Haiti Underinsured for Damage Coverage

(Jan. 25) -- Usually, it goes like this: First comes the disaster and then massive insurance claims. But in Haiti a new kind of nightmare is emerging: It is clear that the poorest country in the Western Hemisphere does not have nearly enough insurance to cover the breadth of destruction from the Jan. 13 earthquake.

Rebuilding Haiti's infrastructure is expected to cost upward of $3 billion, but in a country with no building code, few have any insurance at all. According to The Miami Herald, there are only eight functioning insurance companies in the country. Even the Haitian government is strikingly underinsured; it is expecting a mere $8 million payout from its main source of coverage, the Caribbean Catastrophe Risk Insurance Facility.

In Haiti, "insured losses will be minimal, despite the severity of the event," because "Haiti is one of the poorest countries in the world, with very little private insurance," Robert P. Hartwig, president of the Insurance Information Institute, told The Wall Street Journal.

The situation is worsened by some hard facts. In Haiti, the more likely a building is to be insured, the less likely it is to have collapsed, because insurers often require the buildings they cover to be fortified. And amid the shoddy construction, less than perfect security and the threat of earthquakes, insurers have yet another reason to avoid providing coverage in Port-au-Prince: landslides, which could collapse the hillsides surrounding the city and are exacerbated by earthquakes.

In the developed world, disaster coverage looks very different. After Hurricane Katrina, for example, insurance companies paid out well over $40 billion in claims, and 53 percent of the losses were covered. But even then, the high cost of homeowners insurance after the 2005 storm has made it difficult for the region to attract residents and make a full recovery.

In the past five years since the hurricane, thousands have sued insurance companies and the federal government for failing to pay out their fair share. Some have accused insurance companies of deliberately cheating their clients. And a fight over what homeowners insurance should cover continues. After Katrina, many policies covered wind but not water damage, for example, so court battles continue over how much destruction was caused by the storm surge versus the wind.

Late last year, a U.S. District Court judge ruled that poor construction of the New Orleans levee system by the U.S. Army Corps of Engineers caused much of the flooding in the city immediately following the storm. The ruling held the federal government liable for more than $700,000, and makes it likely that the government could be forced to pick up more of the tab as the area continues to rebuild.

The Sept. 11, 2001, terrorist attacks led to more than $21 billion in property and insurance losses. They also caused insurance premiums to skyrocket. And then, years after the dust settled, the medical claims emerged. Thousands of first responders who cleared the rubble have since died or fallen ill from cancers and respiratory illnesses that are widely believed to be caused by exposure to toxins at the site of the Twin Towers. For years, New York City Mayor Mike Bloomberg has sparred with the federal government over who should pay the millions of dollars in claims.

In California, a state plagued with earthquakes, Haiti's lack of insurance coverage may have served as a wake-up call. According to the San Francisco Chronicle, only 12 percent of the state's homeowners have earthquake coverage.

Glenn Pomeroy, head of the California Earthquake Authority, said people who think the government will automatically bail them out from any earthquake damage should think again. "As we learn time and time again, from floods in North Dakota to hurricanes in New Orleans, the federal government doesn't just swoop in and build back homes," he told the Los Angeles Times.