Hurricane Katrina's battering of the Gulf Coast five years ago left insurers holding historic catastrophe losses and changed the way they underwrite and prepare for the risk of windstorms and flooding.

The massive storm that came ashore in August 2005 killed more than 1,800 people and left property damage across an area the size of Great Britain. Economic damage was estimated at more than $100 billion, with insurers paying around $60 billion in Katrina-related claims.

Experts contend that insurers were among those caught off guard by the storm, suffering unexpectedly heavy losses that forced them to rethink the way they underwrite hurricane risks.

“The magnitude of losses far exceed anything they thought could happen,” said Al Tobin, New York-based national property practice leader with Aon Risk Services That's proven by the fact that several insurers “blew through their treaties” and were left without reinsurance protection on Katrina-related losses, he said.

“That meant they then had to pay every dollar of losses from their own reserves, and that is not what they wanted to do,” Mr. Tobin said.

Many insurers were unprepared before the storm hit, said Jeffrey Beauman, vp and all-risk underwriting manager at Johnston, R.I.-based Factory Mutual Insurance Co., which does business as FM Global. “There was a tremendous amount of chaos in the industry about what was about to happen,” he said.

Some insurers were caught flat-footed by unexpectedly high losses because they didn't properly understand their exposures or prepare their clients for a storm as devastating as Katrina, Mr. Beauman said.

Rick Kuzmanoff, Chicago-based vp for property claims, North America, at XL Insurance, said Katrina proved how planning in advance pays off in making recovery from a storm run smoother.

“That's been a big change I've seen at XL,” Mr. Kuzmanoff said. Improved catastrophe models allow the insurer to better identify its risks on a more “granular basis” before a storm hits, he said, and gives him the ability to follow up quickly with policyholders to determine what resources they need as soon as a storm moves through.

“We have much better tools than five years ago,” Mr. Kuzmanoff said.

On the underwriting side, insurers offer far less windstorm coverage for hurricane risks than before Katrina hit, even as pricing for limits that are available has stabilized, sources said.

“Immediately after Katrina, most insurers withdrew capacity and put in severe wind restrictions and bigger deductibles,” said Mr. Beauman, though FM Global was able to leave its underwriting practices unchanged.

“Prior to Katrina, there were no limitations on windstorm coverage,” Mr. Tobin said. “It was common to have a $2 billion limit on fire, which included $2 billion for windstorm. Today, it is much more common to see $100 million or $200 million for windstorm.”

“That has not come back,” he said of the billion-dollar limits insurers offered before Katrina. “And I don't believe we will ever go back to that.”

As Katrina losses piled up, windstorm insurance prices moved up as well. Eventually, they softened slightly, only to spike again after Hurricanes Ike and Gustav struck the coast in 2008, Mr. Tobin said.

“But last year was very profitable,” he said. “Prices softened again in 2010 even with the forecast of an active hurricane season.”

Insurance availability and pricing have become more appealing to Gulf Coast insurance buyers since the market contraction immediately after Katrina, said Warren C. Perkins Jr., vp, risk manager at Boh Bros. Construction Co. L.L.C. in New Orleans.

“After Katrina, being able to get builders risk insurance to rebuild the city was the biggest challenge we faced,” said Mr. Perkins.

Flood protection projects that have strengthened New Orleans' levee system, which failed under Katrina's powerful storm surge and led to massive flooding, have helped convince insurers to return to the market, Mr. Perkins said. “That whole market has evolved from one that didn't want to have anything to do with us into one that recognizes the risk is not there anymore because of flood protection.”

For HCA Inc., the Nashville, Tenn.-based hospital group that has three hospitals in New Orleans, its biggest post-Katrina coverage challenge has been to convince insurers not to exclude damage caused by levee failures, said James D. Hinton, the company's vp-risk and insurance.