An uncomfortable pause: New Orleans risk managers continue to negotiate claims and evaluate exposures post Katrina.

More than 21 months after Hurricane Katrina, risk managers are still negotiating insurance claims, reassessing their exposures and seeking reasonable coverage from a market retreating from coastal properties.

Handbooks on emergency preparedness did little to prepare risk managers for a market in disarray, the sharp rise in premium and diminishing coverage following the costliest storm in U.S. history. Emergency preparedness plans helped but did not include contingencies for extra expenses such as housing for displaced employees. Few imagined business interruption claims would be so contentious.

"This has been a harsh lesson for a lot of people," said Patricia Comiskey, chief operating officer for the Louisiana Restaurant Association. "We've certainly learned the value of business interruption [insurance], and gained an understanding of how to battle a business interruption claim."

At the time of the storm, late in August 2005, Comiskey was vice president of insurance for Hibernia National Bank, a regional bank headquartered in New Orleans with operations throughout Louisiana and Texas. The bank was being acquired by Capital One, and the deal was two days from closing when Katrina came to town, significantly damaging 15 branches in Greater New Orleans.

A few years earlier the bank had conducted a 10-year loss study of its properties that flooded during previous rainstorms and hurricane's, and subsequently purchased individual flood policies on those branches, Comiskey said. "We had done an analysis and knew if we lost the bulk of our property from a hurricane, we had enough property coverage," she added.

This preparation helped identify potential future losses, except for extra expenses, she said. "Our finance department was located in Baton Rouge.... Different departments went different places. We had to direct employees to Dallas, Houston and Lafayette to keep businesses going. The extra expense was from housing all of those employees," Comiskey said.

Fortunately, the bank did not sustain many business interruption losses. "Because we were a regional bank and because most people evacuated west, most of the people who were using our bank were able to do so throughout Louisiana and Texas. New customers joined us from other banks that did not have branches outside the New Orleans area. We gained more business," she said.

Unfortunately, she can't say the same for many members of the restaurant association, who "are still negotiating their business interruption claims. For a lot of people, it's proving when they got back and proving what the market was before the hurricane. For restaurants, that's difficult, because it's very seasonal."

A Port's Story

The Port of New Orleans also expects a battle over its business interruption claims, although they amount to only a fraction of the port's total losses. "As far as we're concerned, we're still losing money," said Gerald O. Gussoni Jr., the port's director for legal services, insurance, claims and risk management, "but they're [insurers] going to say as soon as we opened our door three weeks after Katrina that we were back and open for business. We were working a ship upriver 10 days after Katrina, but this place was nowhere near back to where we were before the hurricane."

Before the storm, the port was becoming the seventh-largest cruise passenger port in the nation. "We were up to three quarters of a mil lion people coming through the port. Then, for a whole year we had nothing. Tourists stayed away from the port for an entire year. We lost all that income," he said.

Gussoni estimates the port's total insurable losses at about $135 million, including roughly $10 million to $15 million in business interruption losses.

Like many of his risk manager colleagues, Gussoni said, one of his biggest post-Katrina challenges has been finding reasonable coverage at a reasonable price. The Port of New Orleans' primary property policy went from having a $750,000 windstorm deductible to $5 million, Gussoni said. "The price went up even after that."

Insurance premiums now constitute almost 20% of the port's operating budget, up from less than 10% just five or six years ago, Gussoni said. In 1999-2000 the port was paying less than $1 million for its entire insurance coverage. The port had only experienced two major property losses in the past 20 years, each amounting to no more than $4 million in losses. It had never filed a claim with its excess insurer. However, Gussoni said he's learned the hard way that it hardly matters now. Like many other entities there, the port now is looking to significantly reduce the amount of insurance it buys due to the rising cost.

For example, under an excess layer of property coverage from FM Global, the port has $500 million of coverage for mostly fire with sublimits for wind and flood. But for a linear operation spread over 20 miles, the port probably does not need that much insurance for fire, Gussoni said. "We never needed $500 million of coverage, but it was nice to get it," he said.

The port now is conducting a probable maximum loss study to determine how much insurance it really needs. A few years ago, a similar study was done based on the likelihood of a ship running into one of the port's biggest moneymaking container facilities and taking out cranes valued at $10 million to $12 million apiece. "We determined that even with some fat put in it, on top of all the lost income, our maximum loss was around $125 million," said Gussoni.

The port continues to negotiate with FM Global over Katrina-related claims. That is the only outstanding claim that needs to be resolved before it can collect additional aid from the Federal Emergency Management Agency.

The port has asked its broker, Aon Corp., to shop the market for a separate quote for one cover age--flood and wind together, Gussoni said. The cost-saving move will help avoid any "contention with underwriters over what's wind and what's flood," he said. "In many cases it's a combination of both. It just gets very complicated, and we're going to try to avoid that if we can."

The risk manager said he expects another review of the port's insurance program at the end of the renewal period. "It may be that if FEMA is going to be there at the end of the day, we might be better off if we didn't have this much insurance," Gussoni said. "I'd always said that with insurance, you get your money faster. Now, I'm not so sure."

Key Points

* More than a year and a half after Katrina risk managers are still negotiating insurance claims.

* Many risk managers battled insurers over business interruption claims.

* One of the biggest post-Katrina challenges has been finding reasonable coverage at a reasonable price.