Allstate has been subpoenaed twice over its handling of Katrina claims in Mississippi and media reports have been less than favourable. Despite having settled 98% of cases, insurers continue to garner what Alex Soto believes is unfair criticism

What was the storm like for the insurers and agents on the ground in the states affected by Hurricane Katrina? After a particularly harsh bout of criticism levelled at insurers from Mississippi attorney general Jim Hood, Ernie Csiszar, then president and CEO of the Property Casualty Insurers Association of America, felt moved to comment. “Hurricane Katrina showed no favourites,” he said. “All Mississippians, including thousands of agents, adjusters, and insurance company employees, experienced the devastation and hardships that resulted from this unprecedented storm.”

As a south Florida resident and having lived through hurricanes Andrew, Katrina and Wilma – to mention a few – I know the pain and the destruction a hurricane or natural disaster can cause. As an independent insurance agent based in South Florida, I also know first hand that after such an experience customers need to know that filing a claim for their homeowners’ insurance should be the least of their worries.

It has been widely reported that after Hurricane Katrina, residents in the Gulf Coast area were not completely satisfied with the level of service they received from their insurance companies. While no one would argue that there were mistakes made by the insurers, it is fair to say they were not completely prepared for the great tragedy that happened in August 2005. It is also worth arguing that no matter how well the industry could have prepared, you can never be fully ready for a catastrophe of the magnitude of Katrina.

That said, two years later it is disheartening to see the continual media reports that the insurance industry has still yet to respond to this disaster and that most people are still waiting to receive payment and attention. This is not an accurate picture. The vast majority of the industry, and especially independent agents, responded as quickly and as efficiently as possible. The agents are the people on the ground and in many cases were impacted personally as well as professionally.

Settling figures

According to the Insurance Information Institute (III), nearly 95% of homeowners’ insurance claims have been settled in Louisiana and Mississippi, insurance companies have paid over $15bn in storm damage claims and the vast majority of homeowners in both states say they are satisfied with their insurance company. The III estimated in August 2006 that more than 993,000 homeowners’ insurance claims had been settled in the two states, totalling nearly $15.5bn. Insurance carriers will ultimately pay more than one million homeowners’ claims totalling $16.4bn from Hurricane Katrina.

The III also reported that more than a year later, customers in that area were happy with the process, stating four in five people (82% in Louisiana and 81% in Mississippi) who filed a hurricane-related claim were satisfied with the way it was managed by their insurer. In Louisiana, insurers have settled 658,700 homeowners’ claims or 94.8% of expected homeowners’ claims from Hurricane Katrina, totalling $10.3bn. In Mississippi, 334,800 or 94.3% of expected homeowners’ claims, totalling $5.2bn, have been settled.

“In our business, especially when there is a tragedy, silence is not golden

The pace of settlements varies 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 are in coastal areas which became accessible to adjusters much later.

It was estimated in August 2005 that fewer than 2% of homeowners’ claims in both Mississippi and Louisiana were in dispute, either through mediation or litigation. More than 80% of mediation claims have been resolved successfully in Mississippi and 77% in Louisiana.

The property casualty insurance industry will pay out an estimated $40.6bn on some 1.7 million claims in six states for Hurricane Katrina alone. By contrast, Hurricane Andrew, the previous record-holder, resulted in $15.5bn in losses in 1992 ($20.9bn in today’s money) and 790,000 claims. To put it in perspective, those claims equal 10% of the state income in Louisiana and Mississippi.

Looking forward

Keeping all this in mind, there are obviously lessons that can be learned from Katrina and the claims handling that took place. There are many things that need to be done differently but first and foremost, it is important to better utilise the agent as the front-line resource and arm them with the tools they need to move the claim forward. In our business, especially when there is a tragedy, silence is not golden and customers need as much information as possible.

Alex Soto is president of the Independent Insurance Agents & Brokers of America.

Claims - Hurricane Katrina: facts and figures

• The 2005 hurricane season was unprecedented in its scope and magnitude. More than three million insurance claims totalling some $57bn resulted from four hurricanes – Katrina, Wilma, Rita and Dennis.
• Katrina was the 11th named storm, fifth hurricane, third major hurricane and second category 5 hurricane of the 2005 Atlantic hurricane season. It was also the sixth strongest hurricane ever recorded and the third strongest hurricane to ever make landfall in the US.
• Hurricane Katrina generated the largest single loss in the history of insurance – $40.6bn and more than 1.7 million claims across six states. This number does not include $15.3bn in losses from flooding insured by the National Flood Insurance Program or $2bn – $3bn of insured damages to offshore energy facilities.
• Katrina was the largest hurricane of its strength to approach the US in recorded history; its sheer size caused devastation over 100 miles (160km) from the storm’s centre. The storm surge caused major or catastrophic damage along the coastlines of Louisiana, Mississippi and Alabama.
• New Orleans’ levee failures were found to be primarily the result of system design flaws, combined with the lack of adequate maintenance. According to an investigation by the National Science Foundation, those responsible for the conception, design, construction and maintenance of the region’s flood-control system apparently failed to pay sufficient attention to public safety.