RAND Report on Post Katrina Commercial Wind Insurance Developments

RAND REPORT: Commercial Wind Insurance in the Gulf States:
Developments Since Hurricane Katrina and Challenges Moving Forward

In the aftermath of Hurricanes Katrina, Rita, and Wilma, Congress has been considering whether and how to encourage the purchase of wind insurance. Today, RAND issued a new report looking at the availability and cost of commercial wind insurance following the 2005 hurricanes.

The new report, Commercial Wind Insurance in the Gulf States: Developments Since Hurricane Katrina and Challenges Moving Forward, finds that many businesses along the Gulf of Mexico coast have had a difficult time obtaining wind insurance and have ended up paying more than twice as much for the insurance as they did previously. Other findings include:
Gulf Coast businesses are paying higher deductibles while getting lower limits on policy coverage;

1. The use of state-run residual insurance markets has risen;
2. The potential for financial losses resulting from damage to property due to high winds has shifted in part from insurers to policyholders and taxpayers - including those not living in high-risk areas; and
3. The scarcity and high cost of wind insurance has delayed some business investments in the Gulf States region, although the economic impact on the overall region is hard to assess. Higher insurance premiums may have in part redirected economic activity to lower risk areas in the region.

The study also proposes three basic goals for a wind risk insurance system and examines some of the challenges faced by the private market and government programs in achieving these goals.

The study can be found at http://www.rand.org/pubs/occasional_papers/OP190/.


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