Insurers Catch 'The Flu'
One of the hottest topics today is the avian flu. People are concerned about exposure to the potentially deadly bug. They worry if there will be a vaccine to protect them, and if there is, will there be enough to go around?
Word got out about one medication that helps ease the effects of the H5N1 virus–Tamiflu. Roche, the Swiss drug maker, found it had a product to help people and its bottom line.
But this is a case where success can breed unexpected consequences. People began hoarding the drug, depleting supplies out of fear. Roche said it could not meet demand. Sorry, they said, we'll do our best.
The Asian nations where H5N1 has cropped up understandably found this to be an unsatisfactory answer. They decided if Roche could not produce enough, they would make it themselves. Roche's reply: We have a patent. We'll fight you over this. The response: Go ahead and try.
Wisely, Roche appears to be seeking a middle ground. The company has begun licensing production and is looking for manufacturing plants in Asia.
However, the initial response left Roche with a black eye. Yes, it has the legal right to protect its products, but doesn't it also have a moral obligation to permit production of enough of the one drug that offers protection from this killer virus?
There is a lesson here for the insurance industry–defending a perfectly legal position can look pedantic and greedy. Case in point: the flood insurance controversy.
Mississippi Attorney General Jim Hood and a few plaintiff attorneys–most notably Richard Scruggs, known for his tobacco litigation–are looking to insurers to cough up money for Hurricane Katrina victims regardless of whether they had flood coverage. The argument is if someone had a hurricane endorsement, flood destruction from the storm surge should be covered.
The industry is gearing up for a showdown because this would be a costly precedent if insurers lose. Within the industry there appears to be no argument. However, despite the goodwill insurers have tried to foster in the storm's aftermath, I fear the populist argument is holding sway.
A recent "CBS News" report found Mr. Scruggs making his argument among the ruins of a home. On the other side, a representative of the Insurance Information Institute made the industry's case. Among the ruins, Mr. Scruggs had the edge. Much like the argument over Tamiflu, companies may have legal precedent on their side, but the champion for suffering victims comes across with the more compelling argument.
The industry cannot, and should not, give up on this legal issue. The stakes are too high. However, as Roche learned, in the midst of human catastrophe, a company or industry shielding itself behind legal principle can find itself swamped by a wave of populist outrage. The smart thing, as Roche appears to be doing, is to stand by its legal principles but at the same time meet the demands of a frightened public.
The industry needs to do more than defend its contracts. Insurers must take a high-profile leadership role to demonstrate they are aiding in the rebuilding and helping secure the future of hurricane victims. They need to continue pushing to mitigate future catastrophes with stronger building and planning codes and an actuarially sound National Flood Insurance Program.
Otherwise, insurers look like the bad guys again. Consider how that plays when legislators are asked to modernize the rules governing the industry. Black eyes have a way of lingering.
Mark Ruquet is an Associate Editor at NU. He may be reached at mruquet@nuco.com.
"Insurance companies might have legal precedent on their side, but those fighting for suffering hurricane victims come across with the more compelling argument."
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