Hurricane Katrina:
Impacts on the P/C
Insurance & Reinsurance
Industries
Midwest Actuarial Forum
Bloomington, IL
September 22, 2005
Robert P. Hartwig, Ph.D., CPCU, Senior Vice President & Chief Economist
Insurance Information Institute  110 William Street  New York, NY 10038
Tel: (212) 346-5520  Fax: (212) 732-1916  bobh@iii.org  www.iii.org
Presentation Outline
•
•
•
•
P/C Financial Overview: A Position of Strength
Industry Claims-Paying Resources
Underwriting Performance pre-Katrina
Catastrophe Loss Management:
Loss estimate overview
Hurricane Katrina’s place in history
Loss distribution (geographic & by line)
Impact on financial & underwriting performance
Influence of legal environment on Katrina claims
• National Flood Insurance Program Overview
• Managing Natural CATs in a Post-9/11 World
• Q&A
P/C Financial
Overview
Strong Pre-Katrina
Results Help Industry
Meet the Challenge
P/C Net Income After Taxes
1991-2005:H1 ($ Millions)*
Pre-Katrina profits
were strong, helping
industry cope with
$36,819
mega-loss
2001 ROE = -1.2%
$40,000
2002 ROE = 2.2%
2003 ROE = 8.9%
$30,000
$30,773
2004 ROE = 10.5%*
$38,722
$32,500
$30,029
2004:H1 ROE = 15%E
$24,404
$20,598
$19,316
$20,000
$14,178
$10,870
$10,000
$5,840
$21,865
$20,559
“Record” 2004
profits wrongly cited
as reason why
insurers should pay
excluded flood losses
$3,046
$0
-$6,970
-$10,000
91
92
93
94
95
96
97
98
99
00
01
02
03
*ROE figures are GAAP; 2004 figure is return on average surplus. 2005 figure is estimate
Sources: A.M. Best, ISO, Insurance Information Institute.
04 05*
ROE: P/C vs. All Industries
1987–2005F*
20%
2005:H1 P/C ROAS = 15%
15%
10%
16.3
Pts.
5%
2005 P/C ROAS = 11% after
adjusting for Katrina
0%
US P/C Insurers
05*
05H1
04
03
02
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
-5%
All US Industries
*GAAP ROEs except 2004/5 P/C figure = return on average surplus. 2005 figure is III full-year estimate.
Source: Insurance Information Institute; Fortune for all industry figures
ROE vs. Equity Cost of Capital:
US P/C Insurance: 1991 – 2005*
Because p/c insurers today generally are earning their
cost of capital and are financially strong, they should
be able to readily access fresh capital if necessary.
18%
+5.0 pts
16%
14%
6%
4%
2%
+0.6 pts
-13.2 pts
8%
-1.7 pts
10%
-9.0 pts
12%
US P/C insurers missed their
cost of capital by an average
6.3 points from 1991 to 2003
0%
-2%
-4%
91
92
93
94
95
96
97
98
*First half 2005 estimate.
Source: The Geneva Association, Ins. Information Inst.
99
00
01
ROE
02
03
04
05*
Cost of Capital
P/C Insurers Stocks Remain Up,
Brokers Up Too, Reinsurers Down
Total Return 2005 YTD Through September 16, 2005
S&P 500
1.31%
Life/Health
14.30%
P/C insurer stocks
outperforming the
market despite
Katrina
8.80%
All Insurers
3.32%
-0.38%
P/C
Reinsurers down more
on Katrina news
-5.72%
Multiline
Reinsurers
2.06%
-10%
-5%
0%
5%
Brokers
10%
15%
Source: SNL Securities, Standard & Poor’s, Insurance Information Institute
20%
Change in YTD Stock Performance by
Sector Pre- & Post-Katrina
P/C
Reinsurers
Brokers
6%
4.2%
4.5%
4.0%
P/C & reinsurer stocks hurt by
Katrina, broker stocks rose on
expectation of tighter conditions and
demand for broker services
3.8%
4%
3.3%
2.5%
2.2%
2%
1.9%
2.1%
0%
-0.6%
-2%
-2.7%
-4%
-4.0%
-6%
-3.5%
-4.1%
-4.8%
-5.5%
-5.5%
-4.5%
-5.3%
-5.7%
-6.4%
-8%
5-Aug
12-Aug
19-Aug
26-Aug
Source: SNL Securities; Insurance Information Institute
2-Sep
9-Sep
16-Sep
Insurer Claims
Paying Resources
U.S. Policyholder Surplus:
1975-2005*
$450
$400
$350
Capacity TODAY is $401.8 billion 21%
above its mid-1999 peak and 44%
above its 2002 trough & will be able to
pay Katrina claims.
$ Billions
$300
$250
$200
$150
PHS backs all lines of
insurance in all states. PHS is
not fungible and is frequently
misunderstood and misused
$100
$50
“Surplus” is a measure of
underwriting capacity. It is
analogous to “Owners
Equity” or “Net Worth” in
non-insurance organizations
$0
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 0405*
Source: A.M. Best, ISO, Insurance Information Institute
*As of 3/31/05.
US Reinsurers: Change in
Policyholder Surplus ($ Billions)
Reinsurer PHS fell 20% from
1998-2002. Capacity today similar
to 1998. Same story globally.
$75
$70
$73.0
$64.8
$65
$ Billions
$60.9
$58.9
$60
$57.9
$55
$48.8
$50
$46.8
$45
$40
1998
1999
2000
Source: A.M. Best; Insurance Information Institute
2001
2002
2003
2004
UNDERWRITING
Strong Underwriting Results
Pre-Katrina Will Help
Industry Weather the Storm
P/C Industry Combined Ratio*
120
110
2001 = 115.7
Combined Ratios
2002 = 107.2
1970s: 100.3
2003 = 100.1
1990s: 107.8
2004 = 98.3
2000-05E: 103.9
1980s: 109.2
2005:H1 = 93*
100
The industry has just experienced
its most remarkable recovery in
recent history. Katrina will
partially reverse this
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
90
Sources: A.M. Best; ISO, III.
*2005 figure is III estimate.
Underwriting Gain (Loss)
1975-2005E*
$25
$15
Before Katrina, p/c insurers were on track for
only the second underwriting profit in 26 years
$ Billions
$5
($5)
($15)
($25)
($35)
($45)
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05E
($55)
*2005 estimate is based on annualized actual 05Q1 underwriting profit of $7.1 billion.
Source: A.M. Best, Insurance Information Institute
Commercial vs. Personal Lines
Combined Ratios, 1993-2005:H1*
04 05H1
91
95
95
03
94.3
102.3
Compression of
results is due to
low interest.
