Briefing

• TBA - Writer
• October 2005
• 

Claims Adjusters Struggle to Work Amid Gulf Storm's Devastation

Claims adjusters struggling to do their jobs in areas devastated by Hurricane Katrina have faced monumental hurdles -- a lack of lodging, a shortage of gasoline, inaccessible areas and policyholders who have been evacuated or left the area.

"We're faced with logistical issues I'm not sure how we're going to address," Bob Warner, claims manager for Louisiana Farm Bureau Insurance Co., said during a conference call hosted by the Property Casualty Insurers Association of America.

Katrina came ashore near New Orleans Aug. 29 as a Category 4 hurricane on the Saffir-Simpson scale with winds of 145 mph. While the hurricane didn't directly hit New Orleans, storm surges from Katrina weakened and breached the levee system protecting New Orleans, which is below sea level. The flooding has surpassed the previous U.S. record flood on the lower Mississippi in 1927.

Catastrophe modelers estimated insured losses from Katrina to be as much as $60 billion as of Sept. 15.

"This is worse than Andrew," said Hart Hubbard, assistant vice president of catastrophe services for GAB Robins, an independent adjuster firm. Hurricane Andrew in 1992 was the United States' costliest hurricane on record with about $21 billion in insured losses, when adjusted for inflation.

Warner said catastrophe adjusters are "stretched thin" by "the sheer number of claims," much like during last year's four hurricanes.

With many people out of the area, Warner said adjusters faced some difficulty in getting living-expenses checks to policyholders, but his company has now "delivered checks all over the state" and in many parts of the country where storm victims have fled. And Louisiana Farm Bureau, which expects 15,000 to 20,000 claims from the storm, is not letting absent policyholders stop it from adjusting losses.

Another hurdle adjusters have faced is the lack of electricity. Warner said many of Louisiana Farm Bureau's offices were damaged and without power.

"We've gone back to the old days when we did loss reports on paper," Warner said.

But conditions have improved slowly, industry watchers said. Slowly also applies to the claims process because of the problems adjusters have faced.

"It's going to be a long, drawn-out process, and it's going to be a while before anyone can get into New Orleans," Hubbard said.

Because the hardest-hit areas have been off limits, the traditional response of heading to the most affected areas first has been flipped on its head. Instead, Hubbard said, adjusters work their way toward the most affected areas as they respond to areas they can access.

"The losses we're working on now, the majority are wind," Warner said. He said it would become more difficult when adjusters have to discern flood from wind damage as they reach harder-hit areas. But a visual inspection can give clues such as water lines in a home hit by flood waters or water damage limited to one portion of a home hit by wind-driven rain.

Even the areas that can be accessed in Louisiana, Mississippi and Alabama have serious infrastructure problems. Street signs are gone in some areas, landmarks obliterated, mailboxes are blown away and houses are unrecognizable if they still even stand.

"You may have an address, but you can't find the exact location," Hubbard said. "A lot of homes were demolished."

"The biggest challenge is gasoline," said Tiffany O'Shea, a spokeswoman for the American Insurance Association. "There's a real shortage."

While many insurers have sent in mobile claims centers -- RVs and vans with self-contained generators and electricity -- Hubbard said even these face the pinch of the gas shortage and rationing in some areas. Jennifer Wislocki, a spokeswoman for St. Paul Travelers Cos., which has about 550 adjusters and five mobile centers in the area, said at least one mobile claims center RV ran out of gas.

-- Rick Cornejo

see "Fallout From the Storm"

Coverage Disputes Inevitable After Katrina

It's a hot-button issue that Louisiana's property insurers likely don't even want to think about, but it's bound to happen in the aftermath of the widespread destruction of Hurricane Katrina. The inevitable, say industry experts and attorneys, is that disputes and lawsuits are certain to erupt over whether policyholders whose homes were destroyed should be paid the full face value of their homeowners policies when hurricane damage was caused by flooding.

"In an event of this magnitude, it's inevitable that there will be some disputes" on damage that was water-related but associated with wind-driven rain, for example, Robert Hartwig, senior vice president and chief economist for the Insurance Information Institute, told BestWire. Adjusters are trained in distinguishing flood from wind-related losses, he added.

A potentially big issue in Louisiana after Katrina is the Florida Fourth District Court of Appeal's 2004 ruling in a Broward County case, Mierzwa vs. Florida Windstorm Underwriting Association. In a blow to Florida's property insurers, that court, interpreting that state's long-standing "valued policy law," allowed the insured to recover policy limits under wind coverage, even though the insured received a substantial payment for flood damage under the National Flood Insurance Program (BestWire, June 2, 2005).

