"Get your facts first, and then you can distort them as much as you please." (Mark Twain)

Monday, September 12, 2005

In the Wake of the Flood 

Just in case you need another reason to despise the insurance industry, here's one:
The survivors of Hurricane Katrina, whose bludgeoned houses litter the U.S. Gulf Coast, are gearing up for another epic battle, this time against their insurers.

Almost two weeks after the killer storm swept ashore, homeless residents are only now beginning to contact their insurance companies, and they do not like what they hear.

The problem is that when Katrina came ashore in Mississippi state, which lies just east of Louisiana and devastated New Orleans, it brought with it a record storm surge that appeared to do much of the damage, leveling entire communities.

Initial comments from the insurance firms indicate that they believe this constitutes flood damage, which they do not pay out for. Standard homeowner policies only talk about wind, hail and rain, while flooding is covered by an optional government program, at additional cost....

The Federal Emergency Management Agency estimates only 40 percent of those hit by Katrina had flood insurance, including the hundreds of thousands from sodden New Orleans.

That means many people will not have the means to rebuild their ruined homes and risk bankruptcy....

The full extent of the damage caused by Katrina is not yet clear, but one catastrophe risk modeler has estimated insured losses could be between $40 billion and $60 billion, while uninsured losses could be at least that much again.

Even those people who did take out flood insurance are girding themselves for legal action, saying flood cover alone will not be enough to pay for the damage.

The government flood program pays up to $250,000 for residences, but many beachfront properties turned to a heap of matchsticks by Katrina, were worth much more than that.

Of particular interest is the mention of victims being reduced to bankruptcy - in light of the recent bankruptcy deform legislation, it is quite possible that Chapter 7 liquidation will be unavailable to many of these victims. They may be able to get Chapter 13 reorganization protection, but that means they will be working for the next 5 years (assuming they are lucky enough to find a job) to pay off the mortgage on their two bedroom pile of rubble. It is a tragic coincidence that the bankruptcy changes go into effect at the same time that Katrina victims are likely to start looking at bankruptcy protection for breathing room, and it will be interesting to watch the political fallout from this particular coincidence land over the next several months. Note to Joe Biden (D-MBNA): Don't start picking out your new White House china pattern just yet.




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