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Emergency Insurance Information for Hurricane Katrina Victims

To help victims of Hurricane Katrina obtain electronic access to a list of insurance carriers that have set up disaster hot lines to help their policyholders, the National Association of Insurance Commissioners (NAIC) has set up an area of its Web site with useful information. I've added a link to an article listing insurance company toll-free numbers that Katrina victims can use to contact their insurer for assistance. Best of luck.

Now for the bad news. Residents of New Orleans, made complacent by too many years of seeing hurricanes miss them, avoided buying hurricane insurance.

Only about 40 percent of New Orleans homeowners have flood insurance, which is provided in the United States under a government program, the National Flood Insurance Program (NFIP), run by the Federal Emergency Management Agency (FEMA). Standard homeowner insurance only covers damage from fire and wind while commercial or automobile insurance does cover flood damage. A high number of car claims are expected from Katrina with thousands of cars submerged. Private insurers, like State Farm Mutual Automobile Insurance Co. and Allstate Corp., which lead the home insurance market in the state of Louisiana, do sell policies for the FEMA and can settle the claims for policy holders.

But only 85,000 residential and commercial policies have been sold in Orleans parish, in which the city is located, by the NFIP, according to latest figures -- while the U.S. census lists about 213,000 housing units in the city in 2002. "We estimate about 40 percent of properties have flood insurance -- and virtually all the damage caused in New Orleans was by floods, not winds," a FEMA spokesman said.

The NFIP program also only offers up to $250,000 for homeowners to rebuild damaged properties, and up to $100,000 to replace contents. Risk modeller Risk Management Solutions has estimated that 150,000 properties have been flooded in New Orleans. But widespread flooding, debris, power outages and a lack of lodging could prevent damage assessments for weeks.

Early estimates expect Katrina to be the most costly U.S. storm, with insured losses of more than $25 billion -- topping insured losses of $21 billion from Hurricane Andrew in 1992. "This is going to be one of the, if not the, most costly natural disaster in the United states," said Jeanne Salvatore, a spokeswoman for the Insurance Information Institute. Salvatore said each claim would be have to handled on a case-by-case basis to see if the damage was caused by water, winds, or a combination of both. Some properties were destroyed by fire. Homeowners without flood coverage whose homes were water damaged will have to rebuild using their own funds.

In past catastrophes, insurers have covered about 60 percent of total economic loss, but this could be considerably less with Katrina because so much of the damage has been caused by flooding, which is not covered by the insurers. Instead, business claims, such as insurance for business interruption, could represent about 50 percent of claims, up from 30 percent after previous hurricanes.