Keeping the faith.

As the nation reeled in shock at the horror Hurricane Katrina wreaked across New Orleans and surrounding communities in August's final week, the insurance industry prepared to play its part in responding to the catastrophe and braced itself for the storm of losses to come. At press time for Best's Review, catastrophe modelers estimated Katrina caused as much as $60 billion in insured losses, making it the costliest hurricane on record.

Experts expect the industry will be able to handle the losses, but the road to meeting commitments may be particularly difficult. Disputes and lawsuits are predicted to arise over whether policyholders whose homes were destroyed should be paid the full face value of their homeowners policies when hurricane damage was caused by flooding. Also, after all payments are made, high-risk insurance pools in Alabama, Louisiana and Mississippi will likely levy assessments on all property insurers in their respective states.

Full coverage of Hurricane Katrina's impact on the industry begins on page 10.

Our other cover story, this month looks at new faces of an old problem. Health insurance fraud has existed as long as health insurance, but today's thieves are finding innovative ways to seam the industry. "We're now starting to see some unique kinds of schemes, like 'rent-a-patient,' developed in South California," said Louis Saccoccio, executive director of the National Health Care Anti-Fraud Association.

Pharmaceutical fraud is growing rapidly, involving pharmacists who dilute prescription drugs and charge the insurer the full price, bill brand name prices for generics or even charge insurers for the drags and then sell them on the street for a handsome profit.

Other new schemes involve identity theft, in which a thief steals "patient information and generates lists to bill from for services never rendered," Saccoccio said. "We're also starting to see organized crime groups knowing money is out there in health care and developing schemes to defraud the system," he said.

"Fighting on New Fronts" on page 30 explores these latest seams and what insurers are doing to fight back.

Sally Whitney is editor. You may reach her at [phone], Ext. 5340, by writing to A.M. Best Co., Ambest Road, Oldwick, NJ 08858, or by e-mail at [e-mail]. The e-mail address for Best's Review is [e-mail].