At Large
15 Years After Katrina

• Tony Kuczinski
• September 2020
• 

Fifteen years ago Hurricane Katrina caused unprecedented levels of devastation along the northern Gulf of Mexico coast, including more than 1,350 deaths and more than $80 billion in insured losses.

Since then, the industry has asked how it can help create more resilient communities, expedite recovery and better mitigate risk in the face of natural disasters. There is no simple answer. However, since Katrina, risk management priorities have been more clearly defined and can help guide us as we look for solutions.

Extreme weather is becoming more frequent, and infrastructure in many areas of the U.S. remains vulnerable to storm impacts from wind and flooding. This is a complex issue, and our industry should act as a change agent through education and partnership at federal, state and local levels. However, our priority continues to be finding new and better ways to reduce loss and speed recovery.

Bridging Coverage Gaps

Flood insurance penetration in coastal U.S. counties remains relatively low, averaging between 20% and 40%. In addition, storm-related flooding is not exclusive to coastal communities, and recent inland flooding events are likely becoming more extreme due to climate change.

For inland counties, typically less than 1% of homes and businesses have flood insurance coverage. This puts individuals and communities at risk for a slower and much more challenging recovery.

The biggest gap in flood coverage is for homes and businesses located outside high-risk flood hazard areas, where owners are not required to purchase flood insurance in order to acquire a mortgage. Despite the lower frequency, these areas do flood. A Rice University study found that about 40% of Hurricane Harvey flood claims in Texas came from outside of the high-risk areas.

Small-business owners outside high-risk zones are particularly vulnerable; FEMA estimates that 40% of businesses shuttered after a flood or catastrophic event never reopen. Our industry is helping to close this gap. Innovative insurance products are now available to help protect those in low-to-moderate flood zones. Economical and flexible commercial flood coverage products can help small-to-midsized businesses, a vital part of local economies, to survive and thrive.

Building Solutions

Parametric solutions can fill gaps in catastrophic coverage where traditional insurance may not be the best fit. Fast, simple payouts based on predefined parameters or triggers allow businesses to receive the funds they need as quickly as possible.

New technologies can gather more data much more quickly than was possible in the past. For example, high-resolution aerial imagery and machine learning can improve hurricane loss estimation. These tools provide individuals and businesses with a view of property damage in the affected area post event—often before claims adjusters can arrive. Recovery is accelerated when this critical data is available to help claims adjusters both focus on more complex losses first and also to settle simple loss cases faster.

New Challenges

As we remember Katrina, we also have to consider the potential impact of the coronavirus during hurricane season. The pandemic may create labor shortages, supply chain issues and much more complex coastal evacuations should the need arise.

In this rapidly changing world, we have an obligation to think ahead. This year it is the potentially devastating combination of a pandemic and an active hurricane season. Next year it could be something else. Our industry must continue to anticipate, innovate and create solutions that build resilience in the face of multiple challenges.

Best’s Review contributor Tony Kuczinski is president and CEO of Munich Re US Holding. He can be reached at insight@bestreview.com.