Insurers sell promises, and after Hurricane Katrina, they certainly have a lot of promises to keep.At press time, the economic loss from what appears to be the worst hurricane in U.S. history-along with subsequent flooding of New Orleans-was expected to exceed $125 billion, according to Risk Management Solutions (RMS), a Newark, Calif.-based catastrophe management technology and services provider.
RMS estimated insured losses from Katrina alone would be between $40 billion to $60 billion, which would far exceed Hurricane Andrew's $21.5 billion in damage back in 1992 (see "Top Five U.S. Natural Disaster Losses").
The good news, if there is any with such a tragedy: The insurance industry is prepared to handle the hundreds of thousands of claims resulting from Katrina and cover policyholders' insured losses, according to industry sources.
In addition, insurers are donating millions of dollars to the relief efforts, as well as deferring premium payments for affected policyholders.
The U.S. property/casualty industry is financially equipped to cover losses associated with Katrina, according to the National Association of Insurance Commissioners (NAIC), Kansas City, Mo.
Currently, the industry maintains policyholders' surplus of roughly $390 billion and assets in excess of $1.3 trillion, the NAIC reports. More than 75% of the industry's assets are held in marketable securities.
"These financial results demonstrate that insurers are up to the task of making good on the promises that they have made to American businesses and consumers through their insurance policies," says Diane Koken, NAIC president and Pennsylvania's insurance commissioner.
"Some smaller companies will experience distress," she says. "But the overall condition of the industry should remain healthy."
Also bolstering the industry's preparedness is the use of advanced catastrophe modeling technologies that enable insurers to more accurately predict and price risk, notes Tim Wagner, Nebraska's insurance director.
"Over the last decade, insurers have become more sophisticated in their rate-making techniques," he says.
"In place of historical claims data that insurers traditionally used to price for catastrophic events, computer simulation models are used to develop estimated loss costs associated with catastrophic events, including hurricanes."
Zurich NA is one such insurer. A spokesperson for the Schaumburg, Ill.-based commercial carrier told Insurance Networking News it was too early to comment on the company's losses or claims.
But Zurich NA has an enterprisewide underwriting program that includes the use of sophisticated cat modeling tools and other advanced technologies to price risk more accurately (see "The Zurich Way of Pricing Risk, page 1).
At press time, Zurich, along with the other top property insurers in the affected states-State Farm, Allstate, St. Paul Travelers, AIG, and Southern Farm Bureau-had mobilized more than 10,000 adjusters to begin the daunting task of processing claims, according to the American Insurance Association (AIA), Washington, D.C.
As of Sept. 7, State Farm alone had deployed nearly 2,600 dedicated catastrophe claims adjusters-along with 3,000 State Farm employees, agents and agents' staff members who live and work in the Gulf states-to assist policyholders.
Via 29 catastrophe offices in the impacted region, including mobile facilities equipped with satellite connectivity, the Bloomington, Ill.-based carrier was already servicing 223,000 property claims from Alabama, Louisiana, Mississippi and Florida. The company expected that number to rise as its response teams met with more evacuated policyholders.
Similarly, Allstate had staged approximately 1,500 adjusters in the region prior to Katrina's landfall. Since then, that number had increased to about 2,000, according to William Mellander, a spokesperson for the Northbrook, Ill.-based carrier.
"We tried to stage them as closely as possible to where we expected the storm to land, but far enough away to not be in harm's way," said Mellander. "We are slowly inserting more adjusters with mobile response units into the areas as they open up."
In areas that were still closed, such as Baton Rouge, Jackson and Lafayette, Allstate was trying to ensure that evacuees had access to adjusters to start the claims process, he said.
Indeed, insurers were doing their best to reach policyholders, but this storm is a different from past storms, according to Tiffany O'Shea, AIA spokesperson.
"Normally, the goal for cat teams and adjusters is to get into the hardest hit areas first and then work their way out to the less damaged areas. But, this time, we still can't get into the hardest hit areas, especially New Orleans, because of floods, health issues, and damage to roads, phone and power services," she said.
"Our biggest goal right now is to focus on policyholders-to get into the hardest hit areas to help them get their claims processed fairly and as quickly as possible, which obviously is a huge, huge task," she told INN.
Millions for relief
Above and beyond mobilizing its cat teams to pay claims, at press time, the insurance industry also was donating millions of dollars for the relief efforts.
Chubb, Allstate, MetLife, and St. Paul Travelers each had committed $1 million for charitable Hurricane Katrina relief programs.
In addition, State Farm, Allstate, Progressive, and The Hartford were among the many insurers that had temporarily suspended policy billing and cancellations to customers in the areas hardest hit by hurricane.
Similarly, State Farm Bank was extending assistance to its clients facing hardships, such as waiving late fees and interest on State Farm credit card accounts, deferring loan payments, and providing access to funds in non-mature CDs with no penalty for early withdrawals.
TOP FIVE U.S. NATURAL DISASTER LOSSES
(between 1970 and 2004)
Hurricane Andrew (1992) $21.5 billion
Norridge earthquake (1994) $17.8 billion
Hurricane Ivan (2004) $11 billion
Hurricane Charley (2004) $8 billion
Hurricane Hugo (1989) $6.4 billion
Source: Insurance Information Institute
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