According to Time Magazine, Hurricane Katrina cost $150 billion in monetary damages, becoming the most expensive storm in U.S. history. Levees that had been built to withstand such natural forces broke away and left over 400,000 New Orleans residents homeless. This storm destroyed lives, and was the first of its kind to rock the insurance industry.
In this article we’re going to take a look at how Hurricane Katrina changed the way homeowners insurance works. And remember, if you’re browsing homeowners insurance quotes compare websites, CoverHound’s there to make it quick and painless.
Why It’s an Industry
A grand total of 725,000 insurance claims were made after Hurricane Katrina , an in an article written by The New York Times, it was learned that private insurers paid less than $900 million in coverage to their clients than they were owed.
Even though the insurance industry did not pay the dues they owed their clients (and probably because they owed so much) the industry raised premiums, insisted their clients increase their deductibles and circumscribed their coverage policies. To top it all off, the insurance industry denied their most vulnerable clients’ (people living in high-flood and severe weather areas) insurance renewals.
As result of these new practices, insurance premiums have risen at a rate of 69 percent since 2005. According to the Insurance Information Institute, (III) homeowners most affected by these changes are those who live in the coastal state and along the Atlantic seaboard. To protect themselves from such losses again, III reports that reinsurance companies (insurance agencies that work with primary insurance companies to share claims costs) could not cover the risk if primary insurance companies did not reduce their probable losses.
To prepare for other catastrophic hurricanes that would in all likelihood hit the coastal region, insurance companies came up with a policy that would limit their vulnerability. People living on the East Coast now have to pay a percentage deductible, also known as hurricane and windstorm deductibles. The hurricane and windstorm deductibles replace the customary dollar deductible, which is the amount of money you have to pay out first before your insurance company will approve your claims and pay for the remaining damages.
Typically, insurance companies give their clients a choice when it comes to their insurance deductible. To get clients to pay a higher deductible, agencies will offer a discount on the client’s insurance premium rate. This isn’t exactly how it works with hurricane and windstorm deductibles. While this does depend on the state, III notes that insurance agencies are defining for themselves what a client’s hurricane and/or windstorm deductible will be. This leaves little room for you to negotiate the cost of your insurance contract. That’s why shopping around is so important—it’s not only about the premium rate; it’s about the amount of coverage and how will an insurance agent will be to work with you. When you’ve lost everything in a storm, you want to have a safety net, otherwise what good is insurance for?
It never hurts to do a little bit of digging before you sign an insurance contract. See what we can do for you today.