As illustrated by the 2004 and 2006 hurricane seasons, theseverity of losses due to hurricanes can vary drastically --challenging insurers to be prepared for the unknown at all times.Marked by a record six consecutive tropical cyclones striking land,the 2008 hurricane season once again tested insurers' responsestrategies by causing damages across a wide range of geographicalregions from southern Texas to northern Ohio and as far east asVirginia.

After the continental United States experienced two successiveseasons in 2006 and 2007 without hurricane landfall, the 2008season became one of the most active on record. According to theNational Oceanic and Atmospheric Administration's (NOAA) NationalHurricane Center, the 2008 season tied for fifth place as the mostactive season since 1944. A total of eight hurricanes formed duringthe season, which also represented the fourth most active in termsof named storms (16) and major hurricanes (five).

Furthermore, NOAA reports that 2008 was the tenth season in 14years to produce above-average hurricane activity, and it was thefirst season to have a Category 3 hurricane form in the Atlantic infive consecutive months. Such increased levels of activity, coupledwith growing populations and increased risk inventories in coastalareas, have led insurers to carefully reassess exposures andoverall response capabilities when a hurricane-related catastrophestrikes.

A Historical Context

In September 1989, the insurance industry faced its firstbillion-dollar hurricane-related catastrophe when Hurricane Hugohit the coast of South Carolina as a Category 4 storm. Hugo causedapproximately $4.2 billion in insured property losses from theCarolinas through eastern Ohio. The costliest hurricane in terms ofinsured loss since Frederic a decade earlier, Hugo caught theindustry by surprise as adjusters scrambled to deal with asubstantial influx of claims.

By the time Hurricane Andrew struck Florida in 1992, theaftermath of Hugo had given insurers a better idea about how andwhere to deploy adjusters to handle claims as efficiently aspossible. The overall magnitude of Andrew, however, created its ownset of unique challenges. For example, in the days followingAndrew, adjusters began offering policyholders checks as an advanceto help facilitate the repair and rebuilding process. However, thewidespread destruction caused by the storm also led to significantdisruption of local businesses, including banks. Many policyholdersexperienced difficulty locating an operating branch willing to cashthe checks, particularly if the policyholder did not have anaccount with the bank. Such difficulties contributed to the slowrecovery process and fueled policyholder frustration.

When four hurricanes -- Charley, Frances, Ivan, and Jeanne --struck Florida in the third quarter of 2004, insurers once againfaced their biggest hurricane-related ordeals in more than adecade. Successive strikes in just over a month's time across thestate meant that insurers had to gear up quickly and alsoeffectively manage expectations among hard-hit policyholders andadjusters alike.

A year later, Hurricanes Katrina, Rita, and Wilma pummeled theU.S. coastline in three consecutive months, with Katrina and Ritadevastating the Gulf and nearly wiping out the city of New Orleans.The extensive flooding and damages in Louisiana and Mississippimade travel extremely difficult for adjusters, especially in lightof millions of displaced residents and the lack of availableaccommodations. In many cases, adjusters were forced to travelseveral hours from their hotels to inspection sites, taxing alreadystrained resources. What's more, the level of disruption incommunication lines was severe. Thus, it was exceedingly difficultfor insurers and policyholders to connect in the aftermath of thestorms.

Hurricane Loss Trends and Challenges

Over the last several decades, the population density of U.S.coastal areas -- particularly in the Southeast and Gulf of Mexicoregions -- has significantly increased. According to a 2005 NOAAreport, the population density of the Southeast coastal regionincreased from 142 people per square mile in 1980 to 224 people persquare mile in 2003. Additionally, the population density of theGulf of Mexico coastal region increased from 113 people per squaremile in 1980 to 164 people per square mile in 2003. Such growth hasled to a substantial rise in the number of buildings in theseregions, as well as the subsequent increase of insurers' riskinventories.

