An Average Family Living in the Hurricane-Prone Area - Case Study Example

Running Head: HURRICANE KATRINA Hurricane Katrina of the of the Hurricane Katrina Introduction Hurricane Katrina, that hit Louisiana in the late August, proved to be a disaster on many levels. Apart from the human tragedy and suffering of thousands of people, who lost their homes and families, material goods and any sense of security, federal government and state officials lost their credibility; people lost their trust in them. As Jack Welch, former CEO and chairman of GE put it, probably only Mother Nature was spared from the overall criticism. What was mostly stressed, in the analysis of the hurricane aftermath, was the disastrous crisis-management, or even the lack of it in many cases, on the part of federal and state authorities (Ball, 2005). We observed the complete lack of communication between federal government, state government, and the cities, officials. Inefficiency, no initiative, no clear leadership, delay in every action, and overall chaos can characterize the behavior of those who should try to prevent and minimize the damages. And on top of everything, most of the areas and people hit and affected by the Katrina were not prepared for the scale of disaster. Katrina Disaster Katrina was hugely devastating and the magnitude of its damage will linger probably for some time, in areas affected and in minds of people who witnessed that disaster. However, the federal and state officials, as well as ordinary people can derive a lesson from Katrina. This was not the first such disaster, and it surely was not the last one (Hayhurst, 2007). According to earth scientist, due to changes in climate and global warming, hurricanes and other natural disasters will appear more frequently. How can we, ordinary citizens as well as officials on different levels, prevent such after-disaster crisis? How can we better manage crisis? Are there ways to diminish peoples suffering? And mostly importantly, who should pay for everything? Money is always crucial issue and in situation of such crisis it takes another meaning. We have to be aware of the fact that we cannot rely always on the others for help. In many critical situations, we have to come up with our own solutions to the problems. In this case study, the situation of an average family living in the hurricane-prone area is analyzed. The analysis is performed on different levels. First, we closely look at the prevention and avoiding severe crisis due to disaster. We, as humans, cannot control nature, but we can and should take every measure to protect human life in the face of a disaster. Therefore, what measures people should take to protect themselves and their personal belongings? We will try to figure out what insurance to purchase, if any; whether it is worth to invest extra money to deal with the aftermath of disaster. In addition, after the hurricane or other natural disaster, where can people turn for help and what should they do? Clearly, one of the lessons from the Katrina is that we, and officials that ought to know, really do not know what to do after the storm is over. Secondly, we will analyze the role of government, state and the corporate world in the aftermath of natural disaster. Should the emphasis on rebuilding damaged areas and helping people be put on state or federal officials, or maybe on both? Is there any social responsibility on the part of the businesses? Is there any pressure on huge corporations to take part in the rebuilding process and helping refinance any relief projects? How should be any rebuilding and preventing financed? It is really hard to come up with perfect and adequate prevention, evacuation, and rebuilding plan. Plans tend not to work out the way they were designed originally. However, just as we create a portfolio of diverse investments to protect ourselves from the fluctuations of markets, we must prepare a portfolio of different scenarios that will prepare us to some extend for such situations as the Katrina aftermath. As Jack Welch mentioned, "Immunity to crises comes from learning". Now, that the hurricane is over a lot of work has to be done to rebuild damages and help people return to relatively normal life. As we all know by now Katrina and its aftermath has placed many people without homes, and without any possessions. The damage is done, but what would like to discuss is what families can do to prepare financially for future natural disasters and some simply steps that a family can take to ensure that they wont be swept away of everything (Cornejo, 2006). Insurance Issues After doing some research it was found that most victims of Katrina were either underinsured or not insured at all. About 60% of all homeowners in the United States are underinsured or not insured at all, meaning that their homeowners insurance does to not cover the full replacement cost value of their home. Many people probably dont even know what the full replacement cost of their home is, even sure did not. The full replacement cost value of a persons home is what it would cost to rebuild your home on the land it sits on now, it is not how much you could get for it if you sold it in the