In many cases, after Katrina, there will be a combination of losses, said Hartwig. "And in those cases ... there will be some sort of apportionment of the losses, and an insurer will look at the structure and try to ascertain ... OK, yes, there was flood damage but there was also some wind-related damage."

However, simply because there was structural damage "does not mean that the insurer is going to be paying limits on every policy," Hartwig said. The structural damage produces, in most cases, some kind of limited amount of loss below the policy limits. If the reason for the home being considered a constructive total loss is essentially because of the flood damage, "then there's a major role to be played by the flood insurer, if there is one," he said.

W. Shelby McKenzie, partner in the law firm Taylor, Porter, Brooks & Phillips based in Baton Rouge, La., said Louisiana's "valued policy law" is similar to Florida's. Under Louisiana's valued policy law, an insurer must pay the full value of the loss, without deduction or offset, if a valuation was placed on the property and such valuation was used to calculate the premiums, McKenzie said, citing the statute. He added, however, that if an insurer provided clear notice in the policy of a different method of calculating the loss, then the insurer would not be required to pay the full value of the loss.

McKenzie, co-author of the treatise, "Louisiana Insurance Law & Practice," noted that since Louisiana's valued policy law was re-enacted in 1992, "there's been no reported decision" interpreting its language. If wind vs. flood coverage disputes erupt following Katrina, Louisiana courts "would certainly have access to the Florida decision," McKenzie said. "They could either follow that decision or make their own determination of the meaning of the Louisiana statute."

Don Griffin, vice president of personal lines for the Property Casualty Insurers Association of America, said there "certainly will be some development on whether some of this is related to flood losses or whether it's related to windstorm losses."

-- Fran Matso Lysiak

see "Top 5 Writers, Homeowners Multiperil, 2004"

Gulf States' High-Risk Pools May Need to Assess Insurers

Three Gulf Coast states' high-risk insurance pools are quite likely to face the test of their financial wherewithal in the aftermath of the damage inflicted by Hurricane Katrina. Officials are confident they have enough funds to pay homeowners claims, but in the end, these programs will likely levy assessments on all property insurers in their respective states, which will then pass on those assessments via surcharges on policyholder premiums.

The Alabama program may be the first to have to assess its members, the companies writing property insurance in that state, said Don Griffin, vice president of personal lines for the Property Casualty Insurers Association of America.

Deputy Alabama Insurance Commissioner David Parsons didn't dispute that, saying that even without knowing insured loss estimates, the Alabama Insurance Underwriting Association, or the Beach Pool, would issue an assessment on all property insurers writing business in Alabama.

"We are in a position to go ahead and issue an assessment a lot quicker than they (Mississippi and Louisiana) are," Parsons said. "But I can tell you that if I was Mississippi, I would probably go ahead and assess the maximum that I could assess over there, and I'm sure they will. We are going to do the same."

Mississippi insurance regulators couldn't be reached for comment.

The AIUA's assessment, to be determined by its board, likely would total roughly $20 million among all property insurers in the state, Parsons said. The AIUA is an association of all property insurance companies writing business in Alabama, he explained.

About 34 states have some form of state-run entity to provide insurance to those otherwise unable to obtain coverage because they're considered high risk. Only a dozen or so of these plans, called Fair Access to Insurance Requirements, or FAIR plans, offer homeowners coverage. Some are specifically for coastal areas, while others are for any property in the state that's considered high risk. FAIR plans operate by charging premium but have the ability to tap the voluntary market for additional money if needed.

Alabama's insured losses are expected to be significantly less than Louisiana's, as well as Mississippi's, Parsons said, guessing that Alabama's total insured losses likely would top $1 billion, however. "Louisiana lost that hub city of New Orleans, and that's where that huge piece of loss is," he said.

Alabama residents losing homes to flooding will be significant, said Parsons, who noted that with 2004's Hurricane Ivan, damage was mostly from wind. With Katrina, southern Alabama is the most affected area, starting with Gulf Shores area and moving across the state, he said. "The further west of Mobile ... the worse it gets."

Terry M. Lisotta, executive officer of Louisiana Citizens Property Insurance Corp., said Louisiana Citizens is expecting 60,000 homeowners claims. But "putting a dollar value on it right now is unknown because they are mostly still underwater, so there is no adjusting being done," he said. Louisiana Citizens' total book value is $14 billion.