Underwriting is
now more
important in
long-tail
commercial lines.
Katrina impact
will be severe.
101.9
98.4
110.1
105.3
111.1
109.9
112.3
104.5
97
100
102.7
103.9
96
99.8
107.6
104.9
112.5
110.2
103.5
105
104.5
103.9
110.3
113.1
110
109.7
Hurricane
Andrew
120
115
122.3
125
Personal--Net Basis
110.9
Commercial--Net Basis
90
92
93
94
95
Source: A.M. Best; Insurance Information Institute
98
99
00
01
02
*III estimate for first half 2005.
Homeowners Insurance
Combined Ratio
158.4
160
Average 1990 to 2004E= 114
Insurers have paid out an average of
$1.15 in losses for every dollar earned
in premiums over the past 14 years
150
140
130
121.7
120
150
121.7
118.4
113.6
112.7
117.7
113.0
109.4 108.2111.4
110
Katrina will
devastate the HO
combined ratio
109.3
101.0
98.2
Hurricane
Andrew
100
95.1
90
90
91
Sources: A.M. Best; III
92
93
94
95
96
97
98
99
00
01
02
03
04
05F
Homeowners Insurance:
Rates of Return on Net Worth vs.
P/C Insurance All Lines
10%
11.0%
5.6%
4.5%
11.6%
8.7% 9.3%
8.5%
6.0% 5.8%
12.4%
-6.6%
-50%
19
94
19
93
19
92
19
91
19
90
-54.3%
20
00
-40%
19
99
-30%
19
98
Homeowners insurance
consistently underperforms
the p/c insurance generally
1990-2004E
Homeowners: -1.7%
All P/C Lines: +7.5%
-20%
-60%
-4.2%
Source: NAIC, Insurance Information Institute
* Average is 1.22% if excluding 1992 (year of Hurricanes Andrew and Iniki.
2.1%
5%
-7.2%
NAIC Homeowner
Multi-Peril
P/C Insurance All
Lines
20
01
-1.7%
19
97
-0.9%
4.4%
-2.6%
10.0%
5.4% 5.4% 3.8%
3.6%
19
95
-10%
2.5%
19
96
0%
9.4%11.5%
20
03
E
20
04
E
8.8% 9.6%
20
02
20%
Combined Ratio:
Reinsurance vs. P/C Industry
93
105.8
124.6
111.0
100.1
00
107.4
99
115.8
98
106.5
110.1
100.5
105.9
97
100
114.3
108.0
100.8
101.9
104.8
106.0
110
106.7
120
Hurricane
Andrew
98.3
130
125.8
2004/5: CATs hurt reinsurers
119.2
140
113.6
108.5
150
2003: Big improvement in primary and
reinsurer segments
105.0
106.9
160
115.8
2001’s combined ratio was the worstever for reinsurers; 2002 was bad as well.
110.5
108.8
170
162.4
All Lines Combined Ratio
126.5
Reinsurance
90
91
92
93
94
95
96
01
02
* First half 2005 III estimate for all lines. RAA figure for 2005:H1
Source: A.M. Best, ISO, Reinsurance Association of America, Insurance Information Institute
03
04 05E*
UNDERWRITING
AFFECTS FINANCIAL
STRENGTH
Is There Cause
for Concern?
Reason for P/C Insolvencies
(218 Insolvencies, 1993-2002)
Impaired Affiliate
3%
Unidentified
17%
CAT Losses
3%
Reinsurer Failure
0%
Deficient Loss
Reserves
51%
Reserve
deficiencies
account for
more than half
of all p/c
insurers
insolvencies
Change in Business
3%
Discounted Ops
8%
Overstated Assets
2%
Alleged Fraud
3%
Rapid Growth
10% Source: A.M. Best, Insurance Information Institute
Historical Ratings Distribution,
US P/C Insurers, 2000 vs. 2004
2000
C/CC++/C+ 0.6%
1.9%
B/B6.9%
D
0.2%
E/F
2.3%
2004
A++/A+
11.5%
D E/F
C/C3.5%
C++/C+ 0.6% 0.2%
2.1%
A++/A+
shrinkage
A++/A+
8.6%
B/B9.1%
B++/B+
28.3%
B++/B+
25.8%
A/A48.4%
Source: A.M. Best: Rating Downgrades Slowed but Outpaced Upgrades for Fourth Consecutive Year, Special Report,
November 8, 2004.
A/A50.2%
US Reinsurer Combined Ratio
vs. Median Rating, 1999-2003*
160
US Reinsurer Combined Ratio
A+
150
140
130
120
A
Are ratings related
to performance?
115.1
A
A
A
141.4
122.8
A++
A+
A
AB++
B+
B
115.4
110
100.6
Reinsurer Combined Ratio
100
Rating-Large (PHS>$250M)
90
99
00
01
02
03
*Combined ratio is for all US reinsurers. Rating is for large reinsurers (policyholder surplus exceeding $250 million).
The median rating for small reinsurers (PHS<$250M) was A- throughout the 1999-2003 period.
Source: A.M. Best: Rating Downgrades Slowed but Outpaced Upgrades for Fourth Consecutive Year, Special Report,
November 8, 2004.
P/C Insurers Maintaining Rating of
A+ or Better Rating for 50+ Years
P/C Company
1.
AIU Insurance Co.
2.
Alfa Mutual Ins. Co.
3.
Amica Mutual Ins. Co.
4.
Church Mutual Ins. Co.
5.
Federal Insurance Co.
6.
General Reinsurance Corp.
7.
Great Northern Ins. Co.
8.
Lititz Mutual Ins. Co.
9.
Nationwide Mutual Fire Co.
10. Otsego Mutual Fire
11. Pharmacists Mutual Ins. Co.
12. Quincy Mutual Fire Ins. Co.
13. State Automobile Mutual Ins. Co.
14. State Farm Mutual Auto Ins. Co.
15. Vigilant Insurance Co.
Source: Best’s Review, January 1, 2004.
Group Affiliation
1.
American International Group
2.
Alfa Insurance Group
3.
Amica Mutual Group
4.
None
5.
Chubb Group of Ins Cos.
6.
Berkshire Hathaway Ins. Group
7.
Chubb Group of Ins Cos.
8.
Lititz Mutual Group
9.
Nationwide Mutual Group
10. None
11. None
12. Quincy Mutual Group
13. State Auto Ins. Group
14. State Farm Group
15. Chubb Group of Ins Cos.
PRICING
TRENDS
Will Katrina & Rita
Harden Markets?
