The insurance industry's reaction to Hurricane Katrina was insufficient and, in some cases, only made the situation worse for policyholders, charges a report by Americans for Insurance Reform. Insurer trade groups denied there was any failure, with the American Insurance Association dismissing the study as "untrue, irresponsible and reckless."
Joanne Doroshow, one of AIR's co-founders and the executive director of the Center for Justice and Democracy, said the report "shows that many policyholders who were exhausted, traumatized, and without food, water or a roof over their heads looked to their insurance carriers to come to their aid as they struggled to survive. But what many found was not help at all but rather resistance by insurance companies to pay them anything, leaving the victims frustrated and angry, not to mention destitute."
AIR said its report–"The Insurance Industry's Troubling Response to Hurricane Katrina"–was based on "hundreds of calls" to its toll-free hotline established Sept. 12, 2005.
Joe Annotti, a representative for the Property and Casualty Insurers Association of America, said many of the problems seen in the wake of the major hurricanes were due to the scope of the catastrophes. Following Hurricanes Katrina, Rita, Wilma and others, he noted, there were an unprecedented two million claims.
Mr. Annotti explained that in large portions of the devastated areas, "adjusters just could not get [there] because the civil authorities wouldn't let them," so they worked first in less damaged outlying areas.
AIR said among the most common problems consumers faced were attempts to avoid liability by insurers claiming that all damages were caused by flooding, which is not covered in homeowners' policies.
Additionally, the AIR study said many policyholders complained of getting a slow response that allowed for more damage from Hurricane Rita, or no response from their insurers at all.
"Insurance should be a policyholder's road to recovery at times of personal crisis," said J. Robert Hunter, director of insurance for the Consumer Federation of America and an AIR co-founder. "After Katrina, many insurance companies have too often been more like stone walls, blocking the way for policyholders to recover."
The AIR report also accused the property-casualty insurance industry of using damages from the hurricanes as a basis for unfair rate increases and exiting certain areas. "It is vital that the states of Mississippi, Louisiana, Alabama and Texas take firm steps now to assure homeowners that insurance will be available and affordable as the next hurricane season approaches," Mr. Hunter said.
PCI's Mr. Annotti said rates reflect risk and are set prospectively. "You can't go back and say, 'Well, we lost a lot of money in New Orleans,' and try to raise rates to make that back." He also doubted that regulators who approve rates are "going to approve a rate that he or she feels isn't actuarially justified."
John Marlow, an AIA assistant vice president, said "tens of thousands of insurance company employees have worked around the clock" to settle Katrina claims despite a "total lack of communication infrastructure," with "hundreds of thousands" of claims handled quickly and fully.
"It is misleading and possibly deceptive to allege that a small collection of one-sided, anecdotal conversations from a telephone hotline comprises 'research,'" he added. "It is the height of irresponsibility to use such supposed 'research' to smear an entire sector of the financial services community."
He noted that "water damage has been broadly excluded from state-approved homeowners insurance policies for decades" and is covered by the National Flood Insurance Program.
Mr. Marlow said state insurance regulators have taken a very active role in all Gulf States to protect consumer rights while making sure that insurers can stay in business and pay valid claims. "AIR is off the mark in using the industry's financial health as an excuse to implement regulatory restrictions that could destroy state insurance markets," he added.
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