Banking and Insurance

Insurance is the greatest concern because of its impact on recovery. The major insurance companies remained solvent having reinsured properly for this scale disaster. At first there were delays but after a few months the insurers and adjusters caught up and only a few reports of difficulty remained. Several announced their intention to stop writing new policies. Federally subsidized  flood insurance was overextended but the federal government stepped up funding to make the payments due.

New insurance policies are becoming problematic and are likely to affect real estate values and transactions. If insurers won't write new homeowner's insurance south of  I-12 only the Louisiana Fair Plan (insurer of last resort) will be available to purchasers.

The $250,000 single story house in Lakeview is an example of one of the most vexing problems raised by the storm. The frustrated homeowner posted a sign outside the house blaming Allstate for paying only $10,000 in damages. You can see clear through the gutted house. The damage is much greater than $10,000.  Allstate explained that they provided homeowners coverage but not flood insurance to this home. Only damage above the water line was considered in the claim. Allstate paid to replace the roof.

The flood vs wind damage debate rages as homeowners attempt to prove that damage by windstorm occurred before the flood damage. Their chances of success in arguing this point have been limited. Federally subsidized flood insurance can only be obtained on the first $250,000 value in a home. Above that limit homeowners are on their own. Excess flood insurance policies?

Consider this scenario. Two houses stood side by side in the Lower Ninth. Both were valued at $100,000. Both had $50,000 in flood insurance and $50,000 in homeowners. One was frame and the other brick. When Katrina arrived the roof of the frame house was ripped off by winds and the structure collapsed. The brick house stood firm until the flooding knocked both house off their foundations and across the street. The three little pigs would have been proud because the brick house survived the winds, but insurance only paid the brick owner $50,000 for flood. The frame owner also got $50,000 in flood and if able to prove the sequence of destruction stood to get $50,000 more in homeowners,