Strength of Recent Hard Markets
by NWP Growth*
25%
1975-78
1984-87
2001-04
Real NWP Growth During
Past 3 Hard Markets
20%
1975-78: 8.6%
15%
1984-87: 11.2%
10%
2001-04: 6.9%
5%
0%
-5%
Premium growth is faltering. Real
growth in 2005 will be NEGATIVE
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
-10%
Note: Shaded areas denote hard market periods.
Source: A.M. Best, Insurance Information Institute
*2005 figure is III forecast based on 05Q1 result.
Average Expenditures on
Auto Insurance
$950
$900
$850
Countrywide auto insurance
expenditures are expected to
rise 1.5% in 2005
$800
$834
$857
$870
$774
$750
$700 $668
$650
$706 $704
$691
$683 $687
$720
Will the “big guys”
stay disciplined? So
far, so good. Will
adopt tiering to avoid
adverse selection
$600
95
96
97
98
99
*Insurance Information Institute Estimates/Forecasts
Source: NAIC, Insurance Information Institute
00
01
02
03* 04* 05*
Average Expenditures on
Homeowners Insurance
$700
$650
$600
Countrywide home
insurance expenditures
are expected to rise 2.5%
in 2005
$636
$660
$677
$593
$536
$550
$481 $488
$500
$450 $418 $440
$508
$455
$400
95
96
97
98
99
*Insurance Information Institute Estimates/Forecasts
Source: NAIC, Insurance Information Institute
00
01
02
03* 04* 05*
35%
30%
25%
20%
15%
10%
5%
0%
-5%
Jul-01
14%
Aug-01
11%
Sep-01
13%
Oct-01
16%
Nov-01
19%
Dec-01
22%
Jan-02
28%
Feb-02
31%
Mar-02
31%
Apr-02
28%
May-02
30%
Jun-02
32%
Jul-02
33%
Aug-02
28%
Sep-02
29%
Oct-02
30%
Nov-02
32%
Dec-02
30%
Jan-03
27%
Feb-03
25%
Mar-03
28%
Apr-03
22%
May-03
18%
Jun-03
18%
Jul-03
17%
Aug-03
16%
Sep-03
12%
Oct-03
12%
Nov-03
10%
Dec-03
12%
Jan-04
11%
Feb-04
9%
Mar-04
9%
Apr-04
9%
May-04
7%
Jun-04
7%
Jul-04
5%
Aug-04
4%
Sep-04
4%
Oct-04
2%
Nov-04
2%
Dec-04
2%
Jan-05
1%
Feb-05
0%
Mar-05 -1%
Apr-05 -2%
May-05 -2%
Jun-05-3%
Commercial Premium Rate
Changes Are Sharply Lower
Source: MarketScout.com
Is moderation due to
realization of
performance and profit
goals, increasing
capacity/ capital, or
market- share strategies?
Average Rate Change, All Lines,
(1Q:2004 – 2Q:2005)
0%
-0.1%
-2%
-3.2%
-4%
-6%
-5.9%
-7.0%
-8%
-10%
Magnitude of rate decreases
accelerated during the first half
of 2005, but flattened out in Q2
-9.4%
-9.7%
1Q05
2Q05
-12%
1Q04
2Q04
3Q04
4Q04
Source: Council of Insurance Agents & Brokers; Insurance Information Institute
Rate Changes by Line,
2nd Qtr. 2005
0%
-0.5%
-2%
-4%
-3.8% -3.8%
-6%
-8%
-6.0%
-6.8%
-10%
-12%
-3.6%
-6.6%
-7.3%
-9.1%
-8.4%
Magnitude of rate decreases
flattened out during the
second quarter of 2005
-14% -13.3%
Comm Prop Biz Comm Auto WC
GL Umbrella EPL
D&O Surety
Interruption
Source: Council of Insurance Agents & Brokers; Insurance Information Institute
Const. ALL Lines
Average Commercial Rate
Change by Account Size
Commercial accounts have
trending downward for 4-5
quarters, with large
commercial leading the way.
Now starting to flatten.
Cumulative Quarterly Rate
Change by Account Size
Commercial rates are
well off their late 2003
peaks for accounts of
all size and are
approximately where
they were in mid-2002
At which point do the
reductions become destructive?
CATASTROPHE
LOSS
MANAGEMENT
Focus on
Hurricane Katrina
2005 Has Been a Busy, Destructive
& Expensive Hurricane Season
Source: WeatherUnderground.com, 9/22/05.
Hurricane Katrina Insured Loss
Estimates Still Vary Widely
(Billions of $, As of September 11, 2005)
RMS
Typically unmodeled losses: Demand
surge*, LAE, debris removal, tree damage,
mold, spoilage, power outage, off-premises
power loss, flood, fraud, civil authority,
assessments, pollution, litigation
AIR
RMS estimate predicts
$17 - $25B
$15-$25B in privately
insured flood losses,
mostly commercial
(modeled after the event)
$14 - $22B
Eqecat
$0
$40 - $60B
$10
$20
$30
$40
$50
*Rising material costs, e.g., plywood rose 38% and framing lumber by 14% through Sept. 16, 2005.
Sources: RMS, AIR, Eqecat; Compiled by the Insurance Information Institute.
$60
Breakdown of RMS $40-$60 Billion
Loss Estimate
Type of Loss
Low
High
Windstorm & Surge
$20
$25
Flood, private (not incl. NFIP)*
$15
$25
Off Shore Energy, Marine
$2
$5
Misc., Possible Pollution
$2
$3
1st Landfall (FL)
$1
$2
TOTAL
$40
$60
*Primarily commercial flood and associated business interruption losses.
Sources: RMS; Adapted from Responding to Katrina, Lane Financial LLC, Sept. 16, 2005.
Summary of Facts About Insured
Losses Regarding Katrina
• As of 9/15/05:
 35 companies announced pre-tax loss estimates
Announced loss total: $11.8B to $13.0B
This works out to about 35% of the mid-range
insured loss estimate of $35 billion
$35B loss is 8.7% of US PHS; $60B is 14.9%
• Announced Company Loss Estimates:
High: $2.55 billion; Low: $2 million
Upper loss est. % of 2Q:05 Equity: 0.2% to 46.1%
• At least 20 companies put on watch for possible
downgrades by various ratings agencies
• Many Lines Affected:
 Extreme eventsloss correlations increase
500
0
$733
$650
$675
$600
$585
$500
$474
$450
$450
$350
$313
$200
$300
$270
$235
$220
$197
$225
$125
$100
$100
$90
$50
$46
$43
$34
$30
$25
$25
$17
$15
$3
$2
1,000
$1,200
$1,100
1,500
$2,550
3,000
Lloyds
Swiss Re
AIG**
Ace Ltd.
