CHARLOTTE, N.C. (AP) -- As Tropical Storm Gustav spun toward the Gulf of Mexico Thursday, insurance companies were ready to send adjusters and appraisers to assess damage from the storm if it does make landfall in the United States. They were also prepared financially, having made changes in their coverage in the three years since Hurricane Katrina.

At State Farm Insurance Cos. headquarters in Bloomington, Ill., staff is on-call 24-hours a day while the company waits to see when and where Gustave will hit. Once a distinctive storm path is determined, more than 1,700 claims representatives will be sent into the affected area.

"We're in a holding pattern, we are waiting to see where this thing is going to go," said spokesman Kip Biggs.

Allstate Corp. and MetLife Inc. had catastrophe units as well as claims representatives en route to the Gulf region.

"We are preparing for Gustav to be a major event at this time," said Tim Bowen, director of property claims at MetLife.

Meanwhile, after paying out $41 billion in claims payments since Katrina struck three years ago Friday, insurers have made sure they are financially ready for another storm; they have settled Katrina-related lawsuits, raised policy rates and also cut back on the insurance they offer in areas most vulnerable to tropical storms.

"Insurers have all taken a hard look at Katrina and made adjustments that they feel are appropriate," said Robert Hartwig, an economist and president of the Insurance Information Institute, a New York-based industry group.

At Allstate, "we have reduced our exposure in coastal communities," said Mike Siemienas, spokesman for the property, casualty and auto insurer. "We have 17 million households that we insure throughout the country and we need to make ensure we are not overexposed in any one area that is catastrophe prone."

The value of coastal property exposed to hurricanes increased by 24 percent, or $1.7 trillion, from $7.2 trillion in 2004 to $8.9 trillion by the end of 2007, according to research and weather modeler AIR Worldwide Corp.

Gustav was not the only storm insurers were watching -- on Thursday, Tropical Storm Hanna formed in the Atlantic, northeast of the northern Leeward Islands. It was too early to predict whether Hanna will threaten the United States, but Gustav was projected to become a major Category 3 hurricane over warm and deep Gulf waters, possibly hitting the Gulf Coast by early next week.

Katrina was the single largest natural disaster loss in the history of the insurance industry. Insurers paid $41 billion arising from 1.7 million claims for damage to homes, businesses and vehicles to policy holders in six states. Hurricane Andrew -- the previous record holder -- produced $15.5 billion in losses in 1992 and 790,000 claims.

Insurers typically keep money aside in order to pay claims that are much larger than a Katrina -- or this summer's Midwest flooding or California wildfires. "Insurers have to assume that a worst-case scenario can occur any year," Hartwig said.

Disaster losses along the Atlantic and Gulf coasts are likely to escalate in the coming years because of huge increases in development and rising building and repair costs, he said. "While 2005 was by far the worse year ever for insured catastrophe losses in the U.S., future storms could prove even costlier, reaching upward of $100 billion."

To help offset some of that amount, some insurance companies have raised rates, most taking effect later this year.

In July, State Farm said it will boost its homeowners insurance rates by 12 percent to 18 percent in several Alabama counties. Some 700 policies on the state's coast will also lose State Farm's wind coverage over two years.

Earlier this month, two separate divisions of Allstate said they would raise homeowners' rates for wind and hail coverage in Mississippi by an average of 13.9 percent and 14.1 percent, respectively.

State Farm is also raising homeowner rates in Mississippi by a statewide average of 13.6 percent, but State Farm policyholders without wind coverage will not see a rate increase.

Reasons for the increases: The rising risk and cost of doing business, State Farm's Biggs said.

"In order to make claims we've got to have the money in place to be able to take care of people in a time of need," he said.

To limit their exposure to catastrophic losses from natural disasters, many insurers in coastal states are selling homeowners policies with percentage deductibles for storm damage instead of traditional dollar deductibles, which are used for other types of losses such as fire damage and theft. Percentage deductibles are based on the home's insured value.

There are also percentage deductibles for wind damage, varying from 1 percent of a home's insured value to 5 percent. In some coastal areas with high wind risk, hurricane deductibles may be as high as 25 percent.

Mass settlements of homeowners' lawsuits and a series of favorable court rulings have helped the insurance industry come close to resolving Katrina claims by the storm's third anniversary.

Earlier this month, State Farm settled with Mississippi regulators over how the insurer handled Katrina damage claims in the state. State Farm has agreed to reopen some claims and pay more than $74 million more to Gulf Coast policyholders whose homes were destroyed by Katrina's storm surge.

Two weeks ago, Florida settled an insurance dispute with Allstate, giving homeowners insured by the company an additional 5.6 percent rate cut. Allstate also agreed to insure 100,000 more Florida homeowners against hurricanes and other perils, forgive a $175 million loan to its Florida subsidiary and pay a $5 million fine.
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By Ieva M. Augstums, AP Business Writer

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