market. It is also important to report any home improvements made to our new home to our insurance company. Any home improvement would certainly increase the value of our home; therefore the replacement cost would increase. Also another important problem that was not alert of is that most homeowners insurance does not cover flood damages, scary but true. So in addition to homeowners insurance we will be looking into flood insurance, since many of the homes in Louisiana were destroyed by the flooding from the broken levy. After insuring our home and obtaining flood insurance, it is supposed that the next best step would be to list everything we own, i.e. assets and possessions. If possessions are destroyed in a natural disaster you must file an insurance claim and be able to prove a loss, for both replacement costs and tax purposes. Therefore it is important to take photos of all assets and possessions. It is also important to save receipts of valuables, keep a record of when it was bought and how much it cost. When insuring valuables it is important to look for a policy that covers the replacement costs of possessions, rather than the cash value. Replacement costs are often discounted for age of use and are worth more than the cash value. Of course we will also need a will incase anything does happen. As we all natural disasters will happen, but there are ways in which families can prepare financially to prevent future hardships. Insurance Solutions Insurance rates have drastically gone up since Hurricane Katrina. The disaster has cost insurance companies up to $60 billion in damages amounting up to more than the loss from the attack of September 11 or Hurricane Andrew in 1992. Leading private insurance brokers such as Marsh & McLennan, Aon Corporation, and Willis Group have all taken huge hits. Marsh has gone up 10% while Aon and Willis have gone up 8% and 12%, respectively. Since brokers make most of their money by commission, rising insurance rates have increased their profits. While insurance brokers may look at the positive side with their profits going up, evacuators have gone crazy dealing with insurance plans.         Allstate has reported receiving over 175,000 claims on its automobile and homeowners insurance. 70% of the claims have been made from Louisiana, 24% from Mississippi, 4% from Alabama, and 2% from Florida and other states. Although Katrina has caused insurance rates to go up, Allstate has recently announced to reduce its homeowners coverage in the Gulf Coast region due to the companys losses.         Unlike Allstate, State Farm has a specially designed catastrophe team suited to help victims of Hurricane Katrina and other natural disasters. Many insurance companies have offered extended grace periods for insurance premiums due from the policyholders. Companies offer special hotlines and accept flexible payments from their customers. For the people who have left their checkbooks and ATM cards, the Federal Deposit Insurance Corporation are allowing people to open up accounts at the local branch where they are temporarily living. Filling out documents or paperwork is unnecessary. Credit card companies are offering payment relief with replacement cards and emergency PIN numbers. Citibank is waiving interest and finance fees for three month while American Express is giving a one month grace period and allowing customers to exceed their credit limit of $1000 (CPCU, 2006). While insurance companies are competing over insurance policies and what they have to offer to their customers, Louisiana state officials are taking their first steps in rebuilding the city through a massive issuance of municipal bonds (Tuckey, 2005). After rescuing efforts are over and clean ups begin, officials will turn to Wall Street for assistance in the issuing of billions of dollars of bonds. Wall Street plays such a significant role in rebuilding the city it is fair to say that municipal bonds are the core to any state and city government. They construct roads, bridges, and finance projects in which all will serve crucial roles in rebuilding Louisiana. The FEMA (Federal Emergency Management Agency) will cover 100% of the cost incurred by the state instead of the usual 90%. The state already has $1 billion in cash available for spending and the remainder on credit. FEMA has four contracts each with a value of $100 million for temporary housing in Louisiana, Mississippi, and Alabama. The companies who have received those contracts were Fluor Corporation in California, Bechtel Group Inc. in San Francisco, Shaw Group Inc. in Baton Rouge, and CH2M Hill Cos. in Denver. Fluor Corporation has done the job for the last eight years providing housing during last years hurricane in Florida along with other natural disasters. Katrina had such a great impact at a rapid rate FEMA could not receive enough from the engineers of the Army Corps in time. This is why FEMA decided to tie the contracts with these private firms because the agency thought they would be more responsive. FEMA is also working with both state and local officials to aid evacuees that still live in motels, hotels, and various shelters. FEMA has provided $4.5 billion to over 1.4 million families