XL Capital
Montpelier Re
Axis Capital
Allianz
Munich Re
Endurance
Renaissance Re
Everest Re
Partner Re
Hannover
AXA
White Mountains
Transatlantic
PXRE
Fairfax
Aspen
Platinum
Alfa
Zurich
Odyssey Re
Max Re
HCC
Royal Sun Alliance
SCOR
Cincinnati Finl
Zenith
WR Berkely
Converium
Midland
American Natl
21st Century
Kingsway
Distribution of Announced
Hurricane Katrina Losses ($ Millions)*
(As of September 20, 2005)
2,500
2,000
As of September 15, 35 companies had
announced pre-tax losses totaling between
$10.7 and $11.9 billion, about 32% of a midrange industry loss estimate of $35 billion
*If company gave range estimate, upper end is used.
Sources: Morgan Stanley, Company Reports
**After-tax figure. $900 million after reinsurance recoverables.
10%
15%
Sources: Morgan Stanley, Company Reports
2.4%
0.3%
5.1%
0.2%
NA
NA
0.4%
3.1%
0.7%
2.2%
8.8%
45%
15.0%
11.1%
35%
33.6%
40%
4.7%
9.3%
22.6%
19.4%
30%
0.5%
4.8%
6.4%
9.1%
9.7%
6.3%
20%
18.0%
25%
0.8%
1.3%
5.3%
5.5%
7.0%
46.1%
50%
0.3%
3.8%
0%
NA
5%
Lloyds
Swiss Re
Ace Ltd.
XL Capital
Montpelier Re
Axis Capital
Allianz
Munich Re
Endurance
Renaissance Re
Everest Re
Partner Re
Hannover
AXA
White Mountains
Transatlantic
PXRE
Fairfax
Aspen
Platinum
Alfa
Zurich
Odyssey Re
Max Re
HCC
Royal Sun
SCOR
Cincinnati Finl
Zenith
WR Berkely
Converium
Midland
American Natl
21st Century
Kingsway
Announced Hurricane Katrina
Losses as % 2Q:05 Equity*
(As of September 15, 2005)
Reported losses as a share
of US P/C insurance
industry surplus ranged
from 0.2% to 46.1%.
Median = 5.1%
*If company gave range estimate, upper end is used.
Insured Loss Estimates as a %
US Policyholder Surplus*
% of PHS*
14.9%
Size of Industry Loss
$70
13.7%
11.2%
12%
10.0%
$50
$40
14%
12.4%
$60
16%
8.7%
10%
7.5%
8%
6%
$30
4%
$20
2%
$10
0%
$30
$35
$40
$45
$50
Size of Industry Loss ($ Billions)
*Policyholder surplus as of 3/31/05 of $401.8 billion (ISO).
Source: Insurance Information Institute.
$55
$60
% of US P/C PHS
Industry Loss
Hurricane Katrina:
Her Place in History
Top 10 Most Costly Hurricanes in
US History, (Insured Losses, $2004)
$40
Five of the 10 most expensive
hurricanes in US history
occurred in the past 13
months: Katrina, Charley,
Ivan, Frances & Jeanne
$35
$ Billions
$30
$25
$20
$35.0
$20.9
$15
$10
$5
$2.2
$2.6
Floyd
(1999)
Opal
(1995)
$3.4
$3.7
Georges
(1998)
Jeanne
(2004)
$4.6
$6.4
$7.1
$7.5
Hugo
(1989)
Ivan
(2004)
Charley
(2004)
$0
Frances
(2004)
*Estimate as of September 9, 2005 in 2005 dollars.
Sources: ISO/PCS; Insurance Information Institute.
Andrew
(1992)
Katrina
(2005)*
Top 10 Insured Property
Losses in US ($2004)
Six of the 10 most
expensive disasters is US
history occurred within
the past 4 years
$40
$35
$ Billions
$30
$25
$20
$35.0
$20.8
$20.1
$15.9
$15
$10
$5
$4.6
$3.7
$3.4
$7.5
$7.1
$6.4
*Estimate, stated in 2005 dollars.
Note: 9/11 loss figure is for property claims only.
Sources: ISO/PCS; Insurance Information Institute.
04
)*
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Top 11 Insured Property Losses
Worldwide, 1970-2005 ($2004)*
Five of the 11 most expensive
disasters is world history
affected the US within the
past 4 years.
$40
$35
$ Billions
$30
$25
$35.0
$21.5
$20.0
$20
$15.9
$15
$11.0
$10
$6.6
$6.4
$5.0
$8.0
$7.8
$6.6
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*All figures are for total losses across all locations, not just US. Katrina loss est. is preliminary and
stated in 2005 dollars.
Sources: ISO/PCS; Swiss Re, “Natural Catastrophes and Man-Made Disasters in 2003,” Sigma, no.1, 2004
Government Aid After Major
Disasters (Billions)*
$80
$70
$68.4
$ Billions
$60
$50
$40
Within 10 days of Katrina’s
LA landfall, the federal
government had authorized
more aid than for the 9/11
terrorist attacks, the 4
hurricanes that hit FL in
2004, Hurricane Andrew
and the Northridge
Earthquake combined!
$30
$20.0
$20
$15.5
$14.0
Hurricane Katrina aid will
dwarf aid following all other
disasters. Congress may
authorize $150-$200 billion
ultimately (about $400,000
for each of the 500,000
displaced families). Is the
incentive to buy insurance
and insure to value
diminished?
$10.8
$10
$7.6
$7.0
$3.1
$0
Hurricane
Katrina
(2005)*
Sept. 11
Northridge
Terrorist
Earthqauke
Attack (2001)
(1994)
Florida
Hurricanes
(2004)
Hurricane
Andrew
(1992)**
Loma Prieta
Midwest
Hurricane
Earthquake Floods (1993) Hugo (1989)
(1989)
*In 2005 dollars.
**Actual Congressional authorizations approved as of 9/21/05. Includes $6.1B in special tax breaks.
Source: Economy.com, White House; Insurance Information Institute.
Hurricane Katrina:
Loss Distribution
Hurricane Katrina Loss
Distribution by Line ($ Billions)*
Total insured losses could
be as high as $35 billion
Comm. Multi
Peril, $11.2 , 32%
*As of September 9, 2005
Source: Merrill-Lynch
Offshore Energy,
$5.0 , 14%
Personal Auto, $2.0
, 6%
Homeowners, $16.8
, 48%
Number of Homes Destroyed
by Major Hurricanes*
300,000
250,000
200,000
150,000
Katrina appears to have
destroyed 10 times as many
homes as Andrew in 1992 or
the 4 storms to hit Florida
and the Southeast in 2004
275,000
100,000
50,000
28,000
27,500
Andrew (1992)
Charley, Frances, Ivan,
Jeanne (2004)
0
Katrina (2005)
*Destruction is defined as a structure made uninhabitable or damaged beyond economic repair.