The recently formed Louisiana Citizens has $100 million in cash on hand and reinsurance of $340 million in excess of a $35 million retention.

-- Fran Matso Lysiak

Miss. Sues for Insurers to Cover Flood Damage

Mississippi Attorney General Jim Hood has asked a court for a temporary restraining order that seeks to have the flood exclusions in homeowners insurance policies declared null and void.The suit, filed in the Chancery Court of Hinds County, Miss., First Judicial District, comes in the wake of Hurricane Katrina.

At issue in Hood's suit -- and in other lawsuits filed by attorney Richard Scruggs in Mississippi and by the McKernan Law Firm in the 19th Judicial District Court in Baton Rouge, La., -- is whether insurers can exclude from coverage flood damage caused by Katrina.

Insurance trade groups said it's a well-known fact that homeowners insurance policies exclude flood damage. They have done so for nearly 40 years, since the creation of the federal National Flood Insurance Program in 1968. Both the Property Casualty Insurers Association of America and the American Insurance Association pointed out insurance policies are legal contracts.

However, Hood's suit -- filed against Mississippi Farm Bureau Insurance, State Farm, Allstate, United Services Automobile Association and Nationwide Mutual Insurance Co. -- seeks to declare the policy contracts "void and unenforceable." The suit claims insurers are "attempting to exclude coverage for hurricane loss...resulting from water, whether or not driven by wind."

Standing in the way of Hood's argument are several established facts, said Stephen A. Cozen, the founder and Chairman of Cozen O'Connor.

National flood insurance was established to thwart such a crisis. "We need to take a look at how we got to where we are," Cozen said. In addition to easing the burden for insurance companies that believed it to be actuarially unsound to include the risk of flood in standard insurance policies, the NFIP also assisted citizens who otherwise wouldn't be able to obtain the coverage.

-- Rick Cornejo and Eleanor Barrett

BI Policies Play Big Role In Miss. Casino Recovery

Just two months before the most devastating hurricane in U.S. history slammed its shores, the City

of Biloxi, Miss., purchased an insurance policy to protect against revenue losses should a storm or hurricane close down its casinos.

For a coastal city that derives a third of its annual operating tax revenue from the gambling industry -- roughly $20 million annually -- the business-interruption insurance was clearly long overdue.

Through Stewart Sneed Hewes, a regional brokerage firm and subsidiary of BancorpSouth Insurance, the city consulted with insurers around the world, including Lloyd's of London and firms in the Bermuda market, until it finally settled on a $10 million policy with a $92,000 annual premium.

L. Wayne Tisdale, an executive vice president at Stewart Sneed, said the original plan was to find a business-interruption policy separate from the city's property coverage.

It was a combination of London and U.S. underwriters that issued Biloxi's first-ever business-interruption policy, covering 50%, or six months, of total annual tax revenues.

At least nine Gulf Coast casinos, including seven in Biloxi, sustained heavy damage as a result of Katrina.

Like the City of Biloxi, business-interruption and property insurance coverages held by the casino operators could be the difference between a total loss and partial recovery of significant losses.

Some still may face significant disputes with their claims, said Franklin Horowitz, a long-time adjuster and chief executive of Claims International.

"When you wrote the insurance for your casino, how did you describe it? Was it a vehicle or a building? How exactly were you berthed into the levee? If it's not characterized right, there's going to be disputes, and people are going to file errors and omission claims against brokers. If they did insure it right, we still have one big issue to settle, and that is what caused the damage? Was it wind or was it flood?"

By state law, gambling operations have to be on water, even though many are affixed into the sea floor and attached to land-based hotels. The Grand Casino Biloxi, a 134,000-square-foot multistory barge, for example, was dislodged by the hurricane's powerful wind and carried across the beach onto land. Harrah's Entertainment Inc., which owns Grand Casino Biloxi, has business interruption and property damage insurance covering each of its three affected properties.

-- David Dankwa

see "Top 5 Writers, Mississippi, Commercial Multiperil, 2004"

Health Concerns Follow Hurricane Katrina's Fury

Though the storm has passed, the potential for health concerns following Hurricane Katrina is only beginning.

Contaminated water, injuries sustained both during and after the storm and individuals left without medications are just some of the potential health concerns that experts believe lie in the wake of the hurricane.

Risk of infection, airborne diseases, salmonella, respiratory diseases such as influenza and tuberculosis, mosquito-borne illnesses such as West Nile virus and malaria, rabies from animal bites and other health conditions also are potential dangers that may be caused by floodwaters, debris and other damage caused by the storm.