to help the victims get back on their feet. Providing long-term housing is the primary goal for FEMA. So far it has spent $1.2 billion offering over 500,000 homes (Binderup, 2006). In December, the direct payment program for hotels/motels will end. This is why FEMA wants to help families in long term housing prior to the month of December. FEMA assists individuals by giving $26,000 covering housing, medical, dental, funeral, and transportation costs. To cover expenses that arent covered by the state or local programs, FEMA offers low interest loans. People who dont qualify for loans can apply for a cash grant. The IRS allows certain losses to be deducted on the federal income tax returns for the year of the loss. The American Red Cross has responded to Katrinas crisis by offering more than $2 billion (Robert, 2007). With food and shelter, Red Cross has spent over $513 million. At the peak of the hurricane, the firm served more than 995,000 meals in a single day. In six weeks, over 20 million meals and 13 million snacks were distributed to 27 states. Emergency financial assistance has amounted to $1.5 billion helping nearly 4 million people. With cards, cash, and vouchers, victims are able to purchase daily necessities. Physical and Mental Health Services sum up to $11 million with the Red Cross providing medical equipment such as oxygen tanks, eyeglasses, and crutches (Swindell, 2007). There are also mental professionals assisting victims of family members in need of support and guidance. Fundraising Costs, Management Expenses, and Additional Support total up to roughly be $200 million. The Red Cross has asked help from several other institutes such as colleges. One of them is the University of Delawares softball team. The softball team partnered up with the IFC (Inter-fraternity Council) for "Pitch-in for Katrina," a softball tournament which took place on October 23rd. 8 sororities and 6 fraternities participated in the event raising $1500 for Red Crosss Katrina Fund. Cornell University, New York was another college that was active in giving aid through the Red Cross. With fraternities, sororities, and student organizations, the total has amounted to $5000. Rite Aid Foundation has also announced a chain program that donates $250,000 to the Red Cross. $1 dollar relief certificates can be bought at any Rite Aid store across the country, all of which will be donated to the Red Cross (Jenkins, 2006).         To help lower the unemployment rate, several companies are seeking ways in which to help employees who have lost their jobs. Whole Foods, Starbucks, and Wal-Mart are allowing employees to work at any other location they are in. With the addition of Starbucks helping victims into foster families, the company is depositing $500 for every affected individual and offering debit cards to employees without direct deposit. Wal-Mart is doing a similar thing offering $250 in cash and $750 when they fill out a form (Patterson, 2007). From the government to state, state to the local and local to the civilians of the United States, every company, every individual is offering donations and special gifts to the victims of Hurricane Katrina. Similar to the attack of 9/11, as unfortunate and devastating this disaster was, it has brought Americans closer together than ever before working cooperatively for a single cause; to aid the victims. It is truly amazing to see what the nation can accomplish when every person is working for the same goal offering each other a helping hand. References Binderup, Kara D.. (2006). Significant Insurance Litigation Post-Hurricane Katrina. Journal of Insurance Regulation, Vol. 24 Issue 4, p109-115 Ball, Jeremy A.. Army Lawyer. (2005). Flood Damaged and Salvaged Automobiles Threaten Consumer Woes: Hurricanes Katrina and Rita & the $40 Million State Farm Insurance Settlement. Nov2005 Issue 390, p40-45 CPCU (2006). Flood Insurance and Hurricane Katrina: Evaluation of the National Flood Insurance Program and Overview of the Proposed Solutions. e-Journal, Vol. 59 Issue 9, p1-21 Cornejo, Rick. (2006). Hurricane Katrina Reshapes Insurance Market. Bests Review, Vol. 106 Issue 9, p31-32 Hayhurst, Brandee. (2007) Gulfport couple tell of life in recovery: Mississippi residents survived Hurricane Katrina only to battle insurance companies. Times-News (Burlington, NC) Jenkins, William O. (2006). National Flood Insurance Program: New Processes Aided Hurricane Katrina Claims Handling, but FEMAs Oversight Should Be Improved: GAO-07-169. GAO Reports, 12/15/2006, p1 Robert P. Hartwig. (2007). Hurricane Katrina Insurance Issues. President & Chief Economist; Insurance Information Institute. FDCH Congressional Testimony. Swindell, Bill. (2007). Frank, Watt Will Probe Hurricane Katrina Insurance Claims. CongressDaily AM, p9-9 Tuckey, Steve. (2005). Hurricane Katrina Raises New Claims Challenges For Insurance Adjusters. National Underwriter / Property & Casualty Risk & Benefits Management, 10/3/2005, Vol. 109 Issue 37, p12-13 Patterson, Michael A.. (2007) Evaluating the Louisiana Department of Insurances Hurricane Katrina Homeowners Mediation Program. (cover story) Dispute Resolution Journal, Aug- Vol. 62 Issue 3, p34-41, 8p Read More