Source: National Association of Home Builders, National Red Cross (as of 9/15/05).
Personal Property Losses Accounted for
Largest Share Damage from
2004 Hurricanes*
Charley
Ivan
TOTAL
4%
4%
Vehicle
4%
56%
63%
33%
40%
Personal
Property
63%
Frances
4%
Comm.
Property
33%
Jeanne
4%
66%
23%
30%
Source: ISO/PCS; Insurance Information Institute.
73%
*Breakdowns based on FL losses, which accounted
for 85% of losses for all affected states.
Hurricane Katrina Loss
Distribution by State ($ Billions)*
Alabama, $3,500 ,
10%
Louisiana accounted for
70% of the insured losses
Mississippi, $7,000 ,
20%
Louisiana, $24,500 ,
70%
*As of September 9, 2005
Source: Merrill-Lynch
Louisiana: Hurricane Katrina Loss
Distribution by Line ($000)*
Louisiana insured losses are
estimated at $24.5 billion
Offshore Energy, $3,500 ,
14%
Comm. Multi Peril, $7,840
, 32%
*As of September 9, 2005
Source: Merrill-Lynch
Personal Auto, $1,400 ,
6%
Homeowners, $11,760 ,
48%
Average Annual Insured Losses*
(Top 10 States, $ Millions)
Distribution of Annual Losses
Florida
49.5%
$1,500 $1,423.0
All Other
15.7%
$1,250
$1,000
$750
Mississippi
2.7%
N.
Carolina
3.8%
$615.0
$500
Texas
21.4%
Louisiana
6.8%
$196.0
$250
$154.0
$109.0 $77.0 $64.0 $62.0 $61.0 $61.0
$51.0
$0
FL
TX
LA
NC
MS
MA
SC
AL
NY
CT
All
Other
*Normalized losses adjusted for inflation, housing density, wealth and wind insurance coverage,
based on historical data for 100-year period 1900-1999.
Source: Tillinghast-Towers Perrin
Inflation-Adjusted U.S. Insured
Catastrophe Losses By Cause of Loss,
1984-2004E¹
Wind/Hail/Flood5
3.6%
Earthquakes 4
8.2%
Civil Disorders
0.4%
Fire 6
2.9%
Winter Storms
9.6%
Terrorism
9.7%
Water Damage
0.2%
Tornadoes 2
31.3%
Insured disaster losses
totaled $221.3 billion
from 1984-2004 (in 2004
dollars). After 2005
season will be more 50%
tropical cyclones
All Tropical
Cyclones 3
34.1%
1 Catastrophes are all events causing direct insured losses to property of $25 million or more in 2004 dollars.
Catastrophe threshold changed from $5 million to $25 million beginning in 1997. Adjusted for inflation by the III.
2 Excludes snow. 3 Includes hurricanes and tropical storms. 4 Includes other geologic events such as volcanic eruptions
and other earth movement. 5 Does not include flood damage covered by the federally administered National Flood
Insurance Program. 6 Includes wildland fires.
Source: Insurance Information Institute estimates based on ISO data.
Total Value of Insured
Coastal Exposure (2004, $ Billions)
Florida
New York
Texas
Massachusetts
New Jersey
Connecticut
Louisiana
S. Carolina
Virginia
Maine
North Carolina
Alabama
Georgia
Delaware
New Hampshire
Mississippi
Rhode Island
Maryland
$1,937.3
$1,901.7
$740.0
$662.4
$505.8
$404.9
$209.3
$148.8
$129.7
$117.1
$105.3
$75.9
$73.0
$46.5
$45.7
$44.7
$43.8
$12.1
$0
Source: AIR Worldwide
$500
$1,000
$1,500
$2,000
$2,500
Insured Coastal Exposure as a % of Statewid
Insured Exposure (2004, $ Billions)
Florida
Connecticut
New York
Maine
Massachusetts
Louisiana
New Jersey
Delaware
Rhode Island
S. Carolina
Texas
NH
Mississippi
Alabama
Virginia
NC
Georgia
Maryland
79.3%
63.1%
60.9%
57.9%
54.2%
37.9%
33.6%
33.2%
28.0%
25.6%
25.6%
23.3%
13.5%
12.0%
11.4%
8.9%
5.9%
1.4%
0%
10%
Source: AIR Worldwide
20%
30%
40%
50%
60%
70%
80%
90%
Hurricane Katrina:
Exacting a Toll on
Underwriting
Performance & Profits
U.S. Insured
Catastrophe Losses ($ Billions)
2005 will be by far
the worst year
$ Billions
ever for insured catastrophe losses in
the US. 2004 is the second worse.
$39.9
$40
$35
$27.5
$30
$26.5
$22.9
$25
$16.9
$20
$12.9
$15
$10.1
$8.3 $7.4
$8.3
$10 $7.5
$5.9
$5.5
$4.7
$4.6
$2.7
$2.6
$5
$0
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05*
*As of 6/30/05 plus $920 in insured for Hurricane Dennis in July, $35 billion (est.) for Hurricane
Katrina in August and $800 million (AIR est.) for Hurricane Ophelia in September.
Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business
and personal property claims, business interruption and auto claims.
Source: Property Claims Service/ISO; Insurance Information Institute
ROE: P/C vs. All Industries
1987–2005E
20%
2004/5 ROEs excl. hurricanes
15%
10%
Sept. 11
5%
Hugo
Katrina
Lowest CAT
losses in 15 years
0%
Andrew
Northridge
4 Hurricanes
-5%
87
88
89
90
91
92
US P/C Insurers
93
94
95
96
97
98
All US Industries
Source: Insurance Information Institute; Fortune
99
00
01
02
03
04 05*
P/C excl. Hurricanes
Legal Environment
Will Affect
Katrina’s Outcome
Business Leaders Ranking of
Liability Systems for 2005
New in 2005
Best States
1. Delaware
ND, IN, SD, WY
2. Nebraska
Drop-Offs
3. North Dakota
4. Virginia
ID, UT, NH, KS
5. Iowa
6. Indiana
7. Minnesota
8. South Dakota
9. Wyoming
LA, AL and MS’s
10. Idaho
liability systems are
ranked among the worst
in the country by the US
Chamber of Commerce
Worst States
41. Hawaii
42. Florida
43. Arkansas
44. Texas
45. California
46. Illinois
Newly
Notorious
47.Louisiana
48.Alabama
HI, FL
Rising
Above
MO, MT
49. West Virginia
50.Mississippi
Source: US Chamber of Commerce 2005 State Liability Systems Ranking Study; Insurance Info. Institute.
