Katrina's Insurance Cost May Surpass Andrew's

Katrina's cost to insurers is estimated at $15 billion, but the total may rise to match or pass the $21 billion price tag attributed to Hurricane Andrew. Robert Hartwig of the Insurance Information Institute tells Renee Montagne how the costs are assessed.

RENEE MONTAGNE, host:

Hurricane Katrina could be one of the costliest storms in US history. Insurance companies are sending teams of adjusters to the affected areas. Robert Hartwig is chief economist for the Insurance Information Institute, an industry trade group.

Good morning.

Mr. ROBERT HARTWIG (Chief Economist, Insurance Information Institute): Good morning.

MONTAGNE: How much is Hurricane Katrina going to cost insurers, by your estimates?

Mr. HARTWIG: Well, right now we're looking at least the high teens, so that means at least $15 billion. If we get up to $21 billion, basically, we've come up with a tie with Hurricane Andrew, which for 13 years has had a lock on the most expensive natural disaster in US history. And right now, I'd say Katrina has at least a 50-50 chance of really becoming the most expensive disaster in US history.

MONTAGNE: When insurance companies come up with these figures, what do they take into account?

Mr. HARTWIG: Many things. But principally, we're looking at the damage to homes associated with wind and wind-driven rain. We're looking at some damage associated with businesses. But we're also looking at business-interruption losses, meaning the lost profits and extra expenses that businesses incur because they have no customers. And in addition, and very tragically, we've heard reports about looting in New Orleans of businesses, and that would also be covered under the policies as well. But also, we're looking at losses out in the Gulf to oil rigs, for instance.

MONTAGNE: So this is, I mean, houses all the way to oil companies?

Mr. HARTWIG: That's right, and everything in between.

MONTAGNE: Now are most people insured for hurricanes in those areas?

Mr. HARTWIG: Yes, virtually everybody is insured against hurricanes. If you have a homeowners insurance policy you are covered against the damage associated with winds and any rain that is admitted into your residence or your business because of those winds. But what is typically not covered in homeowners or business policies is flood-related damage. And we can see there's widespread flooding associated with this event.

MONTAGNE: And--right. In New Orleans, for instance, houses that pretty much survived the wind and the rain are now being flooded.

Mr. HARTWIG: That's right, and there is separate flood coverage available through the National Flood Insurance Program. Of course, you would have had to have purchased that before the event, but that would cover you in the event your home was flooded.

MONTAGNE: Now in the event that a person, a homeowner or a business isn't covered by private insurance, where does the federal government come in?

Mr. HARTWIG: Well, again, if you had the federal flood coverage, your claim would be adjusted and you would receive a reimbursement through the National Flood Insurance Program. So...

MONTAGNE: But if you didn't?

Mr. HARTWIG: Well, if you didn't, there again--so you're saying you don't have any private coverage and you don't have any federal coverage, in this case, tragically, you are left to recover with your own resources. You may also be eligible for any federal aid and state aid that's going to be made available to the victims of this tragedy.

MONTAGNE: Some critics say that flood insurance allows people to build and rebuild in places that they really shouldn't; that they're very vulnerable in. Do insurance companies have responsibility in this regard?

Mr. HARTWIG: Well, the flood insurance is offered solely by the federal government. In fact, private insurers will not offer flood coverage, and that's one of the reasons why. We understand it creates an issue such as you're referring to, whereby simply if people who live in flood zones can have their home rebuilt through a form of insurance that's effectively subsidized, then they are encouraged to rebuild in exactly the same spot. And typically, these stories replay themselves over and over and over again.

MONTAGNE: Thank you very much.

Mr. HARTWIG: Thank you.

MONTAGNE: Robert Hartwig is chief economist for the Insurance Information Institute, an industry trade group.

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