wonderful resources available through ACT” she says. “My husband, David Treutel, and I have made many trips to share our Katrina experience with state associations, and our message is that disaster preparedness is not a luxury, it is a necessity. Agencies must be prepared to be able to operate their agency from the moon, if needed, to serve their customers.”
While the insurance industry seems to have learned some valuable lessons from Katrina, the true test of whether it’s really put them into practice is yet to be determined, according to Lanoix.
“We won’t know that until the next Katrina hits,” he says.
Michelle Payne (firstname.lastname@example.org) is IA’s managing editor.