Tides Turning for the Insurance Industry

By: Jack Cannon

Hurricane Katrina was one of the costliest and deadliest hurricanes in the history of the United States. It was the sixth strongest Atlantic hurricane ever recorded and the third strongest hurricane on record that made landfall in the United States.

Katrina formed on August 23, 2005, during the Atlantic hurricane season and caused devastation along much of the north central gulf coast of the United States. The most severe loss of life and property damage occurred in New Orleans which was flooded as the levy system failed. The hurricane caused severe destruction across the entire Mississippi coast and into Alabama as far as one hundred miles from the storm center.

As a result of Katrina, we as a nation immediately began looking at the way we handle natural disasters in terms of response, support, emergencies and hospitalization. As time goes on however the victims of Katrina are asking us to look closer at one of our longest standing industries, the insurance industry.

The insurance industry's response to Katrina has been heavily criticized. The insurance industries highest profile critic at the present moment is Senator Trent Lott. A Mississippi republican, who was elected to the senate in 1988, Senator Lott is currently considered to be the Senate's number two republican. Ironically, Senator Lott owes a large deal of the support of his career to the insurance industry. Senator Lott traces his support back more than 35 years to when he worked for a Mississippi law firm that defended insurance companies. Since he was elected in 1988 no industry has contributed more to his campaigns according to the Center for Responsive Politics, a nonpartisan group in Washington that tracks political donations. Indeed, the insurance industry gave almost two-thirds of its campaign donations to republicans between 1990 and 2006.

SO WHAT HAS CHANGED?

Senator Lott owned a beachfront home in Pascagoula, Mississippi which was destroyed by Katrina. Senator Lott had the home insured with State Farm Insurance. State Farm Insurance disputed whether the home was destroyed by the storm itself or the flood waters that resulted from the storm. Most private insurance does not cover flooding because it is difficult to predict and leave compensation instead to the government's National Flood Insurance Program.

Senator Lott became one of tens of thousands of gulf coast homeowners whose claims were rejected when State Farm decided that the damage to his house was caused by flooding. Senator Lott called the decision "total bull." Senator Lott hired one of the nation's most high profiled plaintiff's lawyers to represent him. Ironically Senator Lott is a longtime critic of trial lawyers and is active in President Bush's campaign to impose caps on plaintiffs in personal injury cases.

Now, once Senator Lott has become a victim, like so many of us, he had changed his tune. He wants justice. Senator Lott has used the words "arrogant" and "mean spirited" about the insurance industry, questions the statistics about insurance company profits, insurance executives pay and wonders aloud why insurance lobbyists are fighting the bills that he is pushing. One would strip companies such as State Farm Insurance and Allstate of their 62-year-old exemption from Federal Anti-Trust Laws.

Senator Lott is sponsoring legislation that would require insurances to provide plain English summaries of what their policies do and do not cover. "They don't want you to know what you really have covered," says Senator Lott. Senator Lott says the changes are needed to ensure companies are not conspiring to fix prices, deny coverage or divvy up markets. "It's about getting an industry to do the right thing," he says of an industry which supported him for many, many years.

For its part, the insurance industry through a State Farm spokesman, says "we don't treat US senators any different than we do customers who may be taxi cab drivers or newspaper reporters." Nevertheless, in January 2007, State Farm reached an agreement with Mississippi officials to pay hundreds of millions of dollars to thousands of homeowners in the state who have been unable to rebuild since Hurricane Katrina swept across the gulf in 2005. However, this agreement does not apply to Louisiana where the destruction was even greater and where lawyers and insurance say no settlement talks have taken place. Mississippi, where the agreement was reached, is the home state of Senator Lott, along with that of Mississippi Representative Gene Taylor, who also lost a home.

WHAT ARE YOUR RIGHTS PERTAINING TO INSURANCE CLAIMS WITH YOUR OWN CARRIER?

The business of insurance is highly specialized with policy holders particularly vulnerable and dependent on their insurance company. Therefore, the insurance company must treat its policy holders' interest with equal regard as it does its own interest. It is not supposed to be an adversarial process. A part of a claim examiners job is to assist the policy holder with the claim. The company must thoroughly investigate and objectively evaluate the claim.

An insurance company may not ignore information which supports coverage. In addition, the company must fairly, reasonably and promptly pay claims if warranted.

An insurer has an affirmative duty to disclose benefits and coverage that may apply to a claim. Also, the insurer cannot attempt to settle a claim for an unreasonably low amount.

Senator Lott's allegations of some of the aforementioned behavior or violations, has focused the spotlight on the insurance industry and their practices. As a result, it appears that long needed and overdue changes are coming to the insurance industry. This may benefit all of us. The tide may indeed be turning.