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Big “I” National News

Hurricane Katrina: One Year Later
Bouncing Back from Katrina
One year later, insurers have paid out more than $24 billion in claims.

Tuesday marked the one-year anniversary of the nation’s worst natural disaster. As the Gulf Coast continues to feel the ripple effects from Hurricane Katrina, the region is making great strides in rebuilding as insurers have paid more than $24 billion in storm damage claims, according to Property Casualty Insurers Association of America.

Katrina resulted in half a million insurance claims filed, and when all have been settled, it is estimated that insurers will have dolled out approximately $16.8 billion in homeowners, commercial property, business and person/commercial auto claims to policyholders in Louisiana and $8 billion to those in Mississippi for their losses during the storm, according to PCI.

Many of those claims have already been addressed. Insurers have settled 658,700 homeowners claims (94.8% of expected) in Louisiana, amounting to $10.3 billion, and 334,800 (94.3%) of homeowners claims in Mississippi totaling $5.2 billion. Almost all of the 305,000 auto claims from vehicles damaged during the storm also have been settled for a total of $2 billion in the two states.

Ronald Tubertini, president of South Group Insurance Services in Ridgeland, Miss. says his agency received 4,000 claims as a result of Katrina and 90% of them have been finalized as of the anniversary. He feels the greatest challenge now will be getting the state legislature to change the way insurance companies are assessed for the state wind pool. He would like to see the state enact legislation similar to those in neighboring states.

“In Louisiana and Florida, insurance companies are allowed to recoup their assessments by adding to the premiums the next year…we can’t,” he says.

As legislators work at the state level, area agents have received resounding reviews with 90% of homeowners who filed after the storms saying they are satisfied with their insurers, according the Insurance Information Institute (III).

Randy Lanoix, president of Bourg-Lanoix Insurance in Lutcher, La., had 600 claims following the storm and says he’s seen similar feedback from his policyholders.

“We’re a personal lines agent in a small town and our customers often come to our office to pay their bills, and I can say that 95% of my claims have been satisfied,” Lanoix says. “Of the five percent that aren’t, well, there are some people who you could give the company checkbook to and they still wouldn’t be satisfied.”

Despite the high approval rating, earlier this week the state of Louisiana gave policyholders an extension to file lawsuits. Homeowners were given an extra year to file lawsuits over claims from Katrina and Rita after the Louisiana Supreme Court upheld the constitutionality of two laws requiring the extension. Typically, policyholders have a year to file suit on a homeowners claim, but the court’s decision doubled the state’s filing window, causing some alarm among insurers about potential class-action lawsuits. Lanoix says he’s not concerned about the decision and feels it will avoid unnecessary hassles.

“We support the extension for hurricane claims to try to stem the tide of lawsuits,” he says. “There were still a lot people who had question about their claims and what was covered and what was not. All of those people who had not settled their claims would certainly have entertained thoughts of filing of lawsuits if there hadn’t been an extension.”

This year’s hurricane season should only yield 12 to 15 named storms, seven to nine of which are predicted to be hurricanes, according to the National Oceanic and Atmospheric Administration. In 2005, there were a record 27 named storms and 15 hurricanes, seven of which were severe hurricanes. Five of the seven major storms accounted for more than 90% of last year’s $56.8 billion in insured catastrophe losses.

Michelle Payne (michelle.payne@iiaba.net) is Big “I” staff  writer/editor.

Hurricane Katrina: One Year Later
How Katrina Changed the Industry

Studies show that repeat exposure to something, such as violence in video games, dulls the shock value associated with it. Hurricanes may be the exception to the rule. Although they have become frequent occurrences in recent years, the country will never get used to suffering they cause. No storm proved that more than 2005’s Hurricane Katrina.

The Gulf region is still reeling from Katrina—and so is the insurance industry.

Market availability and pricing has greatly changed in the past year. With carriers such as Allstate withdrawing from hurricane-prone areas, and premiums soaring in coastal areas across the country, many agents are struggling to secure affordable coverage for their clients.

“The market has clearly hardened in our coastal area,” says Angelyn Treutel of Treutel Insurance Agency in Bay St. Louis, Miss. “Some carriers have raised their minimum threshold for personal lines, and others still have a moratorium for the coastal counties. However, the majority of our carriers are continuing to support our re-building efforts through availability of home coverage, builder's risk and renovation policies for both personal and commercial risks.”

