The decision by industry critic Trent Lott, R-Miss., to give up his Senate seat, combined with the softening insurance market, is expected to ease the backlash in Congress against the industry over Hurricane Katrina claims in the long term, although some threats remain before he leaves office at year's end, lobbyists warn.
Sen. Lott became an outspoken foe of insurers after Hurricane Katrina–suing State Farm over his own homeowners claim before settling with the carrier last spring. He is said to have promised after Hurricane Katrina he would "bring down" the industry.
In the short term, however, lobbyists caution that Sen. Lott could use the crowded congressional agenda and his parliamentary skills to include provisions in must-get-done legislation that impose punitive mandates on the industry.
They point to S. 545, a bill that would require insurers to establish a national clearinghouse giving consumers access to vehicle identification information of cars that insurers have written off as totaled. Sen. Lott introduced the bill in 2006 and reintroduced it this year in an effort, he said, to protect consumers from unsafe "Katrina cars."
In addition, there are at least 12 bills Congress is considering prompted by the industry's handling of claims and the soaring cost of wind insurance post-Katrina.
These include S. 618 in the Senate (H.R. 1081 in the House), repealing the antitrust exemption provisions of the McCarran-Ferguson Act, and H.R. 3121, passed by the House, which adds wind coverage to the National Flood Insurance Program and preempts use of anti-concurrent causation provisions in homeowners policies by insurers participating in the NFIP's Write-Your-Own program.
Besides Sen. Lott's departure, another trend likely to reduce congressional pressure on the industry is the softening insurance market. The third-quarter pricing survey by the Council of Insurance Agents and Brokers shows that soft market conditions that have affected most commercial lines for over a year are beginning to spread to coastal properties with wind exposures.
"The politics of catastrophic insurance are a lagging indicator, whereas our market data certainly is a leading indicator," said Joel Wood, CIAB senior vice president for government affairs.
"The last impression we'd want to make is that legislators should be unconcerned about coastal insurance because the market is correcting itself–the contrary is true," he added. "But Congress is entering a presidential election year and is thus unlikely to finish much in the way of major, controversial reform legislation. Combine that with the reality that the soft market has caught up with the coastlines, and I'm more and more convinced that punitive legislation against the industry isn't likely to occur."
Hopefully, he said, "we'll have opportunities to work with Congress on reforms that would help mitigate against the risks of hurricanes."
Sen. Lott's comments concerning his plans to wreak havoc on insurers were made in a July 13, 2006 telephone call to Charles Chamness, president and CEO of the National Association of Mutual Insurance Companies.
Frustrated over the industry's handling of claims after Hurricanes Katrina and Rita in August 2005–including the handling of his own claim by his insurer State Farm for the destruction of a shorefront home–Sen. Lott promised to dedicate his next term to "bringing down State Farm and the industry," according to a letter written by Mr. Chamness. Sen. Lott, 66, is the Senate's number two Republican and Senate Republican minority whip.
In comments to a local newspaper regarding his suit against State Farm and his membership in the congressional "Slab Club" (for those whose homes were washed away during Hurricane Katrina, leaving only slabs), Sen. Lott said this about State Farm: "I have heard nothing from that day to this, but I think that they've heard from me a few times."
Sen. Lott's last known public comments on insurance were at a Sept. 26 hearing before the Senate Finance Committee on tax issues regarding offshore insurers. Noting that he himself was a "victim" of Hurricane Katrina, Sen. Lott said he was "devastated by the insensitivity, unfairness and greed of the property and casualty industry."
Sen. Lott argued that while U.S. reinsurers may say they are seeking a level playing field to compete, in his view, profitability is more and more becoming the primary goal of carriers. He questioned whether a leveling of the playing field could have an effect on homeowners in high-risk areas already struggling to find coverage.
"We want fairness," he said, but cited his concern whether homeowners would still be able to afford coverage should foreign reinsurers lose some of their tax benefits.
Mr. Chamness would not elaborate on the July 2006 letter he sent to Sen. Lott in response to the comments the senator made against the industry.
Mr. Chamness would only say that "while we have disagreed with the senator's views of our industry, with today's news we offer our best wishes in his future endeavors. NAMIC looks forward to working with the next minority whip in the Senate and the next U.S. senator from the state of Mississippi."
CIAB'S Mr. Wood said, "Yes, Sen. Lott has been angry at the industry, and, yes, some of his statements and intentions have seemed over the top." But he added that "a lot of the anguish he expressed seems justified to our own members, given the inconsistencies of Katrina claims handling."
Speaking on behalf of the Property Casualty Insurers Association of America, Cliston Brown, director of federal public affairs, said that Sen. Lott "devoted a large part of his life to the people of Mississippi and has earned a well-deserved reputation as a powerful and influential leader in Congress."
He added that "as we have seen, he could be either a great ally or a strong adversary, but whether you agreed or disagreed with him on an issue, you always had to respect his ability to persuade his colleagues. We wish him well."
Charles Symington, senior vice president for government affairs and federal relations for the Independent Insurance Agents and Brokers of America, said that "whether he is for you or against you, Sen. Lott is well-known as a very effective legislator. His institutional knowledge from his long service in the Senate is threefold: procedural, substantive and political."
Mark Racicot, president of the American Insurance Association, said Sen. Lott's "ability to lead is a rare skill and it will be missed in the U.S. Senate. I wish only the best for him and his family as he moves on to other endeavors."
o S. 545, requiring insurers to establish a national clearinghouse giving consumers access to vehicle identification information of totaled cars–meant to identify so-called "Katrina cars."
o S. 618, repealing the antitrust exemption of the McCarran-Ferguson Act.
o H.R. 3121, passed by the House, adding wind coverage to the National Flood Insurance Program and preempting use of anti-concurrent causation clauses in homeowners policies by participating insurers.
Richard Scruggs, the plaintiff attorney who represented Trent Lott–his brother-in-law–in the senator's Hurricane Katrina lawsuit, has been indicted for bribery. See page 10.
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