Insurance in the post-Katrina world

Whether global warming is involved is a topic of much controversy, but insurers say hurricane losses will increase even if storm patterns don't change because more people are living along the coasts and construction costs are rising.

As just one example, take the Category 4 storm that hit Miami Beach in 1926, causing a 15-foot storm surge and killing hundreds. The same storm today likely would dwarf Katrina's toll, killing thousands and causing more than $100 billion in property damage.

More precise modeling. If you want to pick a fight at an insurance industry conference, ask insurers whether their computer-modeling programs for storm risk were flawed, or whether they simply ignored the models' predictions. Regardless of the reason, the failure of insurers to predict the devastation wrought by recent hurricanes has led many to refine their models (and perhaps pay more attention to the results).

"The risk of a major hurricane striking in most coastal areas," Hartwig said, "is 25% to 40% higher than was previously estimated."

Insurers also were caught off guard by the steep jump in materials and labor after the successive storms, Hartwig said. Even homeowners with insurance money to rebuild face long waits for crews and sharply higher prices for everything from concrete to nails.

"You have blue tarp syndrome," Hartwig said, "where six months to a year after a storm you fly over these areas and still see a lot of blue tarps" covering damaged homes.

Smart moves for homeowners

So how should a homeowner navigate this post-Katrina insurance world? Here's what to keep in mind:

Don’t attract attention. In the hurricane states, many insurers that haven't already decamped are looking for excuses to boot unprofitable customers. Any homeowner who files small or unnecessary claims is asking for trouble.

Even in less problematic states, homeowners would be smart to keep their deductibles high and avoid water-related claims. The more attractive you are to an insurer, the better deal you'll get.

Cover smart. Many homeowners are underinsured because their coverage limits haven't kept up with rising building costs. The hurricanes also showed too many homeowners are doing without flood insurance even when they're at high risk.

Pick a good company. Even if it miscalculates risk, a large, financially sound insurer will still be around to pay its claims after a catastrophe. The same may not be true of some smaller and poorly capitalized firms. You can use any of the ratings agencies -- A.M. Best, Fitch Ratings, Standard & Poor's or Weiss Ratings -- to help you select a strong company. But a strong company doesn't help if it doesn't pay claims in a reasonable manner. Check with your state's insurance office, which tracks complaints, to see which companies to avoid.

Build smart. If you're building or remodeling a home in a potential disaster area, invest in improvements that strengthen your house. Simply using more nails, screws, fasteners and bolts can help your home endure a catastrophe, making it safer and you far less vulnerable to skyrocketing rebuilding costs. Such improvements might even win you a discount on your insurance.

Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.

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