In response to Katrina, many carriers tightened underwriting to reduce their exposure. “Restrictions by carriers that began in the early 1990s following Hurricane Andrew have been made worse by the carriers that originally imposed them and have since been adopted by many that didn’t,” says Steven Spiro of Spiro Risk Management, Inc., in Valley Stream, N.Y. “Some carriers have discontinued offering their products altogether.”

According to Treutel, “the excess markets have been challenging to find, particularly for excess wind and excess flood coverage.”

With predictions of a prolonged period of above-average hurricane activity hanging over their heads, insurers have taken seriously projections that the Northeast is susceptible to a major hurricane.

“Of the carriers that I represent still offering homeowners protection in the downstate New York area, all have hurricane/wind deductible,” Spiro says. “I can sell a policy with one of these deductibles, but there are two problems. The first is to make sure my client understands that the percentage imposed against their loss as the hurricane deductible is of the amount of insurance, not of the amount of loss. The second is that the trigger for the deductible to ‘kick in’ varies by carrier. One may be triggered by wind speed, another by category of hurricane, etc. I can have two clients on the same street, suffering similar losses, but with different carriers, the deductible imposed can vary drastically.” 

Although some areas, such as the Northeast, are truly experiencing availability difficulties, most are actually dealing with higher prices, according to Robert Hartwig, executive vice president and chief economist of the Insurance Information Institute. “It’s just one company replacing another one, albeit at a higher price,” he says. “This reflects different risk tolerances, different reinsurance programs and different ratings issues with different companies.

Higher prices often reflect the increased risk. “Many businesses will say, ‘Oh, there’s nothing affordable,’” Hartwig continues. “But they forget the second half of the sentence, which is ‘it’s not affordable at the price I want to pay.’ So businesses will go clamoring to the state for what amounts to subsidized insurance.”

“Affordability is the major looming issue at this point,” Treutel says. “If the rates go too high, they will impede our economic progress, which would be another disaster for our area. We continue to work with carriers and encourage them not to over-react to the anomalous Katrina-event.”

Will the pressure on pricing and availability alleviate anytime soon? Treutel and Spiro both doubt it. “Although I believe we’ll see many of our carriers return to the market, and new carriers present themselves, I don’t believe it will ever be business as it used to be,” Spiro says. “With the use of technology to identify exposures better than ever, and the ability of carriers to slice and dice their exposures more selectively than in the past, I don’t foresee the good old fashioned ‘all perils’ deductible on policies written close to shorelines ever returning.”

Katrina also changed how the industry handles risk modeling on several levels. Although hurricanes are nothing new, Katrina contained several surprises. “The actual dollar value of the losses was perhaps surprising even though it was a large storm,” says Hartwig. “Principally, if you actually break down the losses, I think that commercial business losses wound up costing far more than anyone had generally anticipated from a major hurricane.”

Insurers must now take into account the rapid escalation of reinsurance costs “The potential for more, higher reinsurance costs has to be more carefully considered,” he says.

Other Katrina-related surprises caused insurers to reevaluate their risk modeling. The cost of materials and labor were much higher than modeled, even though the industry anticipated a rise in these costs in the wake of a major hurricane.

Jennifer Sikorski (jennifer.sikorski@iiaba.net) is IA’s associate editor.

  Katrina: One Year Later
A Year of Significant Lessons in Disaster Preparedness

It is said that experience is the best teacher. That’s certainly the case when it comes to disasters over the past year. Agents now realize that it is almost impossible to handle the surge of claims in the immediate aftermath of a major disaster. This is the time of customers’ greatest need, and yet the agency is likely to be short staffed because they, too, have been personally affected by the disaster. Moreover, the agency’s communications are likely to be down. Agencies have learned that there are now third-party firms they can switch their calls to during an emergencies to handle the surge. These firms have a mirror of the agency’s database, so they are able to start the customer’s claim with the carrier.

Agencies also have learned about firms that bring in temporary office facilities, computers, satellite phones, Internet connections and other needed equipment to allow the agency to quickly get back up and functioning. This physical, functioning presence sends a real statement to the community and the agency’s customers about the professionalism and stability of the business. As with third-party emergency phone service, you need to establish relationships with these emergency facilities firms well before a disaster strikes.

We also have learned about the power of the agency’s Web site in the aftermath of a disaster. This was the first place customers looked following Katrina to find out what to do next. Agencies with an informative, functioning Web site were way ahead. Agencies also learned they should not house these Web sites in their offices where they will go down when the agency loses power and its Internet connection. Instead, house Web sites in a protected facility in a geographic area the same disaster is unlikely to strike.