Residents aren't the only ones who may face near- or long-term health problems. Patrick Libbey, executive director of the National Association of County and City Health Officials, said rescue and response workers are at risk for injury, infectious diseases, exhaustion and emotional issues.

-- Lori Chordas

A.M. Best Comments on Hurricane Katrina's Impact

In response to Hurricane Katrina, A.M. Best Co. has begun to aggregate public and private information in order to assess the financial impact it will have on the global property/casualty insurance and reinsurance industry. A.M. Best expects that virtually all rated companies will be able to meet their commitments, despite the projected magnitude of the potential losses, although a few individual companies' ratings may be lowered.

In addition to industry aggregate information, A.M. Best continues to be aware of Hurricane Katrina's impact on specific companies, and is focused initially on those organizations with the largest market share exposure relative to their surplus. As part of A.M. Best's analysis, each company is evaluated on its ability to withstand the impact from a major catastrophic event.

La. Commissioner ‘Sickened' by Katrina's Path of Destruction

When reports started streaming in, telling of a Category 5 hurricane that was headed for the coast of Louisiana, state Insurance Commissioner J. Robert Wooley hoped for the best.

For one, the storm appeared to be veering east of New Orleans, a city that sits below sea level and has a population of 1 million people. Besides, the levees protecting the bowl-shaped Big Easy from waters of the Mississippi River to the east and Lake Pontchartrain to the west had certainly withstood similar amounts of rainfall in the past. "We knew we sustained that before and had no severe flooding," Wooley said.

With this in mind, and worried that two sycamore trees flanking his Baton Rouge home might come crashing down in hurricane-force winds, risking the lives of his loved ones, Wooley on Aug. 28 packed his wife, Julie, and their three small children into the family car and headed to his sister-in-law's house 50 miles away in Lafayette.

"It was far enough to be out of the storm and close enough to get back here where I would be needed," Wooley said.

After the storm, he saw the pictures that were being broadcast worldwide. On the television screen was aerial footage showing widespread flooding, from New Orleans to Plaquemines. "I thought we had dodged the bullet, but when I saw the pictures, I was sickened," he said.

Wooley knew action needed to be taken. Absent telephone service, he trekked down to the Louisiana Homeland Security and Emergency Preparedness office, stood before three television cameras and took interviews from two newspaper reporters, urging any insurance department employee who could hear his voice to please return to work. By Aug. 31, his office in Baton Rouge was open for business, with two-thirds of his staff reporting.

The first order of business was to contact the largest insurers in the state to learn of their recovery plans.

-- Eleanor Barrett

Miss. Regulator Faces Katrina's Aftermath

Mississippi Insurance Commissioner George Dale has been on the job for 30 years. He's seen hurricanes come and go. But the ruins left by Hurricane Katrina, viewed from a Federal Emergency Management Agency helicopter on Sept. 6, took his breath away.

"Nothing was there," he said. "It was the worst devastation I've ever seen. All you could see standing from the beach inward were maybe a few trees and some markers. Even with that, there would be a building standing out in the middle of all of this. It was eerie. You'd ask, why is it standing? How could that be?"

The storm hit on a personal level as well. In coastal Jackson County, home to many of Dale's in-laws, one relative was left with only the foundation of his home.

"I live in Clinton, a suburb of Jackson. We tried very hard to get our in-laws to come from the coast to stay with us. You know, you have to appreciate the natives. They have said ‘I've ridden it out before.' And this was coming right on the heels of (Hurricane) Dennis, where there was an evacuation order and which wound up being a lot of rain. So people were reluctant to leave."

As communications have been restored, callers have phoned in to complain their insurers are deeming damage to be flood-related and not eligible for homeowners insurance claims, Dale said.

"People are calling in droves and in e-mails, demanding that I make the insurance companies pay for all of their losses. I'm calling it a Catch-22," Dale said. "If I could make the insurance companies pay under the wind-driven clause, then how many insurance companies would I be breaking? On the other hand, people are living down there with nothing. Either way, I can't win."

Dale said he doesn't yet want to consider the concept of a mass exodus of insurers from the state. For now, he has put in place several mechanisms to ease the process for policyholders, including instituting a 60-day moratorium on premium payments, extended office hours, offering toll-free help lines in- and out-of-state, employing out-of-state insurance offices to help in handling claims and scouting locations for new department field offices.

Still, there's the question of the future.

-- Eleanor Barrett