Hurricane Katrina: Insurance Claims

Carolyn Gorman , vice president of the Insurance Information Institute, was online Tuesday, Sept. 6, at 1 p.m. ET to take questions and comments about coverage for damage claims caused by Hurricane Katrina.

Special Report -- In Katrina's Wake

A transcript follows.

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Carolyn Gorman: I'm happy to be here today to answer your questions concerning insurance and Hurricane Katrina. Please bear in mind that this is a complex situation and that we will know more each day as the flood waters recede.

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Annapolis, Md.: How will the finances of insurance companies hold up? Will property/casualty premiums rise in Maryland, and more generally outside of the Gulf Coast? Thanks.

Carolyn Gorman: Hurricane Katrina is the worst natural disaster the insurance industry has ever handled. We expect the losses to be upwards of 35 billion dollars. Nevertheless, we have the financial strength and human resources to pay the claims from hurricane. We have done it before, and will do it again.

In regards to rates in other areas such as Maryland. Over the last decade or so, insurance rates have been rising in areas of the country vulnerable to big storms. They will continue to do so as the losses mount. Rates will not go up for people who do not live in these hurricane prone areas. Hurricane Isabel did a lot of damage in Maryland 3 years ago, and it is possible that rates in areas of the state near the water, will continue to rise.

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Metairie, La.: We own a home in Metairie, La. I am unsure of the damage -- I haven't returned to see it yet. From satellite photos it looks like there may be a tree down on the roof, and we may have had water in the house. I started the claims process with my homeowner's insurance. What evacuation expenses does insurance typically pay for? I also have flood insurance. How do I start the claims process for that? Please advise on what I should do at this point. Thank you.

Carolyn Gorman: Your homeowenrs insurance will pay for additional living expenses if your home is damaged from wind or wind driven rain. Certainly if there is a tree on your house, that would appear to have been caused by high winds and would therefore trigger coverage.

Flood insurance is obtained from the federal government and is sold via insurance agents and brokers on behalf of the National Flood Insurance Program. Contact your insurance agent to file a claim.

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Centreville, Va.: Good Afternoon,

Thank you for taking my question today! I have a two-part question.

Considering the weather that the D.C. metro area gets throughout the year, are there any additional weather-related home insurance coverage you think all home owners should have (i.e., flood, hail, etc.)?

How will the effects of the hurricane damage effect what we pay in insurance in other parts of the country?

Carolyn Gorman: People who live in the D.C. metropolitan area should have homeowners insurance and renters insurance. They should also have flood insurance. These policies should protect you as long as you've purchased enough insurance to begin with.

People make three common mistakes. The first one is not buying flood insurance. The second one is not insuring a home to its full replacement cost value. And third is not having a home inventory. You can get free home inventory software at Insurance Information Institute.

See my previous answer for the last part of your question.

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Washington, D.C.: This is more of a general question that the hurricane has me thinking of, but should we all be concerned about flood insurance? I don't think I have any, but I hope D.C. won't flood. I suppose nuclear explosion here is more likely.

Thanks.

Carolyn Gorman: Everyone in the D.C. metropolitan area should carefully consider flood insurance. Contact your insurance agent to buy this policy.

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New Orleans, La.: I have totally lost my home and automobile due to Hurricane Katrina and the levee breaks. Whenever I get claim proceeds, am I obligated to use them to rebuild in New Orleans despite my intention to never return to live there?

Carolyn Gorman: If you have comprehensive insurance on your car, it will be covered by your automobile insurance policy.

When you are reimbursed for your claim, you will be able to build elsewhere but it may affect the amount that you will ultimately receive from your insurance company. You should speak with your agent or company representative to learn more about this.

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Gulfport, Miss.: I bought my mobile home and insurance from Bud's Mobile Homes, which seems to be a strictly local (i.e., Mississippi coastal) operation. I have not been able to reach anyone at their office yet. In fact, I never received a written policy, just an assurance over the phone several months ago that my home was insured. If Bud's goes out of business, will I have any recourse at all? Jeanette McCombs

Carolyn Gorman: Whether or not you are insured will depend upon Bud. It is unfortunate that you don't have a written insurance policy. An insurance policy is a contract and it would need the signatures of yourself and Bud. Unfortunately you do not have this and you will be left with very little recourse if he refuses to pay or goes out of business.

