WASHINGTON--Democratic members of a House oversight committeelast week accused several insurers of "war profiteering" becausethe Defense Department allows defense contractors to secure theirown workers' compensation insurance on overseas contracts.

Indeed, Rep. Henry Waxman, D-Calif., chairman of the panel, theHouse Oversight and Government Reform Committee, said he would soonintroduce legislation requiring the DOD to follow the policies ofthe State Department and Army Corps of Engineers on workers'compensation insurance on foreign contracts.

Those agencies take bids for the coverage. But DOD was said toallow contracting firms to get their own coverage and pass costsback to the government.

AIG, one of four insurers cited for alleged "profiteering" atthe hearing, defended its charges.

In a statement released after the hearing, AIG said it is"confident that we price our DBA [Defense Base Act] coverage asaccurately and fairly as possible, given the inherent high risks ofthis insurance line in these regions, the uncertainties concerningthe frequency and severity of future claims, and the obligation topay claims for many years after the losses occur, includinglifetime death and disability benefits."

The standard used to charge the insurers was based on thepolicies of the State Department and Corps of Engineers. Accordingto testimony at the hearing, these agencies solicit bids and pick acarrier to offer insurance at fixed rates.

But the DOD, despite congressional pressure to change course,allows its contractors to negotiate their own deals, the panelmembers said.

And, because the firms pass on the insurance fees to the variousagencies of the DOD, they lack incentive to control costs,Democratic committee members charged.

"What we're really talking about here is war profiteering," saidRep. Jim Cooper, D-Tenn. Rep. Cooper's comment was based on a memoprepared by the committee's Democratic staff.

The memo said that leading insurers overestimated the riskfacedby contractors in Iraq to win profits far exceeding normaldomestic returns. Under the Defense Base Insurance Act, U.S.contractors and subcontractors abroad must buy workers'compensation insurance.

The memo from the majority staff of the committee was based ondata provided by the top four insurers used by the DOD: AmericanInternational Group, the Chubb Corp., CNA and ACE USA.

The memo said the insurers have had gains of 39 percent betweenpremiums charged and claims paid on insurance policies from 2002 to2007.

According to the memo, workers' comp insurers normally breakeven on claims versus payments while making money on investmentreturns.

Rep. Waxman, basing his comments on a memo from the Army AuditAgency, saidformer Halliburton subsidiary KBR has paid AIG $284million for insurance and added its own markup of $8 million, evenas AIG paid out $73 million in claims.

"This is disgraceful," Rep. Waxman said. Witnesses at thehearing said the $73 million may not cover future payouts.

The insurers were also criticized because they usually disputedclaims by injured workers.

"I view this as looting," said Rep. John Sarbanes, D-Md."High-end, upscale, white-collar looting."

Defending the AIG policy, Mr. Winans said that any DBA proposalto a broker and its client encompasses price, the scope of coverageand the services to be provided.

"The broker and the insurance buyer together evaluate theproposal relative to the alternatives and make a selection based onnumerous factors, of which price is only one of several importantelements," he said.

As for the specifics on the profitability of DBA business, "wewouldn't comment since we don't disclose financial data onindividual lines of business like this," Mr. Winans added.