The Nation’s Judicial Hellholes
CALIFORNIA
Los Angeles
County
ILLINOIS
Madison County
St. Clair County
West
Virginia
Philadelphia,
PA
Hampton
County, SC
Jefferson
County, TX
South Florida
It’s bad news for insurers that
Orleans Parish, Louisiana, is one
of the nation’s “judicial hellholes”
Orleans Parish,
LA
Source: American Tort Reform Association; Insurance Information Institute
Legal Theories Being Floating by Trial Bar to
Get Insurers to Pay Excluded Flood Losses
• Valued Policy Law
 Idea is that if property is a total loss the insurer cannot dispute the value of the
property and must pay limits. Insurers will argue that flood is an excluded
peril and VPL doesn’t apply. Insurers lost Mierzwa case in FL, but FL
provided a legislative “fix” for that wayward court decision. Could result in
policyholders with flood coverage receiving 200% of limits. Applies only to
insureds with flood cover. VPL for fire only in MS, none in AL.
• Wind Efficient Proximate Cause of Surge
 Says that because surge was driven by wind and because wind is a covered
cause of loss, it is the efficient proximate cause of the flood and should
therefore should be triggered.
 Also alleges storm surge is not specifically excluded by name
• Barge Breach Levee
 A barge crashed into one levee, causing it to rupture. Theory is that this is a
covered cause of loss because it’s not excluded (even though damage
produced a flood).
Relevant Homeowners Insurance Policy
Language Governing Water Damage
•
Wind and Hail Coverage (a named peril)
•
Flood Exclusion
•
FEMA/NFIP Flood Definition
•
Fungus & Mold Exclusion
•
Earth Movement Exclusion
Source: Insurance Information Institute
Wind Coverage in HO Policy:
Limits and Boundaries of Coverage
• Wind and Hail Coverage ( Named Peril)
 Windstorm or Hail
 “We do not pay for loss to the interior of a
building or to personal property inside, caused
by rain, snow, sleet, sand or dust unless the
wind or hail first damages the roof or walls
and the wind forces rain, snow, sleet, sand or
dust through the opening.”
Source: Insurance Information Institute
Typical Flood Exclusion in
Homeowners Insurance Policy
•
Flood Exclusion

1.
2.
3.
Water Damage, meaning any loss caused by, resulting from,
contributed to or aggravated by:
flood, surface water, waves, tidal water or overflow of any body of
water, or spray from any of these, whether or not driven by wind.
Water or water-borne material which backs up through sewers or
drains, or which overflows or is discharged from a sump pump, sump
pump well or other system that is designed to remove subsurface
water which is drained from the foundation area; or
Water or water-borne material below the surface of the ground,
including water which exerts pressure on, or flows, seeps or leaks
through any part of a building, sidewalk, foundation, driveway,
swimming pool or other structure or water that causes earth
movement.
This exclusion applies whether or not the water damage is caused by
or results from human or animal forces or any act of nature.
Facts About the Flood Exclusion
•
Has existed in policies for decades
•
Flood Exclusion is effectively absolute—
excluding water under all circumstances
•
It is the reason for the existence of FEMA’s
NFIP program since it was established in 1968
•
Approved by regulators in all 50 states
Source: Insurance Information Institute
NFIP Flood Definition: Covers
Exactly What HO Policies Don’t
•
"A general and temporary condition of partial or complete
inundation of two or more acres of normally dry land area or of two
or more properties (at least one of which is the policyholder's
property) from:
 Overflow of inland or tidal waters; or
 Unusual and rapid accumulation or runoff of surface waters
from any source; or
 Mudflow; or
 Collapse or subsidence of land along the shore of a lake or
similar body of water as a result of erosion or undermining
caused by waves or currents of water exceeding anticipated
cyclical levels that result in a flood as defined above."
Source: FEMA/National Flood Insurance Program: http://www.floodsmart.gov/floodsmart/pages/whatflood.jsp.
Typical Fungus & Mold Exclusion in
Homeowners Insurance Policy
• Fungus and Mold Exclusion
 “We do not cover loss or damage, no matter how caused, to
the property which results directly or indirectly from fungus
and mold. There is no coverage for loss which, in whole or in
part, arises out of, is aggravated by, contributed to by acts or
omissions of persons, or results from fungus and mold. This
exclusion applies regardless of whether fungus and mold arises
from any other cause of loss, including but not limited to a loss
involving water, water damage or discharge, which may be
otherwise covered by this policy, except as granted [by
exception].”
Source: Insurance Information Institute
Relevant Homeowners Insurance Policy
Language Governing Water Damage
•
Earth Movement Exclusion
 Applies to any loss caused by, resulting from, contributed to or
aggravated by events that include, but are not limited to:
1. Earthquake and earthquake aftershocks;
2. Volcanic eruption and volcanic effusion;
3. Sinkhole;
4. Subsidence;
5. Mudslide including landslide, mudflow, debris flow,
avalanche or sediment;
6. Erosion or excavation collapse;
7. The sinking, rising, shifting, expanding, bulging, cracking,
settling or contracting of the earth, soil or land; and
8. Volcanic explosion and lava flow except [by exception]
This exclusion applies whether or not the earth movement is
combined with water or caused by or results from human or
animal forces or any act of nature.
Consequences of Mississippi
AG’s Actions
•
•
•
•
•
Sept. 15 suit by MS AG Hood constitutes and attempt
to retroactively rewrite all HO insurance contracts in
MS. “Contract certainty” extinguished.
Suit amounts to little more than an attempt to
expropriate shareholder assets (and the equity of
mostly non-MS policyholders of mutual insurers)
The risk is fundamentally political, cannot be
modeled or priced
Insurers will necessarily be motivated to protect
shareholder equity (and claims paying resources
generally). Reinsurers will exert pressure too.
Also continues dangerous trend of AG assertion of
authority over state insurance regulators
Source: Insurance Information Institute
Consequences if Coverage
Rulings Went Against Insurers
•
•
•
•
Creates dangerous precedent of contract abrogation
Effectively renders flood exclusion null and void & usurps
authority of state insurance regulator
Creates enormous financial liability for explicitly excluded
peril for which no premium was collected
HO insurance rates countrywide become instantaneously
inadequate

•
•
•
Would provoke largest homeowners insurance rate in history on a national
basis
Insurers would likely pull back from many markets because
of lack of contract certainty
Renders NFIP program useless
Unfair to NFIP policyholders and other insureds
Source: Insurance Information Institute
MS AG and Scruggs Suits Not
Supported by Governor or Regulator
• Recent Quotes:
 “It’s crucial that people who enter contracts keep their
contracts. And that’s what an insurance policy is, a
contract….For those people [who didn’t buy flood coverage]
we are working very hard that if they don’t have insurance or
don’t have coverage, that we can up with a way to help them
financially.”

