AGCS takes the opportunity to look back and analyze the key risk management lessons learned from Hurricane Katrina and the 2005 storm season.
> Read the full risk bulletin 'Hurricane Katrina 10 - Catastrophe management and global windstorm peril review'
Hurricane Katrina and the other major hurricanes from 2005 including Rita and Wilma had a huge impact on the risk management and insurance industry.
With more than $125bn in economic losses and $60bn+ in insured losses Katrina alone was the most expensive natural disaster when it occurred in 2005 and “an event that intensified discussion nationwide about the way disasters are managed”, according to the Insurance Information Institute.
To mark the 10th anniversary of Katrina, specialist insurer AGCS takes the opportunity to look back and analyze the key risk management lessons learned
from this catastrophe:
1 Storm surge impact and risk modeling
Previous events had highlighted the potential damage from strong winds, but Katrina - and a number of storms since then, including Superstorm Sandy in 2012 – show storm surge can often be more damaging (see table below).
“Storm surge modeling prior to Katrina essentially assumed that the height of the storm surge was a function of the maximum sustained winds,” explains Andrew Higgins, Technical Manager, Americas, Allianz Risk Consulting.
“Katrina clearly showed that there are other factors that affect storm surge height,” he adds. “In 1969 Hurricane Camille hit Mississippi as a Category 5 hurricane. It had 190mph sustained winds and drove a storm surge of 22.6ft at Pass Christian, Mississippi. Katrina hit the same region of the Mississippi coast as a Category 3 hurricane with 130mph sustained winds and drove a storm surge of 27.8ft at Pass Christian. We have learned that – in addition to wind speed, the physical size of the hurricane can affect the storm surge. Camille’s hurricane-force winds extended 60 miles from the storm center, while Katrina’s extended 120 miles. The larger size of Katrina was a major factor in pushing more water onto the shore.”
Costliest storms in US by insured losses
“From a modeling perspective, the peril of storm surge received much greater attention and probabilistic model vendors enhanced the peril’s influence on overall hurricane-modeled losses,” adds Richard Quill, Catastrophe Risk Management at AGCS.
Storm surges amplified by heavy rain may even be a greater threat to US coastal cities than previously thought, with the number of events having increased significantly over the past century according to Nature Climate Change  research.
And surge continues to be one of the important components of the windstorm peril outside of the US as well. In 2014 as Typhoon Rammasun tracked across the Philippines it was accompanied by a storm surge reported to have reached 10 feet in height, causing widespread damage along the eastern coast of the islands.
2 Flooding threat
The flooding caused by Katrina showed that the conditions of the levee systems in the US are very poor. “The 2013 Report Card for America’s infrastructure developed by the American Society of Civil Engineers rates the levees in the US as a D-,” Higgins says. The condition of many of these levees is substandard and the cost to repair them is estimated to be $100bn, according to the National Committee on Levee Safety. “During Katrina, the flooding of New Orleans was primarily caused by the failure of the levees along the canals south of Lake Pontchartrain,” Higgins adds (see right).
3 Wind damage prevention
Substantial wind damage occurred to structures that experienced hurricane force winds from Katrina, despite the fact that the recorded wind speeds were less than the wind design speeds (per ASCE 7 “ Minimum Design Loads for Buildings and Other Structures”). So what happened? “Most of the wind damage occurred to the building envelope,” explains Higgins. That includes the roof covering, walls and windows. If the building codes had been strictly followed, the wind damage would have been greatly reduced. Poor workmanship and a lack of knowledge were the primary culprits.”
After Katrina, Allianz developed and implemented a roof survey inspection form and required all risk engineers and consultants to walk all areas of the roof for locations in hurricane-prone areas. “We had always inspected the roofs at any physical survey but, for those exposed locations we decided to take more time to evaluate the condition of the roof covering further,” explains James Crews, Engineering Manager for Highly Protected Risks, Allianz Risk Consulting.
“These roof surveys place a higher scrutiny on the condition and age of the roofing systems. As a result, we now work even closer with insureds to advise them on when repairs and replacement are needed and when to to bring in a roofing consultant to provide further evaluation of the covering.”
"Today, the Gulf Coast is in a better position to withstand the effects of a hurricane due to better education, improved construction guidelines and increased third party inspection,” concludes Higgins.
4 The importance of business continuity
Initially the impact of Katrina in New Orleans was not unmanageable. Then the levees were breached sending the city into chaos. Eventually businesses began the process of securing their sites – many of which had been vandalized or looted. Initial response was hampered by inexperienced staff, a lack of resources and collapsed infrastructure. Many recovery efforts were staged outside the city.
Challenges included: weather-related health issues; personal safety and security of recovery personnel; no reliable communication equipment; no civilian authority to partner with; contamination of tools, equipment and clothing; and data recovery.
As many as 40% of businesses affected by a natural or
human emergency fail to reopen 
After widespread catastrophes businesses typically relocate and the client base can diminish until recovery progresses. The key to recovery is to establish a plan in advance that identifies clear priorities for attention to crucial operations, so the business can get back up-andrunning as quickly as possible.
5 Insurance coverage issues
Insurance claims settlement levels were high from Katrina. By the second anniversary of the disaster, approximately 99% of the 1.2 million personal property claims had been settled, according to the Insurance Information Institute. In addition so where almost all of the 156,000 commercial claims; accounting for $20bn+ in payments to businesses.
However, it’s imperative to know what’s protected ahead of time. Many insureds were surprised to find out they were not covered for storm surge losses, the main coverage issue resulting from the storm. Whether damage was caused by wind or water became a key focus of post-Katrina litigation. Many of the subsequent
lawsuits took years to be resolved.
6 Unexpected impact of demand surge
Demand surge is a post-catastrophe complication which can not only have catastrophe-related consequences in terms of rising prices due to a shortage of available goods but peripheral loss consequences as well; for example from Chinese drywall.
Katrina and damage from other hurricanes during 2005 exacerbated a shortage of American-made drywall (or plasterboard) caused by the rebuilding demands of the destructive 2004 hurricane season. This led to a significant increase in the importation of defective drywall manufactured in China, subsequently resulting in a number of environmental issues and eventual litigation; particularly in the storm-affected states of Florida and Louisiana.
Although AGCS has observed many businesses are rapidly maturing in terms of natural catastrophe risk awareness, management and response there is still room for further improvement and close collaboration between individual business units – and externally – with third parties such as insurers is needed.
 Insurance Information Institute