Hurricane Katrina stands as the single most costly U.S. natural disaster. Insured property loss payments in the six states impacted are estimated to exceed $40.6 billion. Damages resulting from Katrina generated in excess of 1.7 million claims. Together, the four hurricanes in 2005 — Katrina, Rita, Wilma and Dennis — generated more than 57 billion in insured property losses and produced 3.3 million claims. It is estimated that some 15,000 insurance representatives have been involved in helping customers recover from these losses.

Insurers have settled the vast majority of the claims submitted. Indeed, the Insurance Information Institute estimates that, at the one-year anniversary date of Katrina, fewer than two percent of Katrina homeowners' claims filed in Mississippi or Louisiana had proceeded to mediation or litigation. While a two-percent litigation rate is low, it still represents a substantial volume of policyholders dissatisfied with the adjustment of their loss. By comparison to the total claims submitted for the four hurricanes in 2005, for example, it represents approximately 66,000 claims. The expense incurred by insurers to mediate and litigate this claim volume is significant.

No insurer wants a customer's claim to proceed to litigation. While litigation sometimes results from a difference with the customer over the application of policy terms, other times it results from a difference with the customer over the amount of the loss. Regardless of why a difference exists, the actions (or inactions) an insurer takes while adjusting a loss impacts whether or not a customer proceeds with litigation.