There are tragic similarities between the fires that are scorching southern California and the hurricane that hit the Gulf Coast in 2005. In both cases, billions of dollars worth of property was destroyed, and thousands of people lost their homes.

The people that live in San Diego were at least more fortunate than their counterparts in New Orleans, in that both California and the Federal authorities reacted quickly and evacuated the victims. There were no appalling delays in assistance, nor were the local authorities unprepared. Evacuees had food, water, places to sleep and access to showers. In comparison to the squalor and misery that existed at the New Orleans Superdome, the scene at Qualcomm Stadium was a model of what an efficient relief effort should be.

It would appear that Hurricane Katrina served as an object lesson for FEMA and State Governments. Witnessing both a catastrophic event and chaotic aftermath probably caused state agencies all over the country as well as FEMA to do a serious evaluation of their readiness and professionalism. To the credit of both California and FEMA, their reactions to the fires were quite good.

The disasters were similar in that they both had wide reaching effects, but the reactions to the disaster and the handling of the aftermath were not similar at all, and this is a good thing. It is obvious here that the public sector learned from their mistakes.

So while all is well and good with the public sector, there is still the private sector to consider when you consider the rebuilding process. The question that should be asked and now and will be answered in the coming days, weeks and months is this: Can victims of the fires in Southern California expect better treatment than the victims of Hurricane Katrina from the insurance companies?

The Price Tags

NEW YORK (CNN/Money) - Hurricane Katrina could end up costing the insurance industry about $16 billion, making it one of the most expensive storms in history for U.S. insurers.

Risk modeling firm Eqecat initially estimated that the hurricane, which slammed into Louisiana as a category 4 hurricane Monday, would cost the industry $15 billion to $30 billion in insured losses, but later revised that forecast twice, first to $12 billion to $25 billion and then to between $9 billion and $16 billion. - 8/30/2005

It turns out that Hurricane Katrina didn’t cost insurance companies nearly that much. The reason they were able to avoid many of the claims was because they claimed that much of the damage came from what they called a “Storm Surge,” or a wall of water that caused flooding. Since no insurance company in the area offers flood insurance, many insurers were able to simply reject thousands of claims outright by claiming that all the damage was caused by water and not by wind.

Insurers were also able to whittle down the bill by playing the waiting game, which is a tried and true method of getting policyholders to accept less than they are entitled to. By simply delaying, not returning phone calls, and waiting for years to act on claims, insurance companies are able to financially wait out their policyholders, who don’t have the benefit of billions of dollars worth of profits to live on and will, out of desperation, take what they are offered.

NEW ORLEANS: Maxine Cassin, a prominent local poet, thought her homeowners insurance would more than cover the $100,000 of hurricane damage on her Uptown house here, she said. But two years after Hurricane Katrina, Cassin and her husband, Joseph, are still stranded far from home; their insurer has offered them just $41,000. – International Herald Tribune, 9/2/07

The damage from the fires in Southern California doesn’t appear to be nearly as expensive as the damage from Hurricane Katrina:

SAN DIEGO -- The devastating wildfires in Southern California have caused at least $1 billion in damage in San Diego County alone, officials said yesterday, as easing wind gave firefighters hope that they could begin to gain ground against the flames. – Edmonton Sun, 10/24/07

Also, the insurance companies are expected, at least by some people, to behave in a decent and civilized fashion:

"Basically, events like these, as dramatic as they are and as tragic as it is for thousands of homeowners, are already factored into the rates," says Robert Hartwig, president of the Insurance Information Institute, an industry group. "People in these areas already pay a lot for insurance, and will continue to pay a lot for insurance … In California, if you want to live on a mountain ridge in a home built of cedar and have trees brush up against your house, you are going to see it in your rates." - Newsweek, 10/26/07

While there is probably a great deal of truth to the above statement by Mr. Hartwig, his underlying premise that insurers will release the stranglehold on their checkbooks and live up to their financial obligations seems overly optimistic. It has been our experience that insurance companies almost never offer to come through with what they promise.