The American Insurance Association (AIA) said today that it found "inappropriate and unnecessary" letters recently sent to state insurance commissioners by consumer groups, urging the protection of homeowners from insurers in light of devastation by Hurricane Katrina and expected destruction from Hurricane Rita.
The consumer groups were the Center for Economic Justice, the Consumer Federation of America, and Consumers Union.
"Our number one priority, especially after catastrophic events like Hurricane Katrina, is taking care of our policyholders and helping them rebuild their lives," said David Snyder, AIA vice president and assistant general counsel in Washington, D.C.
He said in a statement, "It is in the best interests of consumers for insurers to be focused on getting their job done quickly and fairly, and not to be sidetracked by excessive mandates, red tape and politics."
The letter, dated Sept. 16, was sent to Walter Bell, commissioner of the Alabama Dept. of Insurance; George Dale, commissioner of the Mississippi Insurance Department; and J. Robert Wooley, commissioner of the Louisiana Department of Insurance.
The letter stated: "We encourage you to look in depth at the steps taken by Florida in the wake of Hurricane Andrew. This relates both to the potential for insurers to refuse to renew policies and to pricing and claims handling. In addition to the effective aspects of Florida's response," it read, "we encourage you to examine serious problems that arose in the wake of Hurricane Andrew, such as class action lawsuits involving valued policy laws."
The letter also cited Allstate Insurance Company, which "threatened not to renew policies for 300,000 Florida families."
The CFA and Consumers Union urged insurance commissioners to closely monitor insurance companies to ensure that they fairly allocate claims between wind losses, which insurers must pay, and flood damage, which is either not insured or is covered by the federal flood insurance program.
CFA also called on the Federal Emergency Management Agency (FEMA) to examine the fairness of allocations made by insurers adjusting wind claims and flood claims.
"Insurers have a clear financial incentive to avoid paying legitimate claims by contending that the losses are flood related," said J. Robert Hunter, Director of Insurance for CFA, former Texas Insurance Commissioner and former Administrator of the National Flood Insurance Program. "Unless insurance commissioners carefully monitor the way that insurance companies are adjusting claims, this conflict of interest could leave homeowners high and dry in addition to forcing taxpayers to pay too much," Mr. Hunter said in a statement.
He added that CFA will be asking the General Accountability Office to audit the claims process.
The consumer groups encouraged commissioners to put systems in place to assure prompt and fair claims handling.
The groups asked that insurance commissioners require insurers to report progress every 30 days, "and once a claim goes unresolved for a certain period of time, executives should be ordered to explain delays in public hearings," said Norma Garcia, a senior attorney at Consumers Union.
The groups called on the commissioners to urge their legislatures to prepare to enact moratoria to prevent insurers from threatening non-renewal of homeowners' policies. They also recommended a freeze on rate increases during any short-term non-competitive phase of the insurance business cycle that may follow the hurricane.
Mr. Hunter said that in the aftermath of Hurricane Andrew, insurers moved to the use of scientific models projecting thousands of years of weather 'experience.' "This means that homeowners should not see a major increase in insurance premiums simply because of one particular hurricane or one season of storms," he said.
The groups noted that as residents relocate, insurance commissioners in states housing the Katrina evacuees should take steps now to require that insurance scoring models exclude economic impacts from the hurricane.
The organizations also urged commissioners to closely monitor the claims process for those consumers with no flood insurance. They added that commissioners should require insurers to resolve ambiguous policy language regarding the extent of flood coverage, in favor of homeowners.
AIA's Mr. Snyder objected to the groups' demands, saying that, "Fortunately, strong consumer protections are already in place at both the state and federal levels" to deal with the issues.
He noted that insurers will continue to serve their policyholders on issues arising from the catastrophes.
"Any further regulatory and administrative burden on insurers will only distract from the important claims processing that insurers are undertaking for hundreds of thousands of policyholders throughout the Gulf Coast region," he added.
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