I recently read several articles marking the 20th anniversary of Hurricane Katrina. The articles covered a plethora of changes, including ISO form changes, the quality of claims serviced, the enormous financial cost, the unreal people cost, the improvement in the design/maintenance/governance of the levees, and even the improved acknowledgement that risk management matters in insurance. After all, with two centuries of insurance, who would have guessed risk management really matters?
I performed a significant amount of errors and omissions (E&O) work in New Orleans and the surrounding area over the ensuing years after the hurricane. I was in New Orleans so often, my family suggested I get an apartment. On my first trip to New Orleans after Hurricane Katrina, the day after the airport reopened, a client gave me a tour. The flooded areas were like Mars. Everything was a monotonous shade of gray dirt. The trees, the abandoned cars, and the buildings, literally everything was the same color. Few commercial businesses were open, and the hotels that survived were jam-packed, often with FEMA personnel. The refrigerators set along the street for trash pickup in the neighborhoods that were otherwise untouched were a major surprise. It turns out that rotten food permeates a refrigerator’s casing over time, and those otherwise untouched neighborhoods did not have electricity for days and days.
The postmortem on the storm, which my client clearly conveyed to me on that first trip, was that this was a man-made disaster caused by incompetence in managing the levees. It is sad that people must suffer so much loss for actions to be taken that should have happened long ago.
In reflecting on my experiences and subsequent changes to property and property insurance, my thoughts include issues mostly surrounding agency E&O and mandated building codes.
Errors & Omissions
The E&O claims were awful. Somewhere around 98% of my clients’ E&O claims were dismissed or won fairly quickly because the claims had no basis. In some cases, insureds were simply desperate. In other cases, they were greedy. In some cases, they claimed the agent, literally–and I am not exaggerating–should have been making all insurance coverage decisions for the insured without the insured’s consent. This means that ambulance-chasing attorneys were aiding and abetting in each of the hundreds, if not thousands, of E&O claims. Making the situation worse, these attorneys inflated the hopes of homeowners who had lost their homes.
I also discovered how deeply my clients cared for their customers. They were going through their own suffering, their staff was going through their own losses, and yet they were working long hours on behalf of their clients. In fact, in a few cases I experienced, I felt the deluge of E&O claims (again almost uniformly without much, if any, merit) caused agency owners to retire early, and maybe in a couple of cases, the stress led to early deaths. And to add insult to injury, some carriers sued their agents. Carriers often win E&O cases when they sue, and yet carriers are supposedly the agents’ partners.
Since then, I have completed some interesting work involving carriers and agents who should have been on the same side in political lobbying efforts, but they were not. Without question, the agents had the consumers’ interest more at heart than carriers, even though the agents would be the ones suffering growth losses because, in their position, rate increases would subside.