Insurers are keeping a stiff upper lip as they prepare to take the hot seat on Feb. 28, when an oversight panel of the House Financial Services Committee will convene to probe the handling of Hurricane Katrina claims. Rep. Gene Taylor, D-Miss., who vows to lay out the case against carriers at that time, has already fired his first salvo, insisting he is “convinced” the industry wrongfully billed the National Flood Insurance Program for damages that were really wind-related, and therefore covered under standard homeowners policies. What evidence will Rep. Taylor present to prove his case?
Rep. Taylor has emerged as a one-man wrecking machine after his own home was damaged during Katrina, but his carrier–State Farm–begged off his claim. Beyond calling for a Congressional probe, he has also been pushing for revisions in the industry's federal antitrust immunity, and today will propose legislation creating an all-perils policy–covering both wind- and water-related damages for both homeowners and small businesses under the NFIP.
Thus far, the industry has publicly maintained that once they have a chance to show how hard carriers worked to settle hundreds of thousands of claims under impossibly difficult circumstances, all of this outrage will fade away. But privately, many are very concerned that painful tales of woe by those whose claims were rejected because of non-compensable flooding will ultimately carry the day.
Rep. Taylor should have lots of ammunition at his disposal. On his Web site, he invites policyholders to: “Click here to download the form to tell your Hurricane Katrina Insurance Horror Story.”
Will the industry be able to withstand the onslaught, or will carriers wither beneath the glare of the Congressional spotlight? Will this debacle cost the industry its precious antitrust exemption, just like the Spitzer investigation into broker compensation put contingency fees on the road to extinction?
As far as the proposed all-perils policy goes, what in the world makes the federal government think it can handle this massive exposure, when its flood-only program was so woefully underfunded? The Taylor bill does mandate risk-based premiums, but once policyholders see the bill, will they stand for paying what their exposure truly costs? I doubt it.
How do you folks think this will all play out?
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