Hurricane Katrina: What Does it Mean for Homeowner’s Insurance?

Hurricane Katrina was one of the most devastating natural disasters ever to hit United States soil and its effects are still being felt through all parts of the national economy. As a homeowner, you may be wondering what this means for you. Are your insurance premiums affected by it? Will you have trouble getting covered for natural perils like flooding and hurricanes in the future?

The answers to these questions are not simple and they aren’t the same for everybody. Probably one of the more pressing concerns is the price of insurance rising as a result of Katrina. And for some, it will. For others, it won’t.

If you live in a state where there is little risk of another hurricane of such magnitude, then you will see no effect. However, if you live in an area that is of high risk for tropical storms, floods, and the like, then expect to see insurance rates continue to increase. The rate and frequency of various natural catastrophes is predicted to increase, after all, and insurance rates will follow suit.

If your premiums are higher than they used to be, it’s not because of the damages and losses that occurred during Hurricane Katrina however. It’s not legal for insurance companies to charge current customers for losses they accrued with past customers. The reason there seems to be a correlation with Katrina and the high price of insurance, is because Katrina intensified predictions of future natural disaster – thus insurers are simply bracing for the decades to come, not making up for losses from the past. Any time an insurance company raises its rates, a state department has to approve of it. Financial losses in Florida cannot be made up for in Texas, for example. While a higher premium may seem arbitrary to you, it actually isn’t.

Still, the price of insurance may increase across the country as an indirect result of Hurricane Katrina. This is because there were, and continue to be, lawsuits involving Hurricane Katrina victims. Some hurricane victims who did not have flood insurance have recently sued their insurers for the costs of property damage and loss. If these lawsuits are effective, then insurers will suffer financially and be forced to increase premiums for everyone.

But flood and hurricane insurance will not be hard to come by. It’s not as though insurers are suddenly scared to insure people because of Hurricane Katrina. They have enough resources to handle Katrina and they will continue to have resources for future, almost inevitable, weather events of all kinds.

The reason Hurricane Katrina was such a brutal wake-up call for so many, is that most homeowner’s insurance plans do not cover floods – yet floods happen to be the biggest natural threat in America. In some areas, residents have an almost 30% chance of their home being flooded!

Flood insurance typically must be bought separately. The Federal Emergency Management Agency (FEMA) National Flood Insurance Program (NFIP) offers flood insurance, as does almost a thousand other competing insurance companies. So even if you were not one of the victims of Hurricane Katrina, make sure your home is not vulnerable to the natural perils of the future and is protected under flood insurance.