While New Orleans was spared a direct hit from the hurricane, two flood levees broke, leaving 80 percent of the city reportedly underwater.
The cost of flood damage to residential property is taken on by the Federal Emergency Management Agency, a U.S. government organization set up to deal with disasters. That means home insurers usually don't provide flood coverage as part of the policies they sell, analysts said.
However, FEMA isn't responsible for flooding of businesses, so commercial insurers often offer flood protection as part of their policies.
That may leave commercial insurers exposed in New Orleans, because the city is packed with tourism-related businesses such as hotels and restaurants.
Companies such as Ace Ltd. (ACE: news, chart, profile) , American International Group (AIG: news, chart, profile) , Chubb Corp. (CB: news, chart, profile) and St. Paul Travelers (STA: news, chart, profile) could see higher losses from Katrina because they're more focused on commercial lines than other insurers.
Tropical Storm Alison caused $2.5 billion in insured losses in 2001, despite the fact that its wind speeds only reached 57 mph.
Flood losses on commercial policies could also generate unexpected losses for reinsurers, because flood risks are more difficult to model than wind-related losses, according to the analyst.
Reinsurance is purchased by insurers to spread the risks of policies they've sold.