Mississippi Governor Haley Barbour, WSJ, 9/19/05, p.C9.
 “The insurance industry can take care of so many, the flood
insurance program can take care of so many…but there are
still others out there that do not fit under either of these.”

Mississippi Insurance Commissioner George Dale, WSJ, 9/19/05, p.C9.
Status of Litigation Against Insurers
on Flood vs. Wind Issue
•
MS Atty. General Hood:

•
Scruggs Case:





•
Called actions of insurers “unconscionable.” Filed an unsuccessful order for
immediate injunctive relief against 5 insurers seeking to stop them from
drawing wind/water distinction. Suit was remanded to a federal court
because it makes reference to NFIP. Will likely die there soon.
Stated that will he bring suits against insurers in MS week of 9/19/05.
Because of recent tort reform changes in MS, Scruggs can’t bring a class
action, has to try cases individually.
Says he will take “drastically” reduced contingency fee
Failure of AG suit should kill Scruggs’ case.
FYI: Scruggs’ Pascagoula home was heavily damaged. He had flood
coverage.
Louisiana Suit


Suit is like MS. LA Supreme Court looking at it as contract law case
Likely to be resolved soon in insurers favor
FEMA’s National
Flood Insurance
Program
NFIP: Policies in Force and
Total Coverage (Exposure)
Policies in Force
Policies in Force (Millions)
4.5
4.0
3.5
3.5
2.5
2.6
2.8
4.2
4.3
4.4
4.5
4.5
4.6
4.7
$800
$764.5
$700
3.7
$600
3.0
2.5
$500
2.0
$400
1.5
The NFIP insured property with a
total value of $764.5 billion in 2004
1.0
0.5
0.0
$300
$200
91
92
93
94
95
96
97
98
99
Sources: FEMA, National Flood Insurance Program (NFIP)
00
01
02
03
04
Total Coverage ($ Billions)
Nearly 5 million property
owners per year buy
4.1
NFIP policies
5.0
3.0
Total Coverage (Exposure)
NFIP: Total Premium by
Calendar Year 1978-2004
$2.0
$1.5
$1.0
$0.5
The NFIP now collects
more than $2 billion
annually in premiums
$0.1
$0.1
$0.2
$0.3
$0.4
$0.4
$0.4
$0.5
$0.5
$0.6
$0.6
$0.6
$0.7
$0.7
$0.8
$0.9
$1.0
$2.5
$1.1
$1.3
$1.5
$1.7
$1.7
$1.7
$1.7
$1.8
$1.9
$2.1
$ Billions
$0.0
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04
Source: FEMA, National Flood Insurance Program (NFIP)
NFIP: Policies in Force By Coverage
Type (As of July 31, 2005)
Building
Coverage Only,
39.7%
Both Bldg. &
Cont. Cvg,
58.7%
Contents
Coverage Only,
1.5%
Coverage Type
Policies in Force
Building Coverage Only 1,845,481
Contents Coverage Only 72,008
Source: FEMA, National Flood Insurance Program (NFIP)
Both Bldg & Cont Cvg
2,729,267
All Policies
4,646,756
NFIP: Policies in Force By Occupancy
Type (As of July 31, 2005)
Other
Residential
3.0%
NonResidential
4.6%
Condos
20.5%
2 to 4 Family
Unit
3.4%
Single Family
Home
68.5%
Source: FEMA, National Flood Insurance Program (NFIP)
Occupancy Type
Policies in Force
Single Family Home
3,184,010
2 to 4 Family Unit
158,124
Condominiums
951,240
Other Residential
138,583
Non-Residential
214,799
Unknown Occupancy
--
All Policies
4,646,756
NFIP: No. of Losses Paid by
Calendar Year 1978-2004
27,688
38,675
13,789
13,399
7,758
36,247
14,766
28,554
44,651
36,044
21,583
62,440
52,678
30,333
57,338
47,220
16,347
43,503
25,220
36,271
37,659
51,584
23,261
32,831
41,918
29,122
80000
70000
60000
50000
40000
30000
20000
10000
0
70,613
No. of Losses
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04
Source: FEMA, National Flood Insurance Program (NFIP)
$432.5
$759.8
$1,207.2
$1,276.4
$828.0
$519.5
$886.0
$754.8
$251.5
1400
1200
1000
800
600
400
200
0
$147.7
$483.3
$230.4
$127.1
$198.3
$439.5
$254.6
$368.2
$126.4
$105.4
$51.0
$661.7
$167.9
$353.7
$710.2
$659.1
$411.1
$ Millions
$1,295.5
NFIP: Loss Dollars Paid by
Calendar Year 1978-2004
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04
Source: FEMA, National Flood Insurance Program (NFIP)
$18,255
$25,000
$15,000
$10,000
$5,000
$5,072
$6,844
$5,496
$5,464
$6,040
$8,520
$9,195
$9,520
$9,167
$7,866
$6,574
$20,000
$17,149
$20,948
$30,000
The average cost of a flood
claim in 2004 was $32,056. The
average premium was $438.
$29,341
$35,000
$11,371
$12,387
$15,906
$18,286
$19,047
$20,748
$15,718
$17,127
$15,103
$15,985
$15,385
Average Cost of Claim
$32,056
NFIP: Average Cost of Claim
By Calendar Year 1978-2004
$0
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04
Source: FEMA, National Flood Insurance Program (NFIP)
NFIP: Insurance In Force By
Month (As of July 31, 2005)
$ Billions
$800
$792.3
$784.7
$780
$768.5
$760
$740.5
$740
$745.8
$751.4
$756.7
$773.4
$756.7
$731.7
$722.7
$711.2
$720
$700
$680
$660
Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul04
04
04
04
04
05
05
05
05
05
05
05
Source: FEMA, National Flood Insurance Program (NFIP)
Average Premium Preferred Risk Policy*
For Buildings with Basement Under NFIP
Average Premium
$400
$330
$350
$300
$262
$293
$231
$250
$204
$200
$150
$278
$351
$162
$136
$100
$50
$0
$20,000 $30,000
$50,000
$75,000
$100,000 $125,000 $150,000 $200,000 $250,000
Building deductible: $500. Contents deductible: $500. Deductibles applied separately.
