Editor’s Note: Hurricane Fatigue

While homeowners and businesses can physically pickup the pieces following a natural disaster, mending the hearts and minds of those in the field is not so easy.

Four industry CEOs recently described the emotional impact that 2005’s catastrophes had on their agents, employees and themselves. Speaking at the Insurance Information Institute’s annual Property/Casualty Insurance Joint Industry Forum earlier this year, the CEOs told stories of “real heroes,” claims adjusters who lost everything yet still went to work to help others. They related how employees have pulled together and continue to work under extremely trying circumstances.

Yet perhaps showing his emotional strain, W.G. Jurgensen of Nationwide Insurance, decribed a system in which wealthy waterfront property owners are being subsidized by less affluent property owners and taxpayers. “If the state is going to continue to attract new residents, it will have to make them pay for the view,” he said. “You can’t ask those living in low risk areas to subsidize West Palm Beach.”

Noting that the rich aren’t paying their fair share, Jurgensen said, “People are willing to pay high prices for homes in coastal areas, but are not willing to pay the real cost of insuring them.”

Frederick H. Eppinger of Hanover Insurance, noted that insurers weren’t any better than some homeowners. He said some insurance companies are writing in hurricane-prone areas with quick money rather than peoples’ best interests in mind. “Into this supply breach have stepped under-capitalized, startup companies, many of which could become insolvent in the event of a mega disaster. Meanwhile, the cheap rates they offer drive responsible, established carriers out of the market Undercapitalized companies will fill the gap. The question is, will they have enough cash when needed to pay claims?”

With those problems exposed, how should homeowners and the industry manage disasters? Perhaps government needs to get involved, suggested Edward M. Liddy of Allstate. “The solution is a private program sponsored by the government under which rates for homeowners would be actuarially sound. States would create pools funded by all entities that benefit from a robust local economy such as the banking and real estate sectors. The key is to pre-fund the cost of reconstruction after a catastrophe.”

The public will surely benefit with everyone funding and working on the problem of how to deal with natural disasters. Yet whatever the solution winds up to be, it’s clear that the industry needs more than just dollars and dialogue.

With the 2006 hurricane fast approaching – and predicted to be another active and destructive year – how much more can the Southern coasts and the industry stand?

There are “so many people in harm’s way,” worried Edward B. Rust Jr. of State Farm.

Dr. James Valverde Jr. of the Insurance Information Institute, echoed those sentiments, when he spoke at the recent CPCU All Industry Day in San Francisco. “The next hurricane season is almost upon us and we’re still dealing with the last one,” he said. At best, he predicted only 70 percent of Katrina-related claims have been dealt with in a substantial way.

Ultimately, preparing for and cleaning up after a disaster is not just an entry on a balance sheet. Sure, the CEOs had to deliver a bottom line, and they did. But when you’re picking up that many pieces after a major catastrophe, you also have to factor in the cost of fatigue in employees working on recovery, Hanover’s Eppinger said. “How do we care for them?” he asked, adding at one point, “It’s about more than dollars.”

Topics Catastrophe Natural Disasters Hurricane Homeowners