Agencies learned the advantage of going paperless and becoming fully electronic. One agency said it best in the recent AUGIE Survey: “Following the hurricane, which devastated our area, our technology allowed us to stay in business. Our office and every piece of paper were destroyed, and without our technology, we would not have been able to serve our customers’ needs.” 

Agencies learned the value of providing employees with tools to work and communicate from anywhere. Not only does this portability allow agents to be more efficient and responsive, it gives the agency more flexibility to continue to operate from homes or other locations when the office is unusable. Of course, for agencies to get full value from this portability, their agency management system needs to remain available. Many agencies have now have their agency management systems hosted by their vendor or a third party with a protected facility located in a different geographic area. Some vendors also allow agencies that want to maintain in-house systems to contract for this remote hosting in emergency situations.

Having good back ups of the agency’s database is absolutely crucial to getting the agency functional again. Agencies need to have back ups that are tested regularly, encrypted and kept in a protected, secure place outside the geographic area where the disaster is likely to strike. Agencies should seriously consider using the remote back up services that vendors and other firms now offer.

In the aftermath of a disaster, it is extremely difficult for an agency to keep up with the claims and other special situations. Agencies have learned that this is no time for inefficient processes. Agencies that implement real-time inquiries and rating, personal and commercial lines download, and eliminate paper wherever possible can create efficiencies that give them back some time to handle the special issues they face. It is impossible to enter all of agency claims into systems in the aftermath of a disaster. The standards for claims download are in place, and it is extremely important for vendors and carriers to implement claims download now.

Agencies are also learning that in the aftermath of disasters, rebuilding begins, and agencies have lots of opportunities to write new business. But once again, agencies do not have one or two hours to rate a policy by filling out the information on the Web sites of multiple carriers. Real-time multiple company rating is a critical tool if agencies in this situation are to take full advantage of these new business opportunities.

The experiences of the last year certainly reinforce the importance of agents reaching out to customers to make sure they are fully aware of the limitations in their property policies and the need for flood insurance. The more agencies implement efficiencies to eliminate processing time, the more time is available for this proactive counseling.

Probably the area of biggest frustration for agencies in the past year has been the inefficiencies and delays in carrier claims processing. Moreover, many carriers have not adopted processes that enable agencies to report claims in bulk when most of the agency’s customers have experienced claims. Hopefully, carriers have learned from their Katrina experiences and will implement streamlined notification and approval processes, better technology and standards of performance for both their employees and independent adjusters.

Agencies should press carriers to implement innovations so that claims are handled more effectively when the next widespread disaster occurs.

For more information on agency disaster planning and management, go to www.independentagent.com/act and click “Agency Improvement Tools” and “Monthly Articles.”

Jeff Yates (jeff.yates@iiaba.net) is executive director of ACT.

VIEW: Katrina: One Year Later
By Your Side
The Big “I” supports agents as they support clients in Katrina-ravaged areas.

From the front-line Gulf Coast agents, to agents in California dealing with rising earthquake premiums, to agents in Long Island trying to get homeowners’ coverage for their clients, Big “I” agents and brokers all over the country have felt the effects of Hurricane Katrina. The aftermath is surely affecting your neighborhood in one way or another, making this a critically important time to be an independent agent. Your clients are relying on you to find the most innovative, affordable and complete coverage for their homes and businesses in insurance markets that can be less than ideal.

As you advocate for your clients, the Big “I” works tirelessly to advocate for you. This past year has been one of trials and tribulations for many agents, regulators, legislators, this association---and for your customers. The Big “I” provides support for agents and brokers in many areas, from financial to media to legislative to legal advocacy.

To support agents and brokers affected by Hurricane Katrina, the Big “I” established the Katrina Relief Fund, created by a non-profit foundation operated by the Big “I.” This fund raised nearly $500,000 to help individuals and businesses in the insurance community devastated by Hurricane Katrina. In addition, IIABA donated hundreds of catastrophe packs to agents and individuals in need. The Big “I” Virtual University offered assistance and support to victims through a Hurricane Katrina resource page, including everything from satellite imagery to mold clean up tips to survivor information.

On the government affairs front, we’ve spent the past year diligently working with Congress to make the National Flood Insurance Program more effective and efficient. We scored a big victory for consumers and agents by successfully introducing several provisions into an updated version of a Congressional bill on flood insurance, including the addition of optional business interruption coverage on commercial policies, increases in the maximum coverage limits and the inclusion of additional living expenses coverage for residential policies. This bill will strengthen the enforcement of mandatory participation requirements and fully implement the mitigation pilot program in FIRA 2004. If enacted into law, this legislation will go a long way toward keeping the NFIP viable while ensuring a quality product and quality service to your customers.  