*Under the NFIP a low-cost Preferred Risk Policy is available to homeowners located in low- to moderaterisk areas.
Sources: FEMA, National Flood Insurance Program (NFIP)
Average Premium Preferred Risk Policy*
For Buildings without Basement
Under NFIP
Average Premium
$350
$295
$300
$232
$250
$248
$316
$263
$206
$179
$200
$150
$137
$111
$100
$50
$0
$20,000 $30,000
$50,000
$75,000
$100,000 $125,000 $150,000 $200,000 $250,000
Building deductible: $500. Contents deductible: $500. Deductibles applied separately.
*Under the NFIP a low-cost Preferred Risk Policy is available to homeowners located in low- to moderaterisk areas.
Sources: FEMA, National Flood Insurance Program (NFIP)
Policy Retention Rates, As Of
July 31, 2005
Retention rates in the NFIP are poor, with 10-15% of
policyholders allowing policies to lapse annually.
90.8% 91.0%
92.0% 91.9%
91.6%
90.6%
91.2% 90.9% 91.0%
88.3%
85.5% 85.5%
Aug04
Sep04
Oct04
Nov04
Dec04
Jan05
Source: FEMA, National Flood Insurance Program (NFIP)
Feb- Mar- Apr- May- Jun- Jul-05
05
05
05
05
05
Total Claim Payments by State
(Top 10) Jan 1, 1978 - Dec. 2004
Louisiana and Alabama
rank 3rd and 10th
respectively in terms of
total claims payments.
Mississippi ranks 13th.
$ Millions
$3,000
$2,702.0
$2,500
$2,226.7
$2,000
$1,727.3
$1,500
$1,000
$687.2 $598.2
$473.4 $422.6 $419.9 $384.4 $377.8
$500
$276.6
$0
TX
FL
LA
NC
NJ
PA
Source: FEMA, National Flood Insurance Program (NFIP)
SC
MO
VA
AL
MS
Managing Natural
Catastrophes in a
Post-9/11 World
L James Valverde, Ph.D., Director,
Economics & Risk Management
The National Strategy for Homeland
Security and the Genesis of DHS
• In the wake of 9/11, President Bush issued the National Strategy for
Homeland Security in July 2002
• Legislation creating the U.S. Department of Homeland Security (DHS)
was signed in November 2002
• The creation of DHS represents a fusion of numerous federal agencies,
with the objective of coordinating and centralizing the leadership of
the nation’s homeland security activities under a single, cabinet-level
department
 Began operations in March 2003
 22 separate agencies
 Approximately 180,000 employees
DHS Organizational Structure: FEMA’s Place
in the Larger Context of Homeland Security
The National Strategy for
Homeland Security
• The National Strategy for Homeland Security describes six critical
missions areas:
 Intelligence and Warning
 Border and Transportation Security
 Domestic Counterterrorism
 Protecting Critical Infrastructure and Key Assets
 Defending Against Catastrophic Threats
 Emergency Preparedness and Response
• The President has also issued several additional documents – so-called
Homeland Security Presidential Directives (HSPD) – that provide
more detailed guidance on various homeland-security-related mission
areas and initiatives
Emergency Preparedness and Response:
Key Elements of the National Strategy
For the Emergency Preparedness and Response mission area,
the National Strategy identifies 12 separate initiatives:
1.
Integrate separate federal response plans into a single alldiscipline incident management plan
2.
Create a national incident management system
3.
Improve tactical counter terrorist capabilities
4.
Enable seamless communication among all responders
5.
Prepare health care providers for catastrophic terrorism
6.
Augment America’s pharmaceutical and vaccine stockpiles
Emergency Preparedness and Response:
Key Elements of the National Strategy (cont.)
7.
Prepare for chemical, biological, radiological, and nuclear
decontamination
8.
Plan for military support to civil authorities
9.
Build the Citizen Corps
10. Implement the First Responder initiative of the FY03 budget
11. Build a national training and evaluation system
12. Enhance the victim support system
FEMA: Past, Present, and Future
“Two years ago in a lecture at the Naval Postgraduate School … I told
students that FEMA was not capable of adequately responding to a major
hurricane, let alone a catastrophic terrorist attack. My comments were
based on an assessment that morale at FEMA was then the worst since the
agency was created. The very people the nation depended on to help out
during our time of greatest need were being demoralized by an indifferent,
inexperienced leadership that neither understood emergency management
nor had the skills to ensure the agency had the resources to meet its allhazard mission.”
“Those who think we have overemphasized terrorism in the wake of
September 11, should be concerned with a knee-jerk reaction to Katrina.
What we need is balance. We must be prepared to respond to both terrorism
and natural disasters. The FEMA I know is capable of rising to the
occasion and accomplishing both missions.
Mike Walker
Former FEMA Deputy Director
The Washington Times, 13 Sept. 2005
National Planning Scenarios
The Homeland Security Council has developed 15 all-hazard planning
scenarios for use in national, federal, state, and local homeland security
preparedness activities:
1.
Nuclear Detonation – 10-Kiloton Improvised Nuclear Device
2.
Biological Attack – Aerosol Attack
3.
Biological Disease Outbreak – Pandemic Influenza
4.
Biological Attack – Plague
5.
Chemical Attack – Blister Agent
6.
Chemical Attack – Toxic Industrial Chemicals
7.
Chemical Attack – Nerve Agent
National Planning Scenarios (cont.)
8.
Chemical Attack – Chlorine Tank Explosion
9.
Natural Disaster – Major Earthquake
10. Natural Disaster – Major Hurricane
11. Radiological Attack – Radiological Dispersal Devices
12. Explosives Attack – Bombing Using Improvised Explosive Device
13. Biological Attack – Food Contamination
14. Biological Attack – Foreign Animal Disease (Foot and Mouth
Disease)
15. Cyber Attack
Mismanagement of Emergency Preparedness
and Response Can Impact the Economic Losses
Associated with Natural Disasters
• Clearly, there is a relationship between response time and “recovery time”
and the economic losses associated with a natural catastrophe such as
Hurricane Katrina






Business interruption losses increase with response lag
Fires burn uncontrolled
Failed law enforcement, rioting and looting
Delayed flood drainage
Untimely mitigation of environmental release/contamination
etc.
• While precise estimates of this relationship will require future empirical
study, a couple of points are worth considering in light of Katrina:
 A key responsibility for P/C insurers is to play their important and substantial role
in the risk mitigation process
 It is important for federal, state, and local officials to understand and appreciate
the role that insurance can play in both minimizing loss and expediting recovery
 Both P/C insurers and property owners, alike, have a vested interested in seeing
that the overall system works as best as possible
Insurance Information
Institute On-Line
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