The value of high-risk properties has also risen over the lastseveral years, contributing to considerable increases in theaverage claim size. For example, in 1999, the average amount of ahurricane-related personal lines claim was $1,773. In 2005, theaverage personal lines claim jumped to $11,860 after deductiblesand other considerations. That trend carried over to commerciallines claims. In 1999, the average hurricane-related commerciallines claim totaled $10,769. In 2005, the average claim balloonedto $77,592. It's clear that as claim amounts grow, so does the needfor insurers to employ seasoned and experienced adjusters to handlethe subsequent complex issues.

Demand surge or loss amplification is another trend that hastaken on new meaning in recent years. For example, in the wake ofHurricane Andrew the industry paid an estimated 20 percent premiumon the cost of construction materials and labor as a result of thenumber of properties in need of repair or replacement.

Before Hurricane Wilma hit Florida in 2005, insurers estimatedthe value of screened enclosures around pools and patios to beapproximately $6,000 to $8,000. However, after such structures wereseverely damaged by storm debris, those values rose a staggering300 percent to approximately $25,000 as a result of widespreaddemand for replacement materials and labor.

With each hurricane comes a new set of concerns and novel twistson the impediments facing insurers in the aftermath. As issuesrelated to demand surge have slowed the recovery efforts ofhomeowners, businesses, and entire communities, the relationshipbetween policyholders and adjusters has become increasinglystrained.

A lack of available building and construction resources hascontributed to the frustration experienced by policyholders andadjusters. For example, after Hurricane Charley struck thesouthwestern portion of Florida in 2004, contractors had difficultyobtaining the appropriate permits to facilitate the rebuilding andrepair process. The subsequent shortage of available contractorsand laborers was so severe that some policyholders were told itwould take as long as three years before homes could be replaced orroofs repaired.

Another issue facing insurers has been the unpredictable natureof catastrophic events. Despite scientific advances in theunderstanding of hurricane activity as well as the advent ofadvanced catastrophe modeling technology, the fact remains that asevere hurricane can strike the coastal United States at just aboutany given time. Additionally, the timing and geographic location ofthe event plays a significant role in how insurers can and mustrespond.

Let's consider the fact that if a major hurricane were to strikethe northeastern region of the United States in late November, thenthe implications could be several times more devastating than asimilar event in Florida during the same time frame. Florida'sgeographic location and generally warmer climate present a morefavorable environment for builders and contractors to performmuch-needed repairs year-round. But if a late-season storm were tostrike the colder northeastern region, then the continuous threatof snow and ice storms could potentially slow the rebuilding andrecovery process for several months.

Political influences have recently presented a significanthurdle to insurers and adjusters, particularly following thedevastation in the Gulf left by Hurricane Katrina. As a result ofthe difficulties policyholders have experienced and continue toexperience in their efforts to recover from this tragic event,insurers and adjusters have faced considerable public and politicalbacklash in the attempt to price risks appropriately and calculatelosses based on the covered peril.

Advanced Technology

In an effort to deal with the tribulations posed byhurricane-related catastrophe losses, insurers have often turned toinnovative technologies to improve the claim-handling process. Forexample, replacement-cost estimating software allows adjusters tofacilitate the scoping of a claim in a more accurate manner,helping insurers and policyholders resolve the claim more quicklyand efficiently.

The Internet has also enhanced adjusters' abilities to respondto the needs of policyholders in the aftermath of a majorhurricane. Using tools such as e-mail and Web-based claim filing,adjusters can easily upload and transmit important forms, photos,and other documentation to carriers for processing within hours ofassessment. Similarly, these tools allow adjusters the freedom andmobility to move quickly between assignments in a timely andefficient manner.

As exposure to hurricane-related losses continues to rise,insurers will be increasingly tasked to remain prepared for thepotentially devastating effects of concurrent catastrophes at anytime. This requires the ability to build corps of skilled,experienced adjusters to handle the thousands -- or millions -- ofincoming claims.

Meeting the challenges facing carriers in today's environmentwill require diligent planning and execution, including theadoption of advanced technology to heighten the overall quality andefficiency of the claim-handling process. The key is to remainresponsive and resourceful and continually adjust to evolving riskexposures and the needs of policyholders.