Report: After Katrina, What’s Next for the Insurance Industry?

In the near term, insurers are expected to raise rates and tighten terms, while public insurance programs will expand because of Hurricane Katrina, according to a new report published by Celent, “After Katrina: What Now for the Insurance Industry?.” The report examines the immediate and long-term implications of Katrina and describes best-case and worse-case scenarios of its impact on the insurance industry and select insurance providers.

The report says that in the long term, there may be fundamental changes to the insurance industry’s business model including: transforming capital requirements, new pricing methods, and a different approach to underwriting and claims. The report also describes the role that technology can play to support these changes and outlines the implications for insurers and technology vendors.

According to Donald Light, Celent analyst and author of the report, “The human and economic consequences of Hurricane Katrina are still unfolding, but what is already clear is that Katrina is not just another big storm. Even in these early days, the unprecedented scale of Katrina and its aftermath demands a look at the longer-term implications for the insurance industry.”

Light continued, “Katrina was a very ill wind indeed. But in addition to physical and financial ruin, Katrina also has brought tough but meetable challenges for insurers, and real business opportunities for certain technology vendors.”

The figure below shows how the property/casualty industry’s capital adequacy has fluctuated in the years prior to Katrina. The report goes on to discuss how Katrina will impact the industry’s capital going forward.

Members of Celent’s Property/Casualty Insurance research service can download the report electronically by clicking on the icon to the left. Non-members should contact info@celent.com for more information.