The unprecedented level of property losses caused by Katrina and the other hurricanes of 2004 and 2005 profoundly altered the workings of the residential insurance market in the Gulf States. Many private insurers raised rates dramatically and used other strategies to shift risk to residents, and some retreated from coastal regions altogether. Government programs stepped in, but their subsidized premiums raised concerns that homeowners were not being provided with sufficient incentives to reduce risks.
Although almost all stakeholders concur that the existing system is unworkable, there is little agreement on the best approaches for reform. Some policymakers call for an increased government role in insuring hurricane losses; others believe the best solution lies in promoting the private sector’s ability to offer effective coverage.
A new RAND study sought to diagnose what ails the residential insurance market in the Gulf States and to help frame the policy debate. By reviewing public records and conducting over 100 interviews—with coastal residents, consumer action groups, insurers, reinsurers, regulators, catastrophe modeling firms, journalists, and legislators—the research team was able to identify serious, ongoing problems in the way this market functions, explain why neither the private sector nor government programs can effectively address these problems without reform, and offer a framework for evaluating potential reforms.
The study is titled, "Residential Insurance on the U.S. Gulf Coast in the Aftermath of Hurricane Katrina: A Framework for Evaluating Potential Reforms."