Hurricane Katrina Changed the Market in Gulf States

Writing about the landfall of Hurricane Katrina five years ago, essayist Ellis Anderson of Mississippi likened the communities along the gulf to a string of pearls.

“Then, in August 2005, in the course of a single morning, Katrina severed the threads that bound us,” she wrote. “The pearls of our lives went flying in all directions, as if racing across a polished ballroom floor. To gather each and every one and then string them together again would have been impossible.”

Five years after 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 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 they set up for business under the trailer canvas in the parking lot of what had been the local chamber of commerce.

“Clients showed up right away,” she said. “They’d ride up on a bike because no one had cars. We’d cry together, and laugh together.”

Forty miles west of New Orleans, the town of Lutcher, La., where agent Randy Lanoix has his office, lost power for two weeks after Katrina. No lights, no refrigeration, no air conditioning, and only sporadic telephone service. But, Lanoix said, “What we had was minor.” He is reluctant to even say they endured Katrina, given what happened in New Orleans. In New Orleans there was flooding. There was no flooding in Lutcher. There was, however, massive wind damage, with roofs torn apart and old trees that fell on things.

Because there was no power, Lanoix had to fill out claims by hand, on paper. He filled them out all day long. Then, in the evening, he had to drive that paper to Baton Rouge where it could be passed on to the carriers.

“In the end, we had no complaints from our customers. Everyone was paid, no matter who their carrier was,” he said.

Treutel too said that carriers took good care of her clients, and she said that one of the aspects of the Katrina story that was not well told was how insurance companies really 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 barbecue so he could feed people as they came to the tent to make their claims.

The Worst Natural Disaster

Katrina was the worst, most expensive, natural disaster in U.S. history. Insured losses mounted to more than $40 billion. There were 100,000 homes destroyed just in New Orleans alone. The hurricane killed 1,800 people. Bill Davis, of the Insurance Information Institute, said that Hurricane Katrina and Hurricane Rita together wiped out 25 years worth of insurance industry premiums.

Since Katrina, the major national carriers have generally 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, and the two highest are 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.

Louisiana Insurance Commissioner Jim Donelon recently told a conference on the fifth anniversary of Katrina that his state is “a better risk now for the insurance industry.”

William Stander, an assistant vice president of the Property Casualty Insurers Association of American, agrees that the insurance industry has now come through the storm. Speaking of the situation in Mississippi, he said: “There is insurance availability on the coast. It is not as affordable as it was before Katrina, but that’s true anywhere.”

Of course, each state affected has had a slightly different recovery experience.

Florida has a problem with escalating premiums and insurers pulling back, but not really due to Katrina. Last year State Farm of Florida threatened to pull out after its proposed 47 percent premium rate increase request was rejected. It was estimated that State Farm was losing $20 million a day in Florida. 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 raise rates by 15 percent.

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 by the Institute for Business and Home Safety criticized Alabama for having building codes that it called inadequate.

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, while Louisiana has. The statewide Uniform Construction Code system adopted by Louisiana is considered the state of the art, and the report notes that a study in Florida has shown that homes built to strict hurricane standards are 60 percent less likely to experience damage, and, if they do sustain damage, the damage is 42 percent less severe, on average.

Randy Lanoix said he learned how his community had changed when Hurricane Gustav hit. Gustav was worse for his community than Katrina. There was more damage to structures. But the people were different.

They were calmer, more accommodating and more patient. After Katrina, everybody rushed into the office and had to be first on their claims, and, if they hadn’t heard anything for a few days, they rushed back in. After Gustav, people knew claims processing might take a while, and so they waited, Lanoix says. He said that was not resignation, it was just confidence – confidence that they would be taken care of by their carriers.

Lanoix added the property policies he sells are more expensive than they were – 50 percent more expensive – but he has policies to sell. So he has “no complaints.”

Topics Florida Catastrophe Natural Disasters Carriers Louisiana Hurricane Mississippi Market Alabama