What the insurance industry learned from Katrina

David Sampson CEO, Property Casualty Insurers Association
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While the month of August for many Americans ushers in the end of the summer, for our coastal regions it brings the peak of hurricane season. As a nation, this time of year is also filled with the memories of a tragic event that visited our coasts just five years ago: Hurricane Katrina, the costliest natural disaster in U.S. History.

Hurricane Katrina and associated flooding resulted in total losses of over $90 billion, destroyed or rendered uninhabitable more than 300,000 homes, and most tragically of all, claimed approximately 1,500 lives.

More human and financial resources were deployed in response to Katrina than were deployed in response to any other storm in U.S. history. Thousands of representatives from the insurance industry descended on the Gulf Coast to assist policyholders in filing claims and to help victims begin the recovery process—a process in which many must rebuild not only their property but also their entire lives.

Insurance companies paid billions in claims. That money sparked the Gulf Coast’s renewal. Within a year, 98 percent of insurance claims were settled. Our goal is to see that number rise — we want every home along the coast ready to withstand the next natural disaster.

As a nation, we learned important lessons from Katrina. As a crucial part of the recovery effort, the insurance industry also learned vital lessons from Katrina, and has used those lessons to enhance its ability to help customers devastated by disasters. These changes will benefit consumers and help reduce property losses by improving insurance operations to enable a more seamless recovery from future disasters.

Awareness: Steps have been taken to create greater awareness about the importance of loss mitigation. When communities and homeowners take actions that lessen potential catastrophe-related damages, insurance costs ultimately drop for all consumers.

Plan…to plan ahead: The most effective way to minimize business disruptions is to develop a more flexible disaster recovery plan. As a takeaway from Katrina, insurers have done many things to improve their ability to overcome operational challenges, including pre-event staging and deploying fully functional mobile command centers to keep core services and operations running with speedy access to policyholder databases.

Communicate fast, communicate effectively: Insurers, as part of our enhanced planning measures, are using more advanced technologies to improve customer communications and service. Text messaging and social networking sites, such as Facebook and Twitter, have already become a valuable means of providing information about finding emergency services or filing claims, or simply answering questions in times of crisis. Additionally, by using satellite technology, companies can locate disaster victims and reach them to provide assistance and assess damages quickly.

Educate and modernize: Additional efforts have been undertaken in order to inform the public of the need for flood insurance. Insurers are proactively educating their policyholders on what a property insurance policy covers and verifying that their homes or businesses are not underinsured. Additionally, as an industry, we have continued developing and using more sophisticated catastrophe models in order to help insurers make smarter pricing decisions and implement more effective risk-management strategies.

As we approach the peak of the 2010 hurricane season, the insurance industry is well prepared. Historically, the worst storms have hit in the weeks immediately preceding and following Labor Day.

While the insurance industry incurred nearly $46 billion in losses from Katrina, we have emerged from that event on solid financial footing. Despite the historic 2004/2005 storm seasons and the economic meltdown of 2008, we are in a strong position to fulfill our obligations to policyholders and provide the necessary coverage to help fuel economic recovery after a major storm. Insurers are strong and stable and did not ask for — nor receive — a federal bailout. In 2008, there was not a single property casualty insurance company insolvency. In comparison, that same year there was a 10.5 percent insolvency rate for banks and a 31 percent insolvency rate for thrifts.

Whenever and wherever storms occur, property casualty companies provide homeowners, business owners, drivers and boat owners with the peace of mind of knowing that their insurer will be there after the storm blows through. We are ready and able to provide a helping hand and make families whole in their time of need. It’s what we do.

David A. Sampson is the President and CEO of Property Casualty Insurers Association of America.