Two years later, the “overwhelming majority of claims” in Gulf Coast states from Hurricane Katrina have been settled in what has been the single largest loss — $40.6 billion — in the history of the insurance industry.
The magnitude of Hurricane Katrina triggered a reexamination of how the United States deals with the financial consequences of natural disasters among insurers, reinsurers and public policymakers, which continues today, according to the Insurance Information Institute (I.I.I.).
Despite the attention focused on lawsuits filed following this catastrophic storm, the number of claims in litigation accounted for a very small percentage of the total number of claims filed and most of those are no longer in contention, according to the insurance organization. The I.I.I. estimates that fewer than two percent of homeowners claims in Louisiana and Mississippi were disputed either through mediation or litigation.
Insurance companies have paid an estimated $40.6 billion to policyholders on 1.7 million claims for damage to homes, businesses and vehicles in six states. By contrast, Hurricane Andrew, the previous record holder, resulted in $15.5 billion in losses in 1992 ($22.2 billion in 2006 dollars) and 790,000 claims.
Louisiana ($25.3 billion) and Mississippi ($13.6 billion) received by far the most insurance claims dollars to aid in their recovery.
Approximately 99 percent of the 1.2 million homeowners insurance claims from Hurricane Katrina, including those in hard hit Louisiana and Mississippi, have been settled. Claims payments to homeowners in affected states exceeded $16 billion, approximately 93 percent of which went to Katrina victims in Louisiana and Mississippi.
In Louisiana, approximately 688,000 homeowners claims, totaling $10.8 billion, have been settled. In Mississippi, more than 350,000 homeowners claims, totaling $5.4 billion, have been settled. Effectively all of the nearly 350,000 claims from damaged vehicles, totaling $2.2 billion, have been settled.
In Louisiana, only 537 out of more than 1,000 suits filed in U.S. District Court remain on the docket. The state-sponsored mediation program in Mississippi has settled 3,034 of 3,687 cases in that state.
“While 2005 was by far the worst year ever for insured catastrophe losses in the U.S., future storms could prove even costlier, reaching upwards of $100 billion,” said Dr. Robert Hartwig, president of the I.I.I. “Disaster losses along the coast are likely to escalate in the coming years because of huge increases in development and soaring property values.”
The total value of insured coastal exposure nationwide is more than $7 trillion. Florida and New York have the most insured coastal property, at more than $1.9 trillion each. After Florida, the Northeast states of New York, Massachusetts and Connecticut have the highest coastal exposure as a share of all insured exposure in their states.
While some insurers in some coastal states are not writing new homeowners policies, none have withdrawn entirely from any states, according to the I.I.I., which also says that coverage is available in every state, either through private insurers or a state-operated insurance company. Also, insurers continue to provide coverage to their existing policyholders until the completion of the contract period.
In areas vulnerable to hurricane risk, rates have been rising in recent years and they will continue to do so, says Hartwig. This is because the frequency and severity of catastrophic storms is expected to grow for decades to come.
“Insurers cannot increase rates to make up for past losses. Rates must be based on projections of future losses in a given state,” said Hartwig. “Insurers cannot arbitrarily raise rates; they must be reviewed and approved by state insurance departments. Companies must demonstrate that there is an increased risk in a specific state, and losses from one state cannot be used to raise rates in another.”
Source: Insurance Information Institute
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