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Insurance hinders New Orleans recovery

November 24, 2005

By Janet Guttsman

NEW ORLEANS (Reuters) – Nervous insurers are steering clear
of hurricane-hit New Orleans, posing new problems as people
here try to rebuild or relocate.

Almost three months after Hurricane Katrina damaged tens of
thousands of homes, insurance companies worry about safety,
regulations and future risk. Existing homeowners argue about
payouts, and would-be buyers struggle to find any insurance at
all.

“We were ready to sign a contract on a house, but we can’t
get insurance,” said Steve, whose company is moving him to New
Orleans and who asked Reuters not to use his second name. “I’m
baffled why the real estate companies still show houses.”

It is generally impossible to get a mortgage on a house
without insurance.

“There are only a few companies that are writing policies
right now, and everything is running slowly,” realtor Muffin
Labourisse, whose company is still showing and selling houses,
said of the city’s post-hurricane real estate reality.

The storm tore roofs off buildings, blew out windows and
ripped the frontage off homes and offices.

But it also punctured flood protection levees and left vast
areas under up to 10 feet of water. Hundreds of thousands of
people left town and many have not returned, either because
their jobs disappeared, or because they have nowhere to live.

For insurers that means huge uncertainty. Allstate Corp.,
for example, said last month it would cut its exposure to
property in hurricane-prone states because it couldn’t “price
insurance properly.”

“Some (insurance) companies are only writing for current
customers if they are moving, others are not writing at all.
There are so many areas that are so badly damaged that nobody
wants to insure there, because there is no guarantee what is
going to happen next hurricane season, or next time there is a
big storm,” Labourisse said.

$40 BILLION OF CLAIMS

The Insurance Information Institute, a leading U.S.
insurance industry group, expects some 1.6 million claims worth
a total of $40 billion from Katrina.

That’s almost twice the $21 billion (in today’s dollars)
caused by Hurricane Andrew more than a decade ago and does not
include several billion dollars for damaged offshore energy
facilities or $25 billion in federally funded flood insurance,
said Robert Hartwig, the institute’s chief economist.

It meant insurance costs would rise, he added.

“The city of New Orleans is not prepared to withstand
another event like this in the future,” he said.

“We know that the levees can be breached, and we know that
the level of fire and police protection in these communities is
not what it once used to be. All of that factors into the
riskiness associated with insuring a home.”

John Marlow, of the American Insurance Association in
Austin, Texas, said he was worried legislators would react to
the storm by introducing rules that could make Louisiana a more
difficult place to operate in.

“It’s been a slowly improving scenario, providing home
owners with greater competition and better rates,” he said.
“But they need to stay on that track rather than revert back to
an overregulated and burdensome system that drove insurers away
from the state 10 years ago.”

But Marlow said he was encouraged by new building codes
introduced this week in a special session of the state
legislature.

“That’s going to go a long way toward spurring
redevelopment and building properties that will withstand
similar events in the future to a greater degree,” he said of
the codes, which aim to ensure that homes in hurricane-prone
areas in the south of the state are built to withstand winds of
130 to 150 miles an hour.

“That’s a good move and sends a good message to the
insurance community that when things are rebuilt and
redeveloped they will be safer and will be able to withstand
storms in the future.”


Source: reuters



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