How Katrina Changed Markets

Industry Came Through

Five years after Hurricane Katrina lashed the coast and sunk New Orleans, it is true that the area has largely recovered, but it is not the same Gulf Coast it once was. The same is true for the insurance industry. It has survived the worst, most expensive disaster in U.S. history. But in many ways it is a different market.

A mere two days after the storm, David and Angelyn Treutel of Bay St. Louis, Miss., had their agency open and they were serving clients. They had lost their home under 12 feet of water. Their office building was barely a shell. But they got a pop-up trailer and set up for business under the trailer canvas in the parking lot of what had been the chamber of commerce.

It was very hot those first few days, Angelyn says, above 100 F. “Clients showed up right away,” she says. “They’d ride up on a bike because no one had cars. We’d cry together, and laugh together.”

Treutel too says that carriers took good care of her clients. She says that one aspect of the Katrina story that was not well told was how insurance companies came through. At least 10 carriers came immediately to help her out, with cells phones, supplies, and assistance. There was an insurance agent from Florida who drove all the way to Bay St. Louis with a barbeque so he could feed people as they came to the tent to file claims.

Cutbacks

Katrina cost $41 billion in insured losses. There were 100,000 homes destroyed just in New Orleans alone. The hurricane killed 1,800 people. According to Bill Davis, of the Insurance Information Institute, Katrina and Rita together wiped out 25 years worth of insurance industry premiums.

Since Katrina, major national carriers have been trying to reduce their exposure in hurricane-prone coastal areas. The major carriers have cut back in Florida and Mississippi in recent years. According to the Pelican Institute for Public Policy, the average property insurance rate in Louisiana is now the third highest in the nation, with the two highest being Florida and Texas.

At the same time, however, where the big carriers departed the coast, smaller regional companies have moved into the breach. For example, State Farm stopped writing in Mississippi in 2008. But, since 2005, there are 107 new companies writing property insurance in the state.

William Stander, an assistant vice president of the Property Casualty Insurers Association of American, speaking of the situation in Mississippi, says: “There is insurance availability on the coast. It is not as affordable as it was before Katrina, but that’s true anywhere.”

Florida

Katrina passed over the Florida peninsula but it had not strengthened in the warm waters of the Gulf before it did, so it caused relatively little damage. Most of the damage was from flooding and overturned trees.

Florida has a problem with escalating premiums and insurers pulling back in the state, but it is not really due to Katrina. Last year State Farm of Florida threatened to pull out of the state after its proposed 47 percent premium rate increase request to the state was rejected. The carrier stayed only after an agreement to let the company cancel 125,000 of its most vulnerable policies (out of a total 714,000) and gave it a 15 percent increase.

It was estimated that State Farm was losing $20 million a day in Florida. Most other large carriers are thought to be having trouble in the Florida market as well.

Alabama

In Alabama, Katrina caused two deaths and the power went out for 600,000. Storm surge ravaged Mobile Bay. The Alabama Legislature and regulators have tried to enact a number measures to better prepare the state for any future hurricanes, but to almost no avail. A recent report put out by the Institute for Business and Home Safety criticized Alabama for having building codes that it called inadequate.

The one measure Alabama has implemented is a requirement that carriers give homeowners a discount if their new home is built or their old home is retrofitted to hurricane safety standards.

The IBHS report was equally as critical of Mississippi as it was of Alabama. It noted that neither state has adopted a statewide building code.

Mississippi

Mississippi did put together a Building Code Council in 2006 and, before the Council became inactive, it pushed seven, coastal counties to adopted strict, adequate, building codes.

Agent Angelyn Treutel of Bay St. Louis, Miss says that the better building in her region has had an effect. She says she thinks that is why, as some of the major carriers have pulled back, additional smaller carriers have come into the breach. She says that premium rates spiked right after the hurricane in 2006, but since then they have been coming down.

“It’s all leveling out,” she says. “It’s related to the competition coming into the market.”

As a result, she says she has property insurance policies available and they are relatively affordable. What hasn’t come back for her is the vacation home market. Bay St. Louis had a lot of expensive vacation homes. Many who owned those homes have chosen not to rebuild. “We are down about 20 percent on clients but that is negligible given what we have been through,” she said.

Topics Florida Carriers Hurricane Mississippi Alabama