Lessons learned from Hurricane Katrina can help insure against future disasters

With predictions for a severe 2010 hurricane season, coastal residents should heed the lessons learned from Hurricane Katrina by making sure to have the right type and amount of insurance, according to the Insurance Information Institute (I.I.I.).

August 29 marks the fifth anniversary of Hurricane Katrina, the most costly insured disaster in United States history, which caused more than $41 billion in insured damage to homes, cars and businesses in Louisiana, Mississippi, Alabama, Florida, Tennessee and Georgia. The National Flood Insurance Program (NFIP) paid an additional $16.1 billion for flood-related losses.

The devastation caused by Hurricane Katrina demonstrates the costly ramifications of not properly preparing for a disaster. The Insurance Information Institute says:

1. Some individuals and business owners neglected to purchase flood insurance. Lack of flood insurance resulted in uncovered losses to thousands of homes and businesses.
2. Many business owners, who had spent years building up their companies, did not purchase the right type and amount of coverage, including business interruption (business income) insurance. Many were never able to open their businesses again.
3. Some homeowners and business owners did not invest in making their property hurricane-resistant by installing storm shutters, hurricane clips, and other loss-mitigation measures, which could have saved their property.
4. Many policyholders failed to take a home or business inventory prior to the disaster, which could have made the claims process easier.
5. Many businesses owners did not have a disaster preparedness plan. As a result, those businesses were unable to resume operations.
6. Many homeowners and business owners did not update their insurance policies to reflect the current cost of rebuilding or replacing damaged property and were left underinsured as a result.
7. Some individuals did not evacuate, especially when told to do so by authorities. At least 1,836 people perished in the hurricane and subsequent floods, making it the deadliest U.S. hurricane since 1928.

“The more prepared you are for a hurricane or other major disaster, the greater the possibility you and your loved ones will survive the storm both physically and financially,” said Jeanne Salvatore, senior vice president and consumer spokesperson for the I.I.I.

Just how prepared are Gulf Coast residents five years later? According to a 2010 I.I.I. poll, 74 percent of Louisiana and Mississippi residents who had filed an insurance claim from Hurricane Katrina considered themselves more prepared now than in 2005, compared with about half of the residents of those states who did not file a claim. In addition, seven out of 10 Hurricane Katrina claimants now have an inventory of their possessions to document their losses after a disaster, compared with 50 percent of the nation as a whole.

However, the survey also found some disturbing views: 32 percent of respondents in Louisiana and Mississippi think their homeowners policy covers damage from flooding during a hurricane—that is double the percentage in the nation as a whole, but still represents a surprisingly high number of people who remain uninformed about flood insurance.

“It’s astonishing that so many people who lived through Hurricane Katrina still don’t understand that flood insurance is not covered under a home or business policy,” pointed out Salvatore.