Hikes in Insurance Rates Expected After Katrina

The insurance industry appears ready to absorb the massive costs of Hurricane Katrina — estimates range from $35 billion to $60 billion — but some companies are hiking rates in the Gulf region in preparation for future storm damage.

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Hurricane Katrina does indeed look to be the costliest natural disaster in the nation's history, and that could mean the largest payouts ever by insurance companies, even surpassing those after 9/11. So far it appears that major insurers will be able to afford the tens of billions of dollars in claims, but they're already talking about raising rates across the region to prepare for the next storm. NPR's Chris Arnold reports.

CHRIS ARNOLD reporting:

Insurance companies spend a lot of time and money anticipating where storms might strike and just how bad the damage could be, and they were well aware that a big hurricane ripping through New Orleans could be the costliest storm the nation has ever seen. That said, Katrina was still worse than most companies projected. Robert Hartwig is the chief economist with the Insurance Information Institute.

Mr. ROBERT HARTWIG (Insurance Information Institute): Even if one expects the levees to be breached, you don't expect total chaos and disorder to ensue. You don't expect the city to be abandoned, fires breaking out, looting, a breakdown of law and order. No one certainly expected the fumbled response by FEMA, which drove up losses further still.

ARNOLD: Hartwig says he expects the cost to insurers will be around $35 billion, which he says is on par with the insurance costs after 9/11 in New York. One damage assessment firm, Risk Management Solutions, or RMS, is estimating Katrina could cost even more than that, up to $60 billion, in part because of heavy losses for businesses. On top of that, RMS estimates up to $7 billion from Hurricane Rita. But analysts say the industry right now is in good shape to pay for all this. Kevin Lampo(ph) is a research analyst with Edward Jones, an investment firm in St. Louis.

Mr. KEVIN LAMPO (Edward Jones): The insurance industry is in a better position now than they were after Hurricane Andrew in '92 and after 9/11 because they have a larger pool of capital than they did back then.

ARNOLD: Lampo says it's actually because of those disasters that insurance companies have raised premiums over the past decade. In higher-risk areas such as Florida, homeowners' insurance premiums have doubled and even tripled since Andrew in '92. But the industry's Robert Hartwig says rates will now have to go up even higher.

Mr. LAMPO: The leading minds in climatology, in meteorology tell us these storms are gonna be more frequent and more severe. This was not fully recognized until relatively recently.

ARNOLD: Just since last year's storms, insurance companies have been trying to push through 15 to 30 percent rate increases in Florida. Hartwig now expects increases across the Gulf Coast in the wake of Katrina. Consumer advocates take issue with such price hikes. They say the industry has known for a decade that we've been entering a more severe storm cycle, and they urge state officials to make sure that further increases are justified. But in the short term, there's a bigger concern. Robert Hunter with the Consumer Federation of America is a former Texas insurance commissioner.

Mr. ROBERT HUNTER (Consumer Federation of America): The most important thing is that people get taken care of and that the claims adjustors get out there and do their job.

ARNOLD: Hunter says his group has received hundreds of complaints from home and business owners. Most say they still haven't been able to get an insurance representative on the phone even to talk about getting them the money that they badly need. That's to get paid for claims caused by wind damage. Most homeowners don't have flood insurance. Overall, RMS estimates that of some $125 billion in total economic losses, well over half will not be covered by private insurance. Chris Arnold, NPR News.

MONTAGNE: This is NPR News.

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