In September 1989, the insurance industry faced its first billion-dollar hurricane-related catastrophe when Hurricane Hugo hit the coast of South Carolina as a Category 4 storm. Hugo caused approximately $4.2 billion in insured property losses from the Carolinas through eastern Ohio. The costliest hurricane in terms of insured loss since Frederic a decade earlier, Hugo caught the industry by surprise as adjusters scrambled to deal with a substantial influx of claims.

By the time Hurricane Andrew struck Florida in 1992, the aftermath of Hugo had given insurers a better idea about how and where to deploy adjusters to handle claims as efficiently as possible. The overall magnitude of Andrew, however, created its own set of unique challenges. For example, in the days following Andrew, adjusters began offering policyholders checks as an advance to help facilitate the repair and rebuilding process. However, the widespread destruction caused by the storm also led to significant disruption of local businesses, including banks. Many policyholders experienced difficulty locating an operating branch willing to cash the checks, particularly if the policyholder did not have an account with the bank. Such difficulties contributed to the slow recovery process and fueled policyholder frustration.

When four hurricanes -- Charley, Frances, Ivan, and Jeanne -- struck Florida in the third quarter of 2004, insurers once again faced their biggest hurricane-related ordeals in more than a decade. Successive strikes in just over a month's time across the state meant that insurers had to gear up quickly and also effectively manage expectations among hard-hit policyholders and adjusters alike.

A year later, Hurricanes Katrina, Rita, and Wilma pummeled the U.S. coastline in three consecutive months, with Katrina and Rita devastating the Gulf and nearly wiping out the city of New Orleans. The extensive flooding and damages in Louisiana and Mississippi made travel extremely difficult for adjusters, especially in light of millions of displaced residents and the lack of available accommodations. In many cases, adjusters were forced to travel several hours from their hotels to inspection sites, taxing already strained resources. What's more, the level of disruption in communication lines was severe. Thus, it was exceedingly difficult for insurers and policyholders to connect in the aftermath of the storms.

Hurricane Loss Trends and Challenges

Over the last several decades, the population density of U.S. coastal areas -- particularly in the Southeast and Gulf of Mexico regions -- has significantly increased. According to a 2005 NOAA report, the population density of the Southeast coastal region increased from 142 people per square mile in 1980 to 224 people per square mile in 2003. Additionally, the population density of the Gulf of Mexico coastal region increased from 113 people per square mile in 1980 to 164 people per square mile in 2003. Such growth has led to a substantial rise in the number of buildings in these regions, as well as the subsequent increase of insurers' risk inventories.

The value of high-risk properties has also risen over the last several years, contributing to considerable increases in the average claim size. For example, in 1999, the average amount of a hurricane-related personal lines claim was $1,773. In 2005, the average personal lines claim jumped to $11,860 after deductibles and other considerations. That trend carried over to commercial lines claims. In 1999, the average hurricane-related commercial lines claim totaled $10,769. In 2005, the average claim ballooned to $77,592. It's clear that as claim amounts grow, so does the need for insurers to employ seasoned and experienced adjusters to handle the subsequent complex issues.

Demand surge or loss amplification is another trend that has taken on new meaning in recent years. For example, in the wake of Hurricane Andrew the industry paid an estimated 20 percent premium on the cost of construction materials and labor as a result of the number of properties in need of repair or replacement.

Before Hurricane Wilma hit Florida in 2005, insurers estimated the value of screened enclosures around pools and patios to be approximately $6,000 to $8,000. However, after such structures were severely damaged by storm debris, those values rose a staggering 300 percent to approximately $25,000 as a result of widespread demand for replacement materials and labor.

With each hurricane comes a new set of concerns and novel twists on the impediments facing insurers in the aftermath. As issues related to demand surge have slowed the recovery efforts of homeowners, businesses, and entire communities, the relationship between policyholders and adjusters has become increasingly strained.

A lack of available building and construction resources has contributed to the frustration experienced by policyholders and adjusters. For example, after Hurricane Charley struck the southwestern portion of Florida in 2004, contractors had difficulty obtaining the appropriate permits to facilitate the rebuilding and repair process. The subsequent shortage of available contractors and laborers was so severe that some policyholders were told it would take as long as three years before homes could be replaced or roofs repaired.

Another issue facing insurers has been the unpredictable nature of catastrophic events. Despite scientific advances in the understanding of hurricane activity as well as the advent of advanced catastrophe modeling technology, the fact remains that a severe hurricane can strike the coastal United States at just about any given time. Additionally, the timing and geographic location of the event plays a significant role in how insurers can and must respond.

Let's consider the fact that if a major hurricane were to strike the northeastern region of the United States in late November, then the implications could be several times more devastating than a similar event in Florida during the same time frame. Florida's geographic location and generally warmer climate present a more favorable environment for builders and contractors to perform much-needed repairs year-round. But if a late-season storm were to strike the colder northeastern region, then the continuous threat of snow and ice storms could potentially slow the rebuilding and recovery process for several months.

Political influences have recently presented a significant hurdle to insurers and adjusters, particularly following the devastation in the Gulf left by Hurricane Katrina. As a result of the difficulties policyholders have experienced and continue to experience in their efforts to recover from this tragic event, insurers and adjusters have faced considerable public and political backlash in the attempt to price risks appropriately and calculate losses based on the covered peril.

Advanced Technology

In an effort to deal with the tribulations posed by hurricane-related catastrophe losses, insurers have often turned to innovative technologies to improve the claim-handling process. For example, replacement-cost estimating software allows adjusters to facilitate the scoping of a claim in a more accurate manner, helping insurers and policyholders resolve the claim more quickly and efficiently.

The Internet has also enhanced adjusters' abilities to respond to the needs of policyholders in the aftermath of a major hurricane. Using tools such as e-mail and Web-based claim filing, adjusters can easily upload and transmit important forms, photos, and other documentation to carriers for processing within hours of assessment. Similarly, these tools allow adjusters the freedom and mobility to move quickly between assignments in a timely and efficient manner.

As exposure to hurricane-related losses continues to rise, insurers will be increasingly tasked to remain prepared for the potentially devastating effects of concurrent catastrophes at any time. This requires the ability to build corps of skilled, experienced adjusters to handle the thousands -- or millions -- of incoming claims.

Meeting the challenges facing carriers in today's environment will require diligent planning and execution, including the adoption of advanced technology to heighten the overall quality and efficiency of the claim-handling process. The key is to remain responsive and resourceful and continually adjust to evolving risk exposures and the needs of policyholders.