Of More Than One Million Homeowners Claims 99 Percent Are Settled;

Few Remain in Dispute

Disaster Losses Along Atlantic and Gulf Coasts Likely to Escalate in Coming Years

NEW YORK, August 6, 2007 — The single largest loss in the history of the insurance industry occurred two years ago this month when Hurricane Katrina struck the Gulf Coast, causing$40.6 billion in insured damage. Nearly two years later, the overwhelming majority of claims have been settled.  

The magnitude of Hurricane Katrina triggered a reexamination of how the United States deals with the financial consequences of natural disasters among insurers, reinsurers and public policymakers, which continues today, according to the Insurance Information Institute (I.I.I.). 

Despite the attention focused on lawsuits filed following this catastrophic storm, the number of claims in litigation accounted for a very small percentage of the total number of claims filed and most of those are no longer in contention. The I.I.I. estimates that fewer than 2 percent of homeowners claims in Louisiana and Mississippi were disputed either through mediation or litigation.  

Insurance companies have paid an estimated $40.6 billion to policyholders on 1.7 million claims for damage to homes, businesses and vehicles in six states. By contrast, Hurricane Andrew, the previous record holder, resulted in $15.5 billion in losses in 1992 ($22.2 billion in 2006 dollars) and 790,000 claims.

Louisiana ($25.3 billion) and Mississippi ($13.6 billion) received by far the most insurance claims dollars to aid in their recovery.

Approximately 99 percent of the 1.2 million homeowners insurance claims from Hurricane Katrina, including those in hard hit Louisiana and Mississippi, have been settled. Claims payments to homeowners in affected states exceeded $16 billion, approximately 93 percent of which went to Katrina victims in Louisiana and Mississippi. 

In Louisiana, approximately 688,000 homeowners claims, totaling $10.8 billion, have been settled. In Mississippi, more than 350,000 homeowners claims, totaling $5.4 billion, have been settled. Effectively all of the nearly 350,000 claims from damaged vehicles, totaling $2.2 billion, have been settled.

In Louisiana, only 537 out of more than 1,000 suits filed in U.S. District Court remain on the docket. The state-sponsored mediation program in Mississippi has settled 3,034 of 3,687 cases in that state.

“While 2005 was by far the worst year ever for insured catastrophe losses in the U.S., future storms could prove even costlier, reaching upwards of $100 billion,” said Dr. Robert Hartwig, president of the I.I.I. “Disaster losses along the coast are likely to escalate in the coming years because of huge increases in development and soaring property values.”

The total value of insured coastal exposure nationwide is more than $7 trillion. Florida and New York have the most insured coastal property, at more than $1.9 trillion each. After Florida, the Northeast states of New York, Massachusetts and Connecticut have the highest coastal exposure as a share of all insured exposure in their states.

While some insurers in some coastal states are not writing new homeowners policies, none have withdrawn entirely from any states. Coverage is available in every state, either through private insurers or a state-operated insurance company. Also, insurers continue to provide coverage to their existing policyholders until the completion of the contract period.

In areas vulnerable to hurricane risk, rates have been rising in recent years and they will continue to do so. This is because the frequency and severity of catastrophic storms is expected to grow for decades to come.  

 “Insurers cannot increase rates to make up for past losses. Rates must be based on projections of future losses in a given state,” said Dr. Hartwig. “Insurers cannot arbitrarily raise rates; they must be reviewed and approved by state insurance departments. Companies must demonstrate that there is an increased risk in a specific state, and losses from one state cannot be used to raise rates in another.”

