WASHINGTON–Legislation providing for federal oversight of homeowners insurance contracts was quietly introduced by industry critic Sen. Trent Lott, R-Miss., on Thursday night.
The bill, which calls for additional disclosure language on home policies and Federal Trade Commission oversight, was instantly condemned by the Property Casualty Insurers Association of America (PCI).
According to PCI, the measure would "do nothing to enhance the 'plain language' requirements already on the books in almost every state."
The bill is likely to be discussed at a hearing on insurance issues that will be held April 11 by the Senate Commerce Committee, which includes Sen. Lott.
Among those scheduled to testify are Mississippi Attorney General Jim Hood, who convened a grand jury to hear testimony about insurance industry handling of Hurricane Katrina claims, and J. Robert Hunter, director of insurance for the Consumer Federation of America, also a harsh critic of the industry.
Sen. Lott suing State Farm over his claim for Hurricane Katrina damage to his summer beachfront home in Pascagoula, Miss., which was swept away by the 2005 storm, leaving him with just a foundation slab.
The insurer has made a settlement offer in the case, which is currently scheduled for trial in September. (See related story in the NU Online News Service, March 30.)
June Holmes, interim CEO of PCI, said giving home insurance oversight to the Federal Trade Commission is redundant and unnecessary regulation.
"Sen. Lott's proposal will add another layer of costly and duplicative federal oversight of a function best left to the states–not to mention the confusion that dueling federal and state regulations would cause for consumers," she said.
The bill, S. 1061, would require insurers to fully disclose property insurance coverage and non-coverage in plain language contained on the front page of each homeowner's policy.
The greater concern to the industry is the portion of the legislation giving enforcement authority over the provision to the FTC.
Sen. Lott is also jointly sponsoring legislation with Sen. Patrick Leahy, D-Vt., and Sen. Arlen Specter, R-Pa., chairman and ranking minority member of the Senate Judiciary Committee, to repeal insurers' limited antitrust exemption in the McCarran-Ferguson Act. That bill would also give the FTC oversight over insurance industry practices and programs.
The latest bill further requires the FTC to enforce this disclosure requirement, and it establishes penalties for insurers who fail to comply through the FTC's existing laws governing unfair or deceptive practices.
Sen. Lott, when he introduced his latest insurance measure, said the bill would save consumers money and time associated with insurance policy disputes.
If he is unable to win support in Congress for repeal of McCarran-Ferguson, he could still seek FTC oversight–in addition to current state oversight–of insurance activities through this latest bill, several industry lobbyists have indicated.
Their comments were made on an anonymous basis out of concern it could complicate their relationship with Congress if they were identified.
They voiced worries that Sen. Lott, as an alternative to full repeal of McCarran-Ferguson, could use his power as Senate minority whip to slip his disclosure bill into another measure moving through Congress–possibly at a late point in the proceedings, when it would be difficult to muster opposition.
The insurance industry is united in opposition to the McCarran-Ferguson repeal measure, and Sen. Bill Nelson, D-Fla., recently said that he believed the industry "would fight to the death" to retain it.
"Insurance policies are notoriously hard to read and understand because they're primarily written in complex legalese," Sen. Lott said in introducing his latest bill.
"While insurance is a legal contract, it also is a product purchased by consumers," he said. "That's why I believe every insurer should include a plain-English description of a homeowner's policy, prominently displayed on the policy's first page."
Sen. Lott's bill will require that this basic description be contained in a "non-coverage disclosure" box that states in bold font–twice the size of the body of the policy's text–all conditions, exclusions and other limitations pertaining to the individual policy's coverage.
"Consumer groups have estimated a provision like this could have saved consumers anywhere from $55 billion to $65 billion in Hurricane Katrina's aftermath," Sen. Lott said. "Having a clear, concise description of every policy serves the best interest of consumers, insurers and taxpayers."
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