Responding to a request for action from the Mississippicongressional delegation, the House Financial Services Committeesaid last week it will look into the "failure of the insurancesystem" to deal appropriately with claims from Hurricanes Katrinaand Rita.

The "request for action" likely means hearings, probably inMarch, by the panel's Oversight Subcommittee. Insurance industrytrade groups responded by saying the action was not unexpected andthat the industry will cooperate.

The disclosure was made in a statement by Reps. Barney Frank,D-Mass., chair of the committee, and Mel Watt, who chairs theOversight Subcommittee.

The comments were prompted by the verdict in federal districtcourt in Mississippi against State Farm last week (see accompanyingstory), and by a letter to Rep. Frank from Rep. Gene Taylor,D-Miss., calling for a thorough investigation of the industry'shandling of Gulf Coast claims.

"We have received from our congressional colleagues whorepresent the Gulf Coast serious allegations of a failure in theinsurance system to serve the purpose for which it was intended,"said Reps. Frank and Watt. "We believe these allegations deserveappropriate attention, and our committee will be looking into thesecharges."

A representative for the panel said the committee hasn'tdetermined how it will deal with the issue, and that a decisionwon't be made until next month because the committee is stillorganizing itself.

"This development is not unexpected," said Joseph Annotti,senior vice president of the Property Casualty Insurers Associationof America, who added that "PCI will work with Chairman Frank andother members of Congress to make sure they get answers to alltheir questions about the industry's post-Katrina performance."

Mr. Annotti said the industry is "proud of the role insurers areplaying in rebuilding the Gulf, and [we] are always willing todiscuss ways that we can work more cohesively with state andfederal legislators to improve the way our nation prepares for,responds to, and recovers from future natural disasters."

Dennis Kelly, a staff official with the American InsuranceAssociation, echoed those sentiments, stating that AIA, "as we havein the past, will work with Chairman Frank to the extent that theHouse Financial Services Committee explores issues related tonatural catastrophes and Katrina."

Rep. Taylor has repeatedly criticized the insurance industryover the handling of hurricane damage claims. In his letter to Rep.Frank, he said that "despite billions of dollars of federalassistance, South Mississippi's recovery is obstructed by theactions of private insurance companies."

Rep. Taylor has filed suit against State Farm over damage to hisown Gulf Coast home from Hurricane Katrina.

His letter called for the committee to investigate what he calls"the denial of claims wherever insurers could blame flooding," aswell as "excessive premium increases, market withdrawals and otheractions to force states to make concessions or assume more coastalrisks."

In his letter, Rep. Taylor said Sen. Trent Lott, R-Miss.--whosehome was also destroyed by Katrina, and who is also suing StateFarm--noted that language mandating a Government AccountabilityOffice study of Katrina wind and water claims adjustments passed aspart of a Homeland Security Appropriations bill. The report must bedelivered to Congress by April 1.

"I ask that you not wait until then to begin the committee'sinvestigation," Rep. Taylor wrote. "It is clear that the insurancecompanies have a conflict of interest when allowed to assigndamages to the federal flood program rather than tothemselves."

"It is clear that the insurance companies have a conflict ofinterest when allowed to assign damages to the federal floodprogram rather than to themselves."

Rep. Gene Taylor, D-Miss.