After the Hurricane Katrina, most insurance companies were unable to pay the victims as per the expectations. This is because most victims suffered losses not covered by their respective insurance plans. Insurance companies could not pay the victims satisfactorily, because there were a lot of people claiming payment at the same time. Insurance companies offered to compensate only a minimal amount on the dollar. Insurance companies were forced to renege on their promises to their long-time customers. The role of an insurance company is to provide financial support to its customers if they are faced with a disaster that they cannot be handled. When people were faced with the tragedy of the Hurricane Katrina, the insurance companies were expected to fulfil their promise. However, these insurance companies failed to live up to their promise.
The price of coverage increased beyond what customers expected. Insurance companies provided a small amount of money for repairs; the money they managed to give had to be released in small bits. The lack of assistance from insurance companies has greatly affected their image. The law suits have negatively affected the performance of these companies. Insurance companies have lost most of the customers. Some insurance companies have lost business. This may lead to corporate shut downs. Even after the law suits are over, the insurance companies will be in critical positions since the profit margins will be too low. As the customer shun the insurance companies, and advertising becomes unfruitful, these companies might end up filing for bankruptcy.
Due to the effects of the Hurricane Katrina, insurance companies will be forced to tighten terms and raise rates. This is because insurance companies have to ensure they have enough pooled finance to cater for catastrophes in the future. The motives of these insurance companies may be genuine. However, these motives will affect the performance of these companies negatively.