The Big “I” dedicated considerable time and resources to working with the media throughout the past year to ensure fair coverage of independent agents and their role post-Katrina. Positive media coverage of the insurance industry is often a struggle, and this time around proved no different. Numerous articles in top publications viewed the industry with a negative slant, including “Mississippi Sues to Make Insurers Pay Flood Claims,” “Insurance Headaches Continue Across Gulf,” “New Orleans Evacuees Gone for Good, Due to Insurance Costs” and “Homeowners Lose in Katrina Insurance Flood Case.” The Big “I” continues to work with print and broadcast reporters to emphasize, explain and educate reporters on the true nature of insurance products, such as flood insurance, as well as on the vital function and role independent agents play for their customers. In addition to Big “I” national and state staffers, dozens of agents volunteered their time, meeting with and talking to reporters in an effort to educate them about the independent agency system, the claims process, insurance products, coverage issues and more. 

While progress has been made one year after Katrina, there is still more work to do. It is important to give back in every way we can. By hosting our Fall Leadership Conference and board meeting in New Orleans, we hope to bring whatever business we can to the area, contributing to the economy, while also partnering with Habitat for Humanity to work to repair homes in New Orleans. More than 200 Big “I” leaders, including as national board directors and executive committee members, along with national and state association staff members, will volunteer their time to a Habitat for Humanity project in New Orleans for a full day.

The work of Big “I” independent agents and brokers since Hurricane Katrina has been truly remarkable. As independent agents and brokers, you are the pillars of your community and the leaders people turn to in their time of need. I’m very proud to have witnessed Big “I” state associations helping other state associations and agents from all ends of the country volunteering their time and resources. From volunteers, to donated office supplies, to monetary donations and moral support, along with the incredible number of prayers, the Big “I” membership really came together during this trying year. This is what being a Big “I” member is all about---advocacy for your customers, advocacy of the independent agency system, help for your fellow agents and helping people in their greatest hour of need. 

Bob Rusbuldt (bob.rusbuldt@iiaba.net)  is CEO of the Big “I.”

L&H Trends
New Tax Law Wrinkle Could Benefit Clients

A number of provisions in the newly passed Pension Protection Act of 2006 encourage people to save for retirement. Among the ones discussed in the media are funding requirements for defined benefit pension plans, now-permanent higher contribution limits for IRAs and 401(k) plans and new flexibility for non-spousal beneficiaries of retirement plans and IRAs. However, some provisions have not received attention, including one that may benefit older Americans who don’t have a high enough level of deductions to be able to itemize.

For tax years in 2006 and 2007, individual age 70.5 or older can choose to have amounts forwarded from their IRA directly to a tax-exempt charity. The advantage to the individual is that these withdrawals, when paid directly to the charity, are not taxed (up to $100,000 per year). When people reach age 70.5, they need to begin receiving a minimum-required distribution from their IRA, which is subject to taxation as ordinary income.

Let’s take an example of a 73 year old who has to withdraw $5,000 from his IRA. Further, let’s assume that his mortgage is paid off and he has no other significant deductions. He’s unable to itemize his income tax return and take the standard deduction (or conversely, he has a high income and is subject to a ceiling on itemized deductions), and he contributes $4,000 a year to a tax-exempt charity. Under this new exception, for 2006 and 2007, the taxpayer will save significant tax dollars by having the contribution made directly to the charity (or he can contribute an even higher amount and have the same after-tax effect.)

If your agency does an occasional mailing to customers or distributes materials in the office, communicate this new wrinkle to customers. The information doesn’t just apply to the older customers. Younger customers might want to discuss it with their parents.

How does the agency benefit by sharing information with customers if it doesn’t result in an immediate product sale? Solving your customers’ problems and putting their needs first is the essence of building a relationship. Think about the time that you brought your car in to a repair shop because you assumed it needed a major repair only to find out that it was a minor issue and the garage mechanic told you there would be no charge. The value of goodwill helps build value into your agency.

Make a conscious effort to glean information that might be of interest to your customers and get it in front of them. Of course, always let you customers know that tax advice always has nuances and they should discuss it with their attorney and/or accountant to make sure that it will benefit their particular situation.

Dave Evans (dave.evans@iiaba.net) is a certified financial planner and IA l-h contributing editor.