FACT SHEET:  HURRICANES AND INSURANCE 

• Seven of the 10 most costly hurricanes in U.S. insurance history occurred in the 14 months from Aug. 2004 – Oct. 2005: Hurricanes Katrina, Rita, Wilma, Charley, Ivan, Frances and Jeanne. Insured losses for the seven storms totaled $79.1 billion.
• Insurance companies have paid an estimated $40.6 billion on 1.7 million claims for damage to homes, businesses and vehicles in six states from Hurricane Katrina, the largest loss in the history of insurance. By contrast, Hurricane Andrew, the previous record holder, resulted in   $15.5 billion in losses in 1992 ($22.2 billion in 2006 dollars) and 790,000 claims in three states. 
• There were 350,000 claims for damaged vehicles and some 156,000 commercial claims. The $20.5 billion in claims payments to businesses accounted for about one-half of the $40.6 billion in insured losses from Hurricane Katrina.
• More than 95 percent of the 1.1 million homeowners insurance claims from Hurricane Katrina in Louisiana and Mississippi, totaling more than $15.5 billion, were settled within one year of the storm. 
• In Louisiana, more than 688,000 homeowners claims, totaling $10.8 billion, have been settled. In Mississippi, more than 350,000 homeowners claims, totaling $5.4 billion, have been settled.
• Nearly all of the 350,000 Katrina-related claims from damaged vehicles, totaling $2.2 billion, have been settled.
• The National Flood Insurance Program reported that it has paid approximately $15.7 billion in federal flood insurance claims, representing 99 percent of all flood claims received.
• Despite the attention focused on lawsuits filed following this catastrophic storm, the number of claims in litigation accounts for a very small percentage of the total number of claims filed. The I.I.I. estimates that fewer than 2 percent of homeowners claims in Louisiana and Mississippi were disputed either through mediation or litigation.
• As of July 27, 2007, 537 lawsuits in Mississippi were pending against insurers. U.S. District Court Judge L.T. Senter Jr. ordered 174 cases into mediation, with 84, or 49 percent settled.
• Policyholders also continue to resolve their cases through mediation sponsored by the Mississippi Department of Insurance. Of 3,687 policyholder claims mediated through the program, 3,034 were settled—an 83 percent success rate as of July 27, 2007.  
• The American Arbitration Association oversees the mediation programs for Hurricane Katrina insurance claims. Results reported through July 27: U.S. District Court cases ordered to mediation: 174 cases mediated, 84 settled, 88 with no resolution—a 49 percent settlement rate Mississippi Insurance Department: 4,260 mediations requested, 3,687 mediations held, 3,034 claims settled, 643 with no resolution—an 83 percent settlement rate.
• A poll conducted by IPSOS Public Affairs in 2006 found that 89 percent of homeowners in Louisiana and 93 percent in Mississippi are satisfied with their insurance company. The survey reported that four in five people (82 percent in Louisiana and 80 percent in Mississippi) who filed a hurricane-related claim are satisfied with the way it was managed by their insurer. While satisfaction numbers are slightly higher inland, most residents in the hardest-hit coastal areas describe themselves as satisfied with the way their claim was handled.  
• While significant problems with rebuilding persist along the Gulf Coast—including severe damage to public infrastructure, a shortage of contractors and reduced population—the billions of dollars in claims paid to date by insurance companies are helping fuel an increase in residential building. Building permits have risen by 4 percent in Louisiana and 32 percent in Mississippi, compared with a 4 percent decline nationally during the same period.
• 2005 was by far the worst year ever for insured catastrophe losses in the U.S., but the worst has yet to come. The $100 billion hurricane will not be unusual in the future, given the extent of insured coastal exposure in the U.S.
• New York and Florida have the highest total insured coastal exposure, valued at more than $1.9 trillion each; Massachusetts has more than $662 billion.
• Major hurricanes have affected the Northeast and will continue to pose an ongoing threat to the region.
• The last major hurricane to devastate the Northeast was the 1938 Long Island Express, which crossed Long Island and moved into New England, killing approximately 600 people. 
• Scientists expect the continuation of warming in the Atlantic to increase the probability of hurricanes in the Northeast. Frequency in the Northeast is up 30 percent and severity 10-15 percent.
• Data from the Census Bureau, collected by USA Today, show that in 2006 34.9 million people were seriously threatened by Atlantic hurricanes, compared with 10.2 million in 1950.

The I.I.I. is a nonprofit, communications organization supported by the insurance industry.

Insurance Information Institute
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New York, NY  10038
(212) 346-5500 www.iii.org