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New Orleans Outcast: What can be done re: insurance claims when a resident can't return to their home to evaluate damage? Has there been any indication on what parts of New Orleans proper will be opened for inspection by residents? What will insurance companies do for those who did evacuate the city and have been kept out for over a week, and will be unable to return until the foreseeable future? People still don't have a definitive report on what areas of the city might have been spared by flooding and are in limbo.

Carolyn Gorman: The most important thing you need to do is contact your insurance agent or company representative. You can find the special telephone numbers for most of the companies at Hurricane Insurance Information Center.

Your homeowners insurance does provide you with additional living expenses and it will reimburse you if your home sustained damage from wind or wind-driven rain. However, the damage to your home may have been caused by flooding alone. If your home has been flooded and did not sustain wind damage, then you may not have any coverage under your homeowners insurance.

For example, if your home was not damaged by the wind of the hurricane but was flooded when the levee broke, then the damage will be paid for by flood insurance if you have it. Flood insurance does not provide reimbursement for living expenses such as temporary housing.

I don't know if there has been any indication by authorities in New Orleans concerning areas that residents may return to.

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Washington, D.C.: I understand that many homeowners did not have flood insurance. To what extent is flood insurance required when you get a mortgage? Do banks and other lenders face exposure for their loans to uninsured homeowners?

Carolyn Gorman: Unfortunately many people choose not to buy flood insurance even though it can be immensely invaluable. The policies under the National Flood Insurance Program will pay up to $250,000 for residential buildings plus another $100,000 for contents. The average premium is around $400 a year for $100,000 worth of coverage.

If you live in a flood plane your bank will require you to have flood insurance when you get your mortgage. Unfortunately many people let that policy lapse, leaving them uncovered when a disaster occurs.

If your home is totally destroyed and you can't make your mortgage payments on a home that no longer exists, then your bank will probably foreclose.

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Laurel, Md.: You said earlier that one common mistake is not insuring a home to its full replacement cost value. How does one know what the full replacement cost value of their house is? Is it based on the price of your house when you bought it, what the house is worth on the market now or your state's estimate of the worth of the house? I've always wondered about this. Thanks.

Carolyn Gorman: The best way to determine how much insurance you need is to speak to an appraiser. Ask the appraiser how much it would cost to rebuild the house on the land that it sits on now. Don't forget that you don't have to replace your land, you just have to replace your house.

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Carolyn Gorman: Ask yourself three questions: Do I have enough insurance to rebuild my house if it's destroyed? Do I have enough insurance to replace my personal property if it's destroyed? The best way to figure this out is by doing a home inventory. Do I have enough insurance to protect my assets if I'm sued?

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Fairfax, Va.: How much of the $35B will be funded by international reinsurance sources? I guess the real question is, how much is the rest of the world paying to rebuild New Orleans?

Carolyn Gorman: A large percentage of the $35 billion in insured losses will be funded by reinsurers which are often large international insurance companies. Reinsurance is insurance for insurance companies. All insurance companies buy reinsurance to help cover losses. It is still unclear how much the loss will be for reinsurers.

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Mineola, N.Y.: I am a manager in a New York Insurance agency. Can our insurance claims experience be of any help?

Carolyn Gorman: People who would like to assist in the claims process should call the Louisiana Dept. of Insurance, 225-342-5523.

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Washington, D.C.: Would you know roughly how many Superfund sites are located within the area impacted by the hurricane?

Carolyn Gorman: No, however experts say that the flood waters contain toxic materials. These could be gasoline from leaking car engines or chemicals from many, many sources.

