Finding goodwill in the bad: in the wake of Hurricane Katrina, adjusters were tested to respond with fiscal responsibility without losing touch with their humanity.

By definition natural disasters are bad--that's why they're called catastrophes. Paradoxically, they usually have positive consequences for the public's perception of insurance in general. As adjusters saturate the stricken area, insurers make payments, and media coverage is proactively encouraged, catastrophes demonstrate both the human and financial value of insurance.

Hurricane Katrina was a different kind of catastrophe, larger and more complex than any we have experienced before. Together with the involved companies, the Insurance Information Institute and other industry organizations have so far been effective in explaining the extraordinary difficulties. However, this time it is by no means certain that the industry will come away from a major catastrophe with the usual goodwill--or that very troubling precedents won't be set by measures imposed on insurers after the fact.

First, the sheer size and diverse nature of the damage has demanded far greater than usual resources. The extent of the damage continues to strain industry and public infrastructures, affecting adjuster supply, telephone lines, fuel, lodging etc.

Second, the severity of damage to New Orleans and other places along the Gulf Coast was so great that we couldn't proceed as we normally do--helping the most affected first, then working toward those best able to wait.

Third, adjusters have often been the bearer of bad news. It is hard for policyholders who have lost everything to feel positive about the insurance industry when they have just been told by one of its representatives that they have no coverage because the damage was caused by flooding and they were not participants in the federally subsidized flood insurance program.

In terms of communications, it has been vital to think locally as well as nationally. We have learned over time that upfront and reliable news about recovery efforts and the claims process greatly reduces consumer frustration and resentment. However, within such a large area, there are many different media micro-climates, each with its own specific needs and concerns. Progress being made in Jackson, Miss., does not hold much interest for New Orleans or even other communities on the Gulf Coast still waiting for resolution of their claims.

Despite the enormous number of adjusters eventually deployed, progress has taken much longer than usual. Katrina displaced so many people and rendered so many buildings uninhabitable that adjusters had to compete for accommodations with evacuees before they could start working. It was hard to travel even short distances with many roads impassable and others clogged with people. Tracking down policyholders was tough because so many people were unable to return to their homes and many moved frequently. Perhaps most important, agents and company personnel in the region also had damage, just as their customers.

Access to many of the most severely damaged neighborhoods was delayed as civil authorities cordoned off areas deemed unsafe, again forcing insurers to reverse typical catastrophe response practices of working outward from the most severely to the least impacted communities.

Above all, Hurricane Katrina exposed major problems with how people understand and buy insurance coverage. While the insurance industry has constantly warned policyholders that their homeowners policies do not cover flooding, and the federal flood insurance program has run many campaigns to encourage people to buy flood coverage, take-up rates remain poor. Even policyholders who were covered for both flood and wind damage were upset to learn that their flood insurance did not provide additional living expenses, and such coverage provided under their homeowners policy might not apply if they had mostly flood damage because flood was an excluded peril. Similarly, business owners found they had no coverage for loss of income when civil authorities closed off their flooded neighborhoods, preventing their customers from reaching them.

Further, the effect on people's lives has been so devastating that even diehard defenders of contracts, free markets and individual responsibility have called for the basic rules and historic practices to be abandoned in favor of retroactive payments by governments and insurers regardless of what coverage was purchased.

How has all of this affected our public standing? One thing is certain. Millions of people inside and outside the regions struck by the recent hurricanes have become more knowledgeable about flood and homeowners insurance--the hard way--and the national debate on severe weather risk in coastal areas has been launched beyond recall.

Gordon Stewart, a Best's Review columnist, is president of the Insurance Information Institute, New York. He can be reached at [e-mail].