Insurers Faced War Zone Conditions After Katrina

Adjusters' lives were disrupted along with the policyholders they serve, enduring months of grueling hours, housing problems, long lines at gas stations, working in extreme weather–and, sometimes, even violence–all in an effort to settle claims.

For the first time in history, many companies made immunizations available to adjusters to protect them against contaminated floodwaters. Then there was the daily stress of seeing devastation everywhere, the lives lost, and the heartbreaking realization that many people didn't have flood insurance.

Many adjusters and agents were victims of the hurricanes themselves–losing their homes and offices–often putting aside their own claims to help policyholders first.

Eight months later, the insurance industry has settled nearly 90 percent of the three million or so claims that affected the Gulf, and will ultimately pay out over $40 billion. The sheer magnitude of this disaster has presented enormous challenges to the insurance industry. Indeed, never has it taken so long after an event to recover.

There are now mediation programs in place in Mississippi and Louisiana to help resolve disputes between insurers and policyholders. Yet despite these efforts, ambitious lawyers brazenly have taken out ads on radio and TV, in newspapers, even on billboards and buses, urging homeowners to file suit against their insurers, knowing these lawsuits will slow down the claims paying process.

Going forward, availability and affordability issues loom. Some companies are already excluding wind coverage–particularly for commercial lines. Scores of homeowners will be forced into Louisiana Citizens, the insurer of last resort, which is already overburdened with more than one million policyholders.

On a positive front, the wind versus water coverage dispute and the implications of lawsuits challenging the industry's flood exclusion was recently upheld by the U.S. District Judge for the Southern District of Mississippi.

In Gulfport/Biloxi, the scene is different than it had been eight months ago. Where piles of wood and rubble lined the empty streets, roads are now clear of most debris. There are miles and miles of vacant lots and slabs where opulent antebellum mansions once stood–a way of life forever lost.

The scattering of seaside homes that remain, split open to the elements, reveal the affluence of their owners. It seems astounding that many didn't buy flood insurance even though their homes were situated no more than 100 feet from the water.

Juxtaposed to the vacant homes are two high-rise condominiums near completion, showing no evidence of damage. They had been in the process of being built just before the storm hit, and the newer construction standards had withstood the forces of nature–even the windows remained intact. Some of the casinos have reopened, but most businesses along the shore are gone.

In Louisiana, the cleanup process is far slower. Huge piles of toxic debris remain in areas such as the Lower Ninth Ward (one of the area's poorer communities). There is limited or no electricity or water. Giant rats are overrunning parts of the city.

In areas such as Chalmette, Orleans East and St. Bernard's parishes, miles and miles of rotting homes remain abandoned with "For Sale" signs affixed to them. It was as if I was standing in a war zone after heavy artillery; as if I was standing, once again, in the pit of the World Trade Center after the bombing. It was a surreal picture to see young children squatting amidst the rubble and glass, adjusting their skateboards.

FEMA trailers (with sewer and water hook-ups) are now outside about 30 percent of the gutted homes, housing more than 87,000 families in Louisiana, Mississippi and Alabama.

Some homeowners have begun the rebuilding process, not willing to wait for construction workers. A big concern is the fact these people don't have the skills to do the work or may hurt themselves replacing roofs or electrical wiring.

The only business that was open was a lumber yard. A Home Depot and Wal-Mart had signs stating they were opening soon and were seeking workers. Next to them was a McDonald's restaurant, its golden arches twisted and heaped on the ground.

There is the broader economic aspect, including the lack of unskilled workers in Southeastern Louisiana. In New Orleans, only 40 percent of the population has returned. Many worry the Crescent City will never get back to its former size.

This presents a huge problem for businesses–such as hotels–that depend on domestic labor. There are those who worked in the restaurant or hospitality service areas whose jobs have been taken over by migrant Mexican workers who are willing to accept lower wages and unsafe housing conditions. If they have no jobs to come back to, how can the area's residents afford to make mortgage and insurance payments?

Many of the restaurants and nightclubs in the French Quarter remain empty. None of the usual conferences are being held, which is needed to revive the city. There are clear signs of urban decay, including abandoned and neglected buildings, large numbers of homeless and evidence of drug use.

Eight months later, home- and business owners feel they have been deserted by the federal, state and local governments. The national media coverage grows faint. People want to know, "Who's in charge?"

There are huge concerns facing homeowners and their insurers–particularly in Louisiana. Many are reluctant to get started until they know how their community is going to be rebuilt–to what codes and standards? Do they need to elevate their homes? How high? The Army Corp of Engineers says three feet; others say it is not high enough.

And who is paying for those elevations? When should it be done? Should people rebuild in areas that are environmentally unsafe and might be flooded again in future storms, or should they abandon large parcels of land to nature?

Many have asked their insurance agents whether they should insure their homes, even if they aren't living there. Agents are advising homeowners to keep their insurance. This is a real problem for indigent people who lived in the Lower Ninth Ward and can no longer afford it.

For those wanting to rebuild, there is a shortage of contractors. Licensing requirements are difficult–some say to keep crooked "outside" contractors from taking advantage of unsuspecting homeowners (which happened in Florida after Hurricane Andrew). Others contend local contractors are keeping outside firms from getting into the market, wanting to keep the jobs for themselves, even if it takes years to do. Building costs continue to soar as supply and demand dictates (in part due to large supplies of lumber being exported to China and India who can't build their infrastructures fast enough).

Meanwhile, hurricane season is less than five weeks away. Climatologists predict this season will be active. Dr. William Gray, for example, warns that there is an 81 percent chance that a major hurricane (Category 3, 4 or 5) will make landfall on the U.S. coast in 2006, and a 47 percent chance that such a storm will hit the Gulf Coast.

Residents of Louisiana are skittish–unconvinced the levees will be strong enough to hold. While the U.S. Army Corps of Engineers has revised estimates to certify and strengthen levees and has sought $2.5 billion in funding from Congress for work in all of the New Orleans area (except for lower Plaquemines), residents say asking for funding and strengthening the levees are two different things. They say maybe it's enough money to withstand a Category 3 storm, but what about protecting the Big Easy from a Category 5 storm?

Absent a strong levee system, there could be insurance availability problems, which could affect mortgages and make many wonder if it is worth it to stay in Louisiana.

The good news is that despite the obstacles, many people are deeply committed to bringing Mississippi and Louisiana back. Homeowners have a better grasp of their financial situations as well as their insurance issues–and are trying to make the best of it.

This resilience and courage was never more palpable than in the streets of New Orleans during its first post-Katrina Mardi Gras–a symbol of the culture and soul of the South. Everyone got into the spirit, donning masks and throwing doubloons and beads from colorful floats–many with their trademark wry sense of humor, with tongue-in-cheek "salutes."

One float–created by the Krewe of Muses, called "A Game of Chance"–aptly read: "A game of chance is a game whose outcome is random, and upon which contestants frequently wager money. Common devices include dice, playing cards, roulette wheels, numbered balls drawn from a container, or…living in New Orleans. We're going to let it ride! It's worth the risk."