Brent Cooper | June 1, 2006
Insurers have faced unique obstacles in investigating and settling claims resulting from Hurricanes Katrina and Rita. This series examines the effect the 2005 hurricanes have had on the insurance industry. Part 1 dealt with rating and underwriting, and Part 3 discusses coverage disputes and pending litigation.
There are estimated 1.75 million claims from the damage Katrina caused in Alabama, Florida, Louisiana, and Mississippi and 1.2 million claims from damage caused by Rita in Texas and Louisiana, as well as damage caused by Dennis and Wilma in Florida. Adjusters initially faced the difficulties caused by the damage to the infrastructure of the regions where electricity and phone service were down, which limited the amount of claims sites they could actually investigate. Also, homeowners and business owners were displaced, slowing down the claims process.
Then there was the problem of accommodating over 15,000 adjusters at one time. Adjusters were forced to stay in remote places and drive long distances to get to the damaged sites. Even some insurance companies suffered displacement, as did their employees, due to the storms. Obviously, the practicalities of adjusting claims after Hurricanes Katrina and Rita were difficult.
The Texas Department of Insurance issued the following bulletins to address the potential impact on claims handling processes from Hurricanes Katrina and Rita.
TDI explains that an insurer must timely inspect the property before denying a claim in compliance with Texas Insurance Code, Chapter 542, subchapter B (formerly Article 21.55). 1 Furthermore, the insurer may have a contractual duty to fully investigate any claim asserted by the policyholder, including the claim that damage may have been caused by another covered loss or ensuing loss allowed under the policy. 2
The Louisiana Department of Insurance (LDOI) also issued Emergency Rules and directives to address the issues that arose in the claims handling process after Hurricanes Katrina and Rita. 3
In October 2005, several class action lawsuits were filed in Louisiana against Audubon/AIG and Louisiana Citizens Property Insurance Corporation (LCPI) for failure to meet state mandated deadlines for adjusting claims. LCPI is a state-sponsored insurer designed to provide insurance to those in the coastal areas who could not otherwise get homeowners insurance from the private market. Audubon contracted to administer the LCPI policies through the hurricane claims, however, it lost its contract with LCPI shortly after Hurricane Katrina struck. LCPI Chief Executive Officer Terry Lisotta has been noted to say that the fact that Audubon challenged its loss of the administration contract caused delays in the changeover process and, ultimately, delays in the claims handling process of Hurricane Katrina. 4
Note that the Federal Emergency Management Agency (FEMA) may be less available to those with insurance since it will not "duplicate assistance" provided by an insurer and will only make decisions to aid policyholders after a claim has been settled. 5
It appears that progress in the claims handling process has been steady, but slow, since the hurricanes. According to the Insurance Information Institute, homeowners insurers have settled nearly 70 percent of claims from Hurricane Katrina in Louisiana and Mississippi, which is over 732,000 claims, totaling $11.4 billion. In addition, about 90 percent of more than 300,000 claims from damaged vehicles have been settled in both states, according to the Insurance Information Institute. Settled does not necessarily mean that the claims were paid. It means that the insured and the insurer have agreed on the extent of covered damage and the estimated repair costs.
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