AOM4

In this episode of The Ascent of Money, Niall Ferguson discussed the rise of insurance and how people handle risk. Hurricane Katrina was mentioned as an example of a time that insurance failed. St Bernard Parish, New Orleans was completely inundated by Katrina in a mere 15 minutes leaving only 5 houses out of the 26,000 unflooded. Over 2,000 people were killed because of the hurricane and subsequent flooding, 148 in St. Bernard alone. Following Katrina, New Orleans suffered a huge financial crisis because people couldn’t live there anymore since they were unable to insure their houses. I chose to further research how a single natural disaster had such a large financial impact. Prior to Hurricane Katrina, Louisiana wrote a total of $13 billion in homeowners insurance premium and received $1 billion in profit over the course of 25 years. When Katrina hit, homeowner insurance carriers lost $8 billion. Louisiana Insurance Commissioner Jim Donleon claims Katrina was “the worst insured loss event in the history of insurance anywhere in the world. Bigger than 9/11, bigger than the earthquake and tsunami in Japan. Bigger than Hurricane Andrew, which had always been the benchmark event”. Louisiana faced $25.5 billion in insurance losses and 725,000 insurance claims were filed because of the natural disaster. Overwhelmed with expenses, Insurance companies either refused or could not follow through with these claims. The companies proceeded to make several areas nearly impossible to get insurance. St. Bernard Parish retained only a third of its population following Katrina due to insurance complications and expensive prices. I think the lesson here is that although insurance is definitely important and minimizes the risk, it’s impossible to eliminate the risk altogether.

https://www.insurancejournal.com/news/southcentral/2015/08/26/379650.htm

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