Even in the best of times, the insurance industry has never enjoyed the most stellar public image. For most consumers, coverage always costs too much and claims are never paid quickly enough.

But in the worst of times, when insurers are accused of knowingly misleading or even cheating policyholders, the political consequences can be overwhelming.

Insurers were certainly on the hot seat in 2007, mainly because of the lingering fallout over disputed Hurricane Katrina wind-versus-water claims. There were two particularly low moments that jump to mind.

One was at the end of February, when I witnessed a Congressional bashing of the industry firsthand. Rep. Gene Taylor--the Mississippi Democrat who made it his mission to punish insurers after his own Katrina homeowners claim (since settled) was denied due to the flood exclusion--was both witness and interrogator at a hearing of the House Financial Services Subcommittee on Oversight and Investigations.

Allegations were raised of adjusters forced to alter reports so that Katrina losses could be blamed on uncovered flooding. On a broader scale, the industry was criticized for reporting high profits the prior two years, while many Katrina claims were unfairly denied or stalled. Charges of collusion were voiced without any hard evidence to back them up, but the damage was done.

Robert P. Hartwig, newly installed as president of the Insurance Information Institute, was the sole witness for the industry's defense, yet he was more of a sacrificial lamb--his retorts mostly falling on deaf years as members took turns skewering insurers for alleged misconduct.

The second low point was publication of a cover story in the September edition of Bloomberg Markets, with the devastating headline: "The Insurance Hoax." The article went on to document in great detail how major carriers were allegedly adopting a policy of denying legitimate claims whenever possible to boost profits.

"The insurance companies routinely refuse to pay market prices for homes and replacement contents, they use computer programs to cut payouts, they change policy coverage with no clear explanation, they ignore or alter engineering reports, and they sometimes ask their adjusters to lie to customers," the article charges, with most carriers declining to comment because many of the disputes were still in litigation.

"As Mississippi Republican U.S. Senator Trent Lott and thousands of other homeowners have found, insurers make low offers--or refuse to pay at all--and then dare people to fight back," the article added. (The fact that Republicans and Democrats can set aside their bitter rivalry to gang up on the insurance industry shows how deep-seated anti-insurer resentment runs.)

Insurer integrity was also called into question in Florida, for failing to lower rates sufficiently following passage of a reinsurance support bill, and in California, when carriers were blamed for so many homeowners being underinsured when wildfires ravaged the state).

The backlash was considerable, with talk of removing the industry's federal antitrust exemption, thousands of lawsuits filed to challenge the standard flood exclusion, and a drive in Congress to add wind coverage to the National Flood Insurance Program.

But the bottom line is that little has changed. Insurers settled many disputed claims by paying at least partial damages, but the basic flood exclusion has survived. McCarran-Ferguson's antitrust immunity remains intact, and the NFIP is still flood-only.

Meanwhile, I spoke out on a number of occasions in my column, blog and in public appearances about the need for insurers to be more proactive with the media in good times and bad.

Often, I felt like I was talking to a wall, but there were some signs that at least a few industry leaders--such as David Sampson, the new president and CEO of the Property Casualty Insurers Association of America--understand what needs to be done to create and sustain a more positive image.

In the short term, with Sen. Lott leaving the Senate by year's end, insurers are being relieved of one major critic who backed numerous bills to either investigate or regulate the insurance business.

With the number of outstanding Katrina claims dwindling, and even the property market softening, insurers should have an opportunity to catch their breath and regroup--at least until the next inevitable mega-disaster or scandal hits.

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#2: Critics Fry Insurers Over Katrina Claims

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