Insuring Against the Natural Catastrophe After Katrina

the rubble-piled Mississippi Gulf Coast and breached levies of New Orleans, Hurricane Katrina's victims are not debating global warming or unrelated climatic change. Rather, if they are property owners, they are debating wind versus flood, actual cash versus replacement cost value, and additional living expense. Their question is far more immediate: Am I covered by insurance? In the wake of the costliest natural disaster in U.S. history, it is an understandable inquiry. Katrina's insured losses are estimated near $60 billion. They will be divided between private insurers (and the reinsurers that back them) and the federally subsidized National Flood Insurance Program (NFIP). Uninsured losses, estimated closer to $150 billion, will be borne by the federal government (and the taxpayers who back it). By now, many insured property owners on the Gulf Coast have been told that their privately issued homeowner's and commercial property policies do not cover flooding or storm surge, or that their NFIP flood policies do not cover damage caused by wind. The federal government, through the NFIP, is the primary insurer of flood loss. Yet significantly less than one-half of homes in areas most affected by Katrina even have federal flood coverage. Louisiana and Mississippi residents already have turned to the judicial system for relief. Just two weeks after Katrina struck Mississippi, the state's attorney general filed suit against five insurers seeking to hold flood exclusions in their policies void as against public policy. Residents of Louisiana's Orleans and Jefferson Parishes have filed a class action against the state's insurance commissioner and fifteen insurers, seeking a declaration that their homeowner's policies covered damage caused by breaches in the flood walls along the 17th Street Canal and the London Avenue Canal, as opposed to excluded flood damage. For those fortunate enough to have flood insurance, their confidence in the NFIP is waning. Many are quickly disheartened when they learn that the NFIP is administered by the Federal Emergency Management Agency (FEMA). In October 2005, the Government Accountability Office (GAO) reported that almost 50 percent of policyholders who sought a review of their flood claims arising from Hurricane Isabel in 2003