On top of Katrina's devastating punch came Hurricane Rita's wallop, punctuating the point for anyone who might not have been convinced of nature's fury and the toll it can exact. All losses, though, are not alike, and Katrina and Rita's collective wrath will scar the economy in ways that Andrew never managed.

One key variable is how much of the loss is determined to be insurable, and thereby covered by private carriers. If the damage is considered to be within the definitions of the typical policy, or if flood insurance was purchased, then coverage for property loss, hotel rental, business interruption and actions by government authorities (such as sustained evacuation orders) will likely be provided.

However, if the losses are deemed to be from flooding, storm surge or broken levees, then the coverage issues, as we are already seeing, will be as murky as the water that sat dormant for days in New Orleans.

One television commentator early on in the emergency observed that Katrina was different from Andrew in that the former was a wind and water event, while the latter was primarily a wind event. Undoubtedly, that reporter had no idea just how important their 30-second analysis would be in the grand scheme of things.

Andrew was favorable (if anything like that could be said) from an insured's perspective and very bad from an insurer's view in that it was clear the losses were, in fact, covered. As a result, as many as 10 insurers, meeting the clear mandate of their policies, went insolvent in the process.

While some loss estimates from Katrina compare closely with or are greater than those of Andrew, the impact upon insurers is still unknown because so much of the damage was, and continues to be caused by water rather than wind.

It remains unclear–even after an initial meeting with insurance regulators and industry representatives a week after the event–if the fact that so much flooding in New Orleans came from broken levees, or that so much property and business loss came from the civil disobedience will change the coverage dynamic to suddenly turn more "favorable" for insureds.

The bottom line, of course, is that nobody wins from the devastating effects of Katrina, Rita or any other catastrophic event–natural or man-made. And no one wins from the fact that, under our current system, time and again it is largely a matter of sheer luck whether someone is covered for losses, whether an insurer is responsible for loss payments, and whether an insurer or insured actually survives the process.

The enormous pressure on insurers to do the right thing for affected policyholders will have to be balanced with the right thing to do in terms of the original policy terms and conditions, as well as the carriers' other insureds and shareholders. It is a most unenviable position to be in when the difference may be in the tens or hundreds of billions of dollars.

As much progress as we may think we make going from one disaster to another, learning hard-earned lessons, we are still confronting many of the same aftereffects and outcomes as with previous natural and man-made catastrophes.

Again having to weigh legitimate concerns of whether there will be private insurance or government coverage for actual damages sustained, and whether there will be an after-market for insurance coverage in any coastal state going forward, shows just how much we have not progressed in learning from the events of the past.

Rate increases and insurers leaving the homeowners insurance markets in Florida are the present-day aftermath of last year's four devastating hurricanes there–and the impact would have been much worse if Florida had not made bold moves after Hurricane Andrew to set up safety nets in the insurance system.

In fact, recognizing the pressure on the insurance system caused by the repeated pounding taken by Florida in the past several years, the state insurance director recently called for the creation of a national catastrophe fund, and regulators from Florida, California and New York will meet in November to further discuss the issue.

Since such a fund does not presently exist, however, and since previous efforts to tackle the issue have been fruitless, market fallout similar to that seen in Florida post-Andrew or after the 2004 hurricanes is now likely in the Gulf Coast states most impacted by Katrina and Rita.

The federal government–recognizing that Washington often becomes the insurer of last resort if the public fails to buy insurance, or the right coverage–recently started to encourage greater private sector disaster preparedness as a way to at least mitigate losses, if not avoid them altogether.

The Intelligence Reform Act of 2004 provides both a standard for preparedness activities by private entities (incorporating by reference the National Fire Prevention Association's Standard 1600) and a method of oversight by insurers and credit rating agencies to make certain these preparedness standards are actually used.

However, given the reality of the seemingly random applicability of coverage relative to the nature or mechanism of loss, it appears equally arbitrary that the preparedness activities undertaken would be specific enough to actually eliminate the need for the federal government to once again serve as the insurer of last resort.

The incomplete approach to greater private sector preparedness in the Intelligence Reform Act, and the one-dimensional efforts aimed at addressing specific risks (such as the terrorism insurance plan created in 2002 or the establishment of earthquake or hurricane funds) are all coming up short in terms of adequately protecting homes and businesses–insurers included–over the long term.

The variety and cost of catastrophic risks that are common to this country require a much more comprehensive approach to both managing and financing such exposures.

It is clear that if we are to materially address many of the risks facing the United States and the global insurance market, we must take a new approach to the financing and underwriting of catastrophic risk by private insurers. We must properly interface the private insurance system with strategic public financing initiatives, and clearly articulate responsibilities for private citizens and businesses to care for themselves.

Our national policy toward managing and financing risk should not be, as a recent headline in The New York Times noted, a matter of "wind or water"–or, for that matter, terrorism or earthquake, or any other Hobsian choice of one peril over another.

As Katrina and Rita so boldly remind us yet again, none of this can be accomplished without a national catastrophe policy.

So often, public policymakers make a charade out of catastrophe financing reform by imposing more requirements on insurers to expand the nature of coverage applicable to disasters after the fact. Insurers try to equalize these new demands–and the losses that a disaster brings–through restrictions on underwriting and higher rates.

Catastrophe financing is still largely an ad hoc and incomplete discipline in an area that demands comprehensive strategizing and planning for the broad array of risks that are now the norm rather than the exception.

Clearly, a national strategy is required in which the government, the insurance industry and the private sector collaborate to provide a more secure, reliable and affordable safety net for disaster victims.

The federal government, along with the citizens and businesses of states at risk for coastal wind or flood disasters, earthquakes, terrorism, tornadoes and any other unique catastrophe exposures, will all benefit from a national policy on catastrophe financing, with the key elements detailed in the "Key Components" breakdown.

Insurers, as the nation's main bankers for catastrophe relief, will also greatly benefit from both a more rational and predictable approach to risk management and finance.

Gregory V. Serio, managing director at Park Strategies, LLC in New York, was the state's superintendent of insurance from 2001-2005.

Flag: Key Components

Head: What Should Washington Do?

The key to crafting a new national strategy to finance recoveries from catastrophes is to create one uniform and effective protocol for disasters of all kinds. A catastrophe fund is an important component but not an exclusive remedy. In addition, the government should:

o Allow catastrophe reserving by insurers–so-called "rainy day" accounts.

o The accounts should be tied directly to broader and more flexible coverage for property loss that can apply to the variety of risks out there, especially in homeowners and business interruption protection.

o There should be shared funding of loss between private insurers and the federal and state governments through the use of strategic stop loss and excess-of-loss pools.

o We need to increase opportunities for the securitization of risk and other alternative risk-funding initiatives that assure both the adequacy of resources to effectively respond to disasters, as well as maintain insurance markets with minimal disruption in availability in post-event environments.

o These efforts need to be joined with rules for greater private sector preparedness connected to real economic incentives, such as special tax credits or deductions, for making the investment in preparedness.

Quotebox, with mug:

"We must properly interface the private insurance system with strategic public financing initiatives and clearly articulate responsibilities for private citizens and businesses to care for themselves."

Gregory V. Serio