Homeowners insurers have settled nearly 70 percent of claims from Hurricane Katrina in Louisiana and Mississippi, according to the Insurance Information Institute (I.I.I.).
The I.I.I. estimated that more than 732,000 homeowners insurance claims have been settled in the two states, totaling $11.4 billion, as of Jan. 24. Homeowners insurers ultimately expect to pay more than one million homeowners claims totaling $16.4 billion.
“The scope, magnitude and complexity of Hurricane Katrina have posed an unprecedented challenge to the insurance claims process,” said Dr. Robert Hartwig, chief economist of the I.I.I. “While progress in settling claims has been steady, it has gone slower than the industry’s experience in past natural disasters due to the unique obstacles posed by this devastating catastrophe.”
In Louisiana, insurers have settled 479,500 homeowners claims or 69 percent of expected homeowners claims from Hurricane Katrina, totaling $7.5 billion, reported the I.I.I. In Mississippi, 253,000 or 71 percent of expected homeowners claims, totaling $3.9 billion have been settled. In addition, about 90 percent of more than 300,000 claims from damaged vehicles have been settled in both states, the I.I.I. said.
The I.I.I. estimate does not include claims filed with two government entities: Louisiana Citizens Property Insurance Corporation, the state-owned property insurance company of last resort, or claims for flood damage filed with FEMA’s National Flood Insurance Program. Standard homeowners insurance policies do not cover losses from flooding.
A settlement means that the policyholder and the insurance company have agreed on the extent of the covered damage and the likely cost of repair.
The pace of settlements not only varies by state, but within regions of an individual state. The highest rates of settlement are in areas farther from the coast where adjusters were permitted to enter first, and the lowest settlement rates in coastal areas which became accessible to adjusters much later. In addition, adjusters have had only limited access to parts of New Orleans.
Hartwig identified some of the unique obstacles faced by the 15,000 adjusters from across the country who continue to settle claims in the region. They include:
· Handling about 1.75 million claims covering parts of four states (Alabama, Florida, Louisiana and Mississippi) from Hurricane Katrina and an additional 1.2 million claims from Hurricanes Rita (Texas and Louisiana), Dennis and Wilma (Florida).
· Limited access by adjusters to homes in some of the most severely damaged areas.
· Delays in claim filing by displaced residents living in other parts of the country who have been unable to see or return to their homes.
· Initial damage to the infrastructure of the region, including lack of power, phone service and accommodations for some 15,000 adjusters close to the disaster scene, limiting the number of homes they could visit.
· Damage to many insurance agencies and company facilities; some insurance company and agency employees are disaster survivors themselves.
· Lawsuits filed by policyholders end the traditional claims adjustment process and engage them in the time-consuming procedures of the litigation system.
“As the claim settlement process moves forward, our hearts remain with all those directly touched by this catastrophe, including the men and women who are working so hard to help them recover,” said Gordon Stewart, president of the I.I.I.
The property/casualty insurance industry will pay out an estimated $40 billion on some 1.75 million claims for Hurricane Katrina alone. By contrast, Hurricane Andrew, the previous record-holder, resulted in $15.5 billion in losses in 1992 ($20.9 in today’s dollars) and 700,000 claims.
Overall claims paid to people whose homes, vehicles and businesses were damaged by Hurricanes Katrina, Rita, Wilma and Dennis in 2005 will total at least $55 billion. A total of approximately 3 million claims is expected. The four hurricanes which struck Florida in 2004 caused $22.9 billion in insured losses and some two million claims.
Hartwig also pointed out that keeping claims open is not in the financial interest of insurers. “The longer claims remain open, the more costly they become as insurers must pay the additional expenses of maintaining thousands of adjusters in the field, managing active files and the increasing costs of construction materials and labor,” he said.
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