Companies have strengthened their catastrophe response capabilities since Katrina
I.I.I. President Dr. Robert Hartwig expresses concern about insurers’ future amid legislative/regulatory changes, litigation in testimony before Congress
WASHINGTON, D.C., February 28, 2007 — Insurance companies have settled, without dispute, nearly all of the 1.7 million claims totaling $40.6 billion from Hurricane Katrina, the most expensive disaster in the history of insurance, said Dr. Robert Hartwig, president and chief economist of the Insurance Information Institute (I.I.I.), in testimony delivered today at a hearing of the U.S. House Financial Services Committee’s Subcommittee on Oversight and Investigations.
With the frequency and severity of hurricanes expected to rise in the years ahead, insurance companies have strengthened their catastrophe response capabilities to more quickly reach their customers following mega-catastrophes, like Hurricane Katrina, whose devastation disrupts the infrastructure of an entire region.
Insurers have invested in increased use of global positioning system (GPS) technologies to identify damaged properties, enhanced claims-processing procedures to reduce hard-copy paper exchanges and are working with public officials to cut the red tape that impedes quicker access to the most badly damaged areas by adjusters, Dr. Hartwig said.
The insurance industry also is at the forefront of supporting strong building codes, prudent land use management and the development of mitigation technologies that will save lives and reduce property damage in the event of future disasters.
About 15,000 insurance adjusters traveled throughout Alabama, Florida, Georgia, Louisiana, Mississippi, and Tennessee after Hurricane Katrina swept through a 1,400-mile swath of the southeastern United States, disbursing essential rebuilding funds to their policyholders on the spot.
Dr. Hartwig reported that fewer than 2 percent of homeowners insurance claims in Louisiana and Mississippi were in mediation or litigation. “Insurance companies strive to settle claims without any disputes with their customers. And the record is clear that in the overwhelming number of cases, that is exactly what happens. They are routinely settled by adjusters with policyholders at the scene without the involvement of attorneys or engineers in a courtroom,” he stated.
For 2005, insured losses for all hurricanes reached $57.1 billion arising from 3.3 million claims. It is remarkable that seven of the 10 most expensive hurricanes ever to strike the United States occurred in the 14-month interval from August 2004 through October 2005.
Unfortunately, today, the modest pre-conditions that give rise to competitive insurance markets are being eroded in a number of states, forcing the price of insurance up and reducing choices for consumers, Dr. Hartwig said.
“States such as Florida have abandoned the fundamental concept of risk-based pricing, while in Mississippi the tort system has been used to require insurers to pay potentially hundreds of millions of dollars in flood losses—a type of loss for which they have never received a penny in premium,” Dr. Hartwig noted.
The requirements for a competitive insurance market center primarily on an insurer’s ability to price policies which reflect the actual risk(s) being covered, and a judicial system which upholds an insurance policy’s contractual language, I.I.I.’s president and chief economist added.
“Remarkably, litigiousness in Mississippi may have accomplished what Katrina did not—delivery of a potentially lethal blow of uncertainty to the viability of a private homeowners insurance market in the state. Today, the only choice for an increasing number of Mississippi homeowners is the state-run insurer of last resort, which itself went broke in 2005, forcing it to make an initial rate hike request of nearly 400 percent,” Dr. Hartwig stated.
In his testimony, Dr. Hartwig also touched on the importance of educating coastal homeowners in the U.S. about the National Flood Insurance Program (NFIP), which offers coverage in the event a home suffers water-related damage. Fewer than 20 percent of homeowners in coastal Mississippi purchased flood insurance prior to Hurricane Katrina, whereas upwards of 60 to 80 percent of homes in some Louisiana parishes had flood coverage, Dr. Hartwig noted.
Elected officials who are charged with making land-use decisions must also adapt, he continued. “New homes in coastal communities must be built in ways that allow these structures to withstand hurricane-force winds, and excessive housing densities along coastlines pose risks, too.”
“The insurance industry is committed to working in partnership with public policymakers, consumers and business in developing fact-based solutions to the formidable challenge posed by Hurricane Katrina and other disasters, and to continuing our tradition of helping families, businesses and communities wherever and whenever disaster strikes,” Dr. Hartwig concluded.
AIA, III, NAMIC, and PCI joint news release
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Posted: Wednesday, February 28, 2007 12:00:00 AM. Modified: Thursday, March 01, 2007 10:41:20 AM.
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