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BelleView, Va.: Good Afternoon, Can we expect the insurance industry to do the same thing to the citizens Louisiana that they did to the residents of Florida after Hurricane Andrew? Cancel policies and refuse to do business with consumers that have the unmitigated gall to expect insurance companies to actually pay out on legitimate claims? It is well-known that insurance companies only want clients that will never make claims and will punish those that actually expect something for the billions of dollars of pure profit that most insurance companies enjoy. Sign me as a realist that has suffered, first-hand, from the cruel greed that motivates the insurance industry. Thanks for ignoring my inquiry, Insuranceless after suffering a loss and making a claim

Carolyn Gorman: Insurance companies reimbursed their policyholders $20 billion for losses caused by Hurricane Andrew in 1992. Of course, insurance is a profit-making business. It must be, otherwise where would they get the money to pay claims? After Hurricane Andrew many insurance companies left Florida because they could not continue to do business in the state. In one day Hurricane Andrew wiped out all of the premiums ever collected in the state of Florida. The claims were paid using the returns realized from investments.

Last year in Florida four hurricanes resulted in insured losses of $25 billion. Two million claims were filed. Roughly 96 percent of those claims have been processed and paid.

This hurricane is probably going to result in $35 billion insured losses.

As it has following Hurricane Andrew, 9/11 and last year's hurricanes, the insurance industry will fulfill its commitment to its customers.

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Chicago: Carolyn, great information, especially the home inventory software info.

One tip I wanted to add on whether your home is insured enough: talk to your agent. If you have added anything to your home -- deck, finished basement, etc. -- your agent will not know that unless you tell them. Annually (when I get my home insurance bill), I compare the coverage value with my city's assessed value. In my area, the assessed value is typically lower than the fair market value, so I know my insured value should be AT LEAST as much as the assessed value. (My area shows home value and land value, so I can be sure comparison is home cost only.)

My agent also is willing to perform a reassessment over the phone by completing a company-provided questionnaire.

Carolyn Gorman: You make a very good point. Sixty percent of homes are underinsured in the U.S. This is usually because people have made costly renovations and have failed to tell their insurance company so when their house is damaged or destroyed, they don't have enough insurance to cover the cost of rebuilding.

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New Orleans, La.: I have lost my home and its contents in the flooding caused by Hurricane Katrina. I happened to live in the eastern part of New Orleans which is still under water and, from I hear, will take over 30 days to drain. How will insurance adjusters be able to survey the damage in a timely manner to settle the claims of residents affected in this area.

Carolyn Gorman: Many of the same disruptions confronting the victims of Hurricane Katrina also are faced by insurance adjusters and agents -- lack of power, phone service, housing and fuel shortages. Some may be disaster victims themselves.

Thousands of adjusters from around the country have begun adjusting claims in areas accessible to them. Others are gathered at staging areas, prepared to move into the most seriously damaged communities as soon as civil authorities allow.

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Las Vegas, Nevi.: With cement shortages in 30 states, and the price of wood expected to skyrocket, wouldn't it make sense for insurance companies to work with companies that have developed "Hurricane Proof" houses and building products easily and quickly made from available recycled material? And that were 30 percent less expensive to build BEFORE the hurricane? Isn't it time for "new ideas?"

Carolyn Gorman: The Institute for Business and Home Safety (www.ibhs.org) is funded by the insurance industry. The IBHS works extensively with home builders, regulators and others to identify the best materials and practices to withstand the forces of disasters like hurricanes, wildfires, snow, hail, water, etc.

Unfortunately, many builders do not build hurricane-proof homes because they feel it will cost more and drive away customers when, in fact, it may only cost $500-$1,000 more to build a strong house.

Visit the IBHS Web site (Insurance Information Institute) to learn how to retro-fit your home or, if you're building one from scratch, to do it right.

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Carolyn Gorman: The most important thing for policyholders to do now is to get in touch with your insurance agent of company. Visit www.disasterinformation.org where you will find a list of insurance companies and their toll-free numbers for filing claims.

For those who have no insurance, FEMA will be there with grants. The average grant is around $5,000. The Small Business Administration makes low interest loans to homeowners who have lost their homes because of Hurricane Katrina.

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