Writing about the landfall of Hurricane Katrina five years ago, essayist Ellis Anderson of Mississippi likened the communities along the gulf to a string of pearls.
“Then, in August 2005, in the course of a single morning, Katrina severed the threads that bound us,” she wrote. “The pearls of our lives went flying in all directions, as if racing across a polished ballroom floor. To gather each and every one and then string them together again would have been impossible.”
Five years after Katrina lashed the coast and sunk New Orleans, it is true that the area has largely recovered, but it is not the same Gulf Coast it once was. The same is true for the insurance industry. It has survived the worst, most expensive disaster in U.S. history. But in many ways it is a different market.
A mere two days after the storm, David and Angelyn Treutel of Bay St. Louis, Miss., had their agency open and they were serving clients. They had lost their home under 12 feet of water. Their office building was barely a shell. But they got a pop-up trailer and they set up for business under the trailer canvas in the parking lot of what had been the local chamber of commerce.
It was very hot those first few days, Angelyn says, above 100 F. “Clients showed up right away,” she says. “They’d ride up on a bike because no one had cars. We’d cry together, and laugh together.”
Forty miles west of New Orleans, the town of Lutcher, La., where agent Randy Lanoix has his office, lost power for two weeks after the lashing of Katrina. No lights, no refrigeration, no air conditioning, and only sporadic telephone service.
But, he says, “What we had was minor.” Lanoix is reluctant to even say they endured Katrina, given what happened in New Orleans. In New Orleans there was flooding. There was no flooding in Lutcher. There was, however, massive wind damage, with roofs torn apart and old trees that fell on things.
Because there was no power, Lanoix had to fill out claims by hand, on paper. He filled them out all day long. Then, in the evening, he had to drive that paper up to Baton Rouge where it could be passed on to the carriers.
But he says things worked out. “In the end, we had no complaints from our customers. Everyone was paid, no matter who their carrier was.”
Treutel too says that carriers took good care of her clients, and she says that one of the aspects of the Katrina story that was not well told was how insurance companies really came through. At least 10 carriers came immediately to help her out, with cells phones, supplies, and assistance. There was an insurance agent from Florida who drove all the way to Bay St. Louis with a barbeque so he could feed people as they came to the tent to make their claims.
Katrina was the worst, most expensive, natural disaster in U.S. history. The cost of damages was $41 billion in insured losses. There were 100,000 homes destroyed just in New Orleans alone. The hurricane killed 1,800 people. Bill Davis, of the Insurance Information Institute, said that Hurricane Katrina and Hurricane Rita together wiped out 25 years worth of insurance industry premiums.
In the immediate aftermath, the governments in Mississippi and Louisiana had to shore up their public insurance providers, to pick up slack as insurers stopped writing policies and to keep the public programs afloat. Louisiana issued bonds worth $1 billion for Louisiana Citizens Property Insurance Corp., to expand the number of policies it could offer as the state’s insurer of last resort. Mississippi Gov. Haley Barbour gave $50 million worth of federal block grants and applied them to the Mississippi Windstorm Underwriting Association, a move that probably prevented a number of insurance companies from fleeing the state.
Since Katrina, the major national carriers have generally been trying to reduce their exposure in hurricane-prone coastal areas. The major carriers have cut back in Florida and Mississippi in recent years. According to the Pelican Institute for Public Policy, the average property insurance rate in Louisiana is now the third highest in the nation, and the two highest are Florida and Texas.
At the same time, however, where the big carriers departed the coast, smaller regional companies have moved into the breach. For example, State Farm stopped writing in Mississippi in 2008. But, since 2005, there are 107 new companies writing property insurance in the state.
Jim Donelon, the Insurance Commissioner for Louisiana, recently told a conference on the fifth anniversary of Katrina, “We’re a better risk now for the insurance industry.”
William Stander, an assistant vice president of the Property Casualty Insurers Association of American, agrees that the insurance industry has now come through the storm. Speaking of the situation in Mississippi, he says: “There is insurance availability on the coast. It is not as affordable as it was before Katrina, but that’s true anywhere.”
Of course, each state affected has had a slightly different recovery experience.
Florida was one of the least affected states touched by Katrina. The hurricane passed over the Florida peninsula but it had not strengthened in the warm waters of the Gulf before it did, so it caused little damage. Most of the damage was from flooding and overturned trees.
Florida has a problem with escalating premiums and insurers pulling back in the state, but it is not really due to Katrina. Last year State Farm of Florida threatened to pull out of the state after its proposed 47 percent premium rate increase request to the state was rejected. The carrier stayed only after an agreement to let the company cancel 125,000 of its most vulnerable policies (out of a total 714,000) and gave it a 15 percent increase.
It was estimated that State Farm was losing $20 million a day in Florida. Most of the other largest carriers are thought to be having trouble in the Florida market as well.
In Alabama, Katrina caused two deaths and the power went out for 600,000. Storm surge ravaged Mobile Bay. The Alabama Legislature and regulators have tried to enact a number measures to better prepare the state for any future hurricanes, but to almost no avail. A recent report put out by the Institute for Business and Home Safety criticized Alabama for having building codes that it called inadequate.
The one measure Alabama has implemented is a requirement that carriers give homeowners a discount if their new home is built or their old home is retrofitted to hurricane safety standards.
The Institute for Business and Home Safety report was equally as critical of Mississippi as it was of Alabama. It noted that neither state has adopted a statewide building code, while Louisiana has. The statewide Uniform Construction Code system adopted by Louisiana is considered the state of the art, and the report notes that a study in Florida has shown that homes built to strict hurricane standards are 60 percent less likely to experience damage, and, if they do sustain damage, the damage is 42 percent less severe, on average.
Mississippi did put together a Building Code Council in 2006 and, before the Council became inactive, it pushed seven, coastal counties to adopted strict, adequate, building codes.
Angelyn Treutel says that the better building in her region has had an effect. She says she thinks that is why, as some of the major carriers have pulled back, additional smaller carriers have come into the breach. She says that premium rates spiked right after the hurricane in 2006, but since then they have been coming down.
“It’s all leveling out,” she says. “It’s related to the competition coming into the market.”
As a result, she says she has property insurance policies available and they are relatively affordable. What hasn’t come back for her is the vacation home market. Bay St. Louis had a lot of expensive vacation homes. Many who owned those homes have chosen not to rebuild.
“We are down about 20 percent on clients but that is negligible given what we have been through,” she said.
Randy Lanoix says he learned how his community had changed when Hurricane Gustav hit. Gustav was worse for his community than Katrina. There was more damage to structures. But the people were different.
They were calmer, more accommodating and more patient. After Katrina, everybody rushed into the office and had to be first on their claims, and, if they hadn’t heard anything for a few days, they rushed back in. After Gustav, people knew claims processing might take a while, and so they waited, Lanoix says.
He says that was not resignation, it was just confidence â€”confidence that they would be taken care of by their carriers.
Five years after Katrina, Lanoix says the property policies he sells are more expensive than they wereâ€”50 percent more expensiveâ€”but he has policies to sell. So he has “no complaints.”