Hurricane Katrina: fifth anniversary

A look at the numbers

In July 2010, the Insurance Information Institute (III) released its report on insurance damages and claims at the time of the fifth anniversary of Hurricane Katrina. In the report, III reveals that Katrina, five years later, remains the largest “single loss” event ever to occur in the global insurance industry. The figures in the report are staggering:

1. Hurricane Katrina caused an estimated $ 41.1 billion in insured damages to both individuals and businesses.
2. The National Flood Insurance Program (NFIP) insured $ 16.1 billion in losses. This number is not included in the figure above for insured damages.
3. The total amount of catastrophic insured losses due to Katrina ($ 61.9 billion) is the highest annual insured catastrophic loss ever experienced.
4. Most of the claims generated by Katrina (1.2 million of the 1.7 total claims) were for damage to personal property.
5. By the second year after the hurricane, insurers had resolved 99 percent of personal property claims.

As you can see from this evidence, not only were the claims created by the Katrina devastation substantial, but the insurers reimbursed people who were insured quickly and almost completely. The system worked exactly as it should have in this regard.

Are we learning from history?

While many of those who suffered from Katrina had homeowners insurance, most of them did not have flood insurance. As you may or may not know, flood insurance is separate coverage that is not automatically included in a homeowners insurance policy. And while many of those who endured Katrina thought that the flooding, as a result of the hurricane, would be covered by the hurricane coverage provided by their homeowners insurance policy, these people were sadly mistaken as floods are only covered by the flood insurance policies.

As a result of this misconception and the small number of flood insurance policies issued before the disaster, the NFIP ended up in deficit as the group tried to help people without flood insurance coverage.

This teaches homeowners everywhere an important lesson that damage to their homes as a result of a flood after a hurricane or during a hurricane is not covered by their homeowners insurance policy. But are we absorbing and applying this lesson?

The 5 Difference Years Make

Although many people have heard the horror stories of those who suffered devastating losses as a result of Hurricane Katrina and did not have flood insurance, this has not made consumers in the United States more apt to purchase coverage. In fact, Report III shows that only 10 percent of Americans currently have flood insurance. This is 3 percent less than the number it had before Katrina.

Even more troubling is the continuing belief that homeowners insurance includes flood insurance after a hurricane. Of those surveyed in the US about flood insurance claims, 16 percent of them thought the claims would be covered by a homeowners insurance policy if the flood was the result of a hurricane. Of those in states with high claims after Katrina, 35 percent of those surveyed thought the flooding caused by Katrina would be covered by their homeowners insurance policy.

The importance of flood insurance

A flood is a flood, no matter what causes it. Rain coming into your home from a missing roof is not a flood, but a rising body of water that normally seeps into dry land. For the 53% of Americans who live in coastal communities, this distinction is critically important.

Many people only buy flood insurance when their mortgage company also requires it because they live in a designated flood zone. But if Katrina taught us anything, it’s that you don’t have to reside in an official flood zone for a flood to affect you.