Even in the best of times, the insurance industry has never enjoyed the most stellar public image. For most consumers, coverage always costs too much and claims are never paid quickly enough.
But in the worst of times, when insurers are accused of knowingly misleading or even cheating policyholders, the political consequences can be overwhelming.
Insurers were certainly on the hot seat in 2007, mainly because of the lingering fallout over disputed Hurricane Katrina wind-versus-water claims. There were two particularly low moments that jump to mind.
One was at the end of February, when I witnessed a Congressional bashing of the industry firsthand. Rep. Gene Taylor—the Mississippi Democrat who made it his mission to punish insurers after his own Katrina homeowners claim (since settled) was denied due to the flood exclusion—was both witness and interrogator at a hearing of the House Financial Services Subcommittee on Oversight and Investigations.
Allegations were raised of adjusters forced to alter reports so that Katrina losses could be blamed on uncovered flooding. On a broader scale, the industry was criticized for reporting high profits the prior two years, while many Katrina claims were unfairly denied or stalled. Charges of collusion were voiced without any hard evidence to back them up, but the damage was done.
Robert P. Hartwig, newly installed as president of the Insurance Information Institute, was the sole witness for the industry’s defense, yet he was more of a sacrificial lamb—his retorts mostly falling on deaf years as members took turns skewering insurers for alleged misconduct.
The second low point was publication of a cover story in the September edition of Bloomberg Markets, with the devastating headline: “The Insurance Hoax.” The article went on to document in great detail how major carriers were allegedly adopting a policy of denying legitimate claims whenever possible to boost profits.
“The insurance companies routinely refuse to pay market prices for homes and replacement contents, they use computer programs to cut payouts, they change policy coverage with no clear explanation, they ignore or alter engineering reports, and they sometimes ask their adjusters to lie to customers,” the article charges, with most carriers declining to comment because many of the disputes were still in litigation.
“As Mississippi Republican U.S. Senator Trent Lott and thousands of other homeowners have found, insurers make low offers—or refuse to pay at all—and then dare people to fight back,” the article added. (The fact that Republicans and Democrats can set aside their bitter rivalry to gang up on the insurance industry shows how deep-seated anti-insurer resentment runs.)