Was State Farm not a good neighbor when it came to dealing withthe multitude of Hurricane Katrina losses in Mississippi? Did thisdispute really have to end up in court? Or should the carrier havebeen more proactive and flexible in adjusting claims where thesource of damage wasn't clear?

I've heard grumbling within the industry that State Farmpractically invited legal challenges and public scorn by the way itstiff-armed many claimants with wind-driven water damage. Theresult was another body blow to the industry's already tarnishedreputation, prompting retaliation by angry state and federallawmakers.

I got an earful from one industry official in an e-mail aboutState Farm's Katrina settlement (still a work in progress, with thejudge rejecting the first agreement). This savvy individualcomplained about how much better insurers could have handleddisputed claims--perhaps not only avoiding the lawsuits andhorrible publicity that followed, but setting the stage forimproved relations with regulators and the public.

"What I'd really like to ask State Farm (and others) is why onGod's green earth didn't they go down there right after the stormand [settle these claims]?" wrote my correspondent--who insisted onanonymity for obvious reasons, but was unable to keep silent aboutthe way the industry so often talks the talk but fails to walk thewalk when it comes to putting policyholders first.

"Our industry is obsessed with talking about image building andreputation management," my contact noted. "In my view, image andreputation are based on behavior, not a PR campaign. Treatingconsumers well and honoring our social/moral contract (not just thelegal one) seems like the best way we can do this--particularlyafter a disaster."

"I know all the problems with the cost of fraudulent claims andsetting dangerous precedents," this individual conceded. "But howmuch did it cost in terms of public animosity--not to mention thecost of the ultimate settlement--to deny these claims and have yourname dragged through the mud for 18 months? And how much morereceptive would regulators and legislators be to requests forfuture rate increases when insurers can demonstrate that they wentthe extra mile to serve consumers?"

There is only so much public relations people can do to bolstera deservedly poor reputation--as President George W. Bush ispainfully learning when it comes to the war in Iraq. Actions speaklouder than words, no matter how effectively one wags the dog.

However, I've also heard disturbing talk about how State Farmwas insane not to make sure the claims of federal big-wigs werepaid--regardless of merit--to avoid drawing their wrath in thecourts, the media and Congress. I think that's total nonsense.

Republican Sen. Trent Lott and Democratic Rep. Gene Taylor, bothfrom Mississippi, not only sued when State Farm denied theirclaims, they also dragged the entire industry into the Washingtonspotlight. Sen. Lott slipped a provision into a Homeland SecurityDepartment budget bill ordering a federal investigation of Katrinaclaim-handling, while Rep. Taylor is one of the leading backers ofa bill to undermine the industry's federal antitrust exemption.

That's unfortunate. But to have paid their claims no matter whattheir policies excluded would have been bribery--the last thinginsurers need to be doing. Some might call me idealistic, or evennaive, but I still think honesty is the industry's best policy.