When the Chairman's Message to the membership (which is also included in this issue) was written Katrina was not even a tropical storm, much less a hurricane. We are all now very much aware of the incredible destruction, pain and suffering that Katrina has inflicted on New Orleans and the entire coastline of Louisiana, Mississippi and Alabama. Insured damage estimates range from as low as $20 billion to as high as $60 billion. The consensus puts the insured losses at $40 billion. However, it must be remembered that these are still estimates and it may take months before a final cost can be determined. It should also be mentioned that Katrina could be the most expensive catastrophe in our history, exceeding both Hurricane Andrew and September 11. While Hurricane Rita was not as severe as initially expected, it will generate a significant insurance industry loss as well.
One recent analysis of the insurance industry concluded that it will be the reinsurers who will be hardest hit by clams because the storm is considered to be a single event which means that the primary insurers have a single retention and once that retention has been exceeded the reinsurers become responsible for the balance. To further complicate matters, most commercially written insurance policies do not cover losses caused by flood. Flood insurance can only be purchased through a federally sponsored program and most of the individuals and businesses impacted by Katrina did not have flood insurance.
It is a certainty that massive litigation will occur as policyholders attempt to recoup their losses, covered or not, from the insurance industry. The Attorney General of Mississippi has already filed suit against several large insurance companies in an attempt to force them to pay for a greater share of the damage. Thousands of similar suits are being readied for filing in the near future.
Regardless of the outcome of these suits, the cost for insurance is likely to increase as a result of Katrina and other 2005 events. Such increases will not just be limited to property/homeowner coverage, we believe that all lines of insurance will ultimately be affected including attorney's professional liability insurance because the cost of reinsurance is likely to rise. Recent estimates indicate that 2005 could be the costliest year ever for the reinsurance industry.