Just as Hurricane Camille did 36 years before, Hurricane Katrina left an indelible mark on Mississippi. While the mark is most evident in the coastal communities, the entire state has been affected. Although not as obvious as the physical destruction, one of the most widespread effects of Katrina has been on the insurance industry. More than two years after Katrina, Mississippi residents are still faced with questions regarding insurance such as how high will insurance rates go, will insurers continue to provide all types of insurance, especially homeowners’ coverage, will claims be paid, etc. At the same time, insurers want to assure consumers that they are equally concerned.
We have often heard of instances where insurers have asked for rate increases that are double, triple or quadruple that which is already charged and assume that all insurers have asked for similar increases. We also know of insurance companies that have reduced coverage or decided, for the time being, to stop writing new policies. Many insurers, however, have not sought any rate increases, much less large increases. Likewise, not all insurers have revised the coverages offered in their policies, whether they be existing, renewed or newly issues policies. In fact, while some of the large and well-known insurers have limited their lines of coverage, other non-standard insurers have expanded their lines to include those such as homeowners insurance.
Certainty is important, if not essential, in business just as in life. Prior to Katrina, insurers, as well as insureds, were at peace with the insurance lines and rates provided, in addition to the coverage chosen. While hurricanes are common and it is rare to go more than a few years without measurable damage at some point in the coastal United States, the risks were seemingly foreseeable. For residents of the Gulf Coast, hurricane risks had always been measured by Camille. After Katrina, that changed.
Insurers had always felt, prior to the Katrina and the ensuing legal fallout, that they had no reason to be concerned with rate adequacy in Mississippi. Insurance rates were generally at acceptable levels. However, because the Mississippi Department of Insurance had always understood the importance of adequate rates, if it became clear that rate adjustments were needed, the insurers knew that they could increase rates as long as they were able to show that the increase was reasonable and justifiable.
For the most part, property and casualty insurers have historically provided coverage for wind damage but not water. Until uncertainty was created through the filing of post-Katrina litigation by insureds and the Mississippi attorney general, insurers were comfortable that the terms and conditions of their policies clearly set forth that only wind damage was covered. They also believed that the insurance rates charged would adequately cover their risks. Due to the fear that the homeowners insurance policies issued would be interpreted in a manner that would force insurers to pay for damages not planned for, some insurers began questioning whether they should continue operating in Mississippi.
As the vast majority of the lawsuits filed have made their way through the court system and stronger building codes have been implemented and enforced, insurers have once again regained a certain level of trust in the system. Additionally, the resolution of wind-versus-water issues has limited the exodus of insurers. Furthermore, the Mississippi Department of Insurance and the Mississippi Legislature went a long way to recreate the necessary level of certainty with the implementation of changes to the state’s Wind Pool.
With this increasing level of comfort some insurers have found what is necessary for them to consider resuming business as they had before. In addition, insurers that had not previously had a strong Mississippi presence have begun investigating whether they should enter the market.
Unless future acts by Mississippi’s attorney general or new insurance commissioner lead to new uncertainty, it appears that the insurance market is slowly beginning to stabilize.
Rosemary Durfey is an associate with Wells Marble & Hurst, PLLC. She practices, primarily, in the areas of insurance defense litigation and regulatory law. Prior to entering private practice, Durfey served as senior counsel for a national insurance company providing services in the lines of life, health, property and casualty. She received her B.A. in English and her juris doctor, both from the University of Mississippi.