More than a year past the devastating hurricane season of 2005, the U.S. insurance industry is getting nervous. Class-action lawsuits and rebellious state legislatures are bad enough, but now some U.S. senators of both parties are threatening to revoke the McCarran-Ferguson Act, which exempts insurance companies from federal antitrust laws.
Yesterday Senate Majority Leader Harry Reid told bloggers on a conference call that “The insurance industry is the enemy.â€
The problem is that the insurance industry is the enemy of most everything we do today. They have an anti-trust exemption from the Depression era that was supposed to last only a few years [the McCarran-Ferguson Act] but is still with us today. This exemption allows the industry to do harmful things to the country. They are fixing prices, which would ordinarily be a violation of the Sherman Anti-Trust Act, but there is nothing we can do.
McCarran-Ferguson is under fire from a prominent Republican Senator also. When State Farm rejected a claim for the loss of a $400,000 home in Mississippi, the company wasn’t considering the political connections of the owner, Trent Lott. Lott, who is the Senate Minority Whip, announced last week he wants to revoke McCarran-Ferguson as well. Maria Reico writes for the Mississippi Sun-Herald (January 25, 2007):
Senate Minority Whip Trent Lott, R-Miss., intends to introduce legislation shortly to remove insurers’ antitrust immunity, along with Senate Judiciary Committee Chairman Patrick Leahy, D-Vt. In the House, Rep. Gene Taylor, D-Bay St. Louis, is working with Rep. Pete DeFazio, D-Ore., on a similar bill.
“I don’t know what this means for me personally,” Taylor, a litigant in the suit, said in an interview. “Given my experience with State Farm, I’ll believe it when a certified check is deposited in my checking account.”
Taylor said his campaign to eliminate the insurance industry’s antitrust immunity, push for all-perils insurance and secure federal oversight of the state-regulated industry will continue. “I can assure you that effort does not go away. They have hurt too many of my friends.”
Taylor said he was motivated by what he believes is the insurance industry’s ability to fix rates and settle claims. “I’m convinced the big guys did call each other and say ‘don’t pay claims.’ It’s perfectly legal to do so.”
Lott spokesman Lee Youngblood said, “We expect to have hearings early this year.” Lott, who is also a litigant against State Farm, “was surprised to learn they were exempt and he would like to see them subject to laws like everybody else.”
The legislation would repeal the exemption in the McCarran-Ferguson Act of 1945 and bring the property/casualty insurance industry under federal oversight of the Federal Trade Commission.
Leahy, who has sponsored repeal legislation in other sessions of Congress, “is going to introduce it soon,” said Senate Judiciary Committee spokeswoman Tracy Schmaler. The panel will hold a hearing, she said.
Last week State Farm announced a mass settlement with more than 600 Mississippi homeowners who sued the company for refusing to pay damages from Hurricane Katrina in August 2005. The company also made an agreement with Mississippi Attorney General Jim Hood to reopen and pay other disputed claims.
However, today a U.S. District Judge slashed the jury’s award of $2.5 million in punitive damages down to $1 million. Michael Kunzelman of the Associated Press reports,
U.S. District Judge L.T. Senter Jr. in Gulfport, Miss., reduced the award to $1 million even though the judge said State Farm acted in a “grossly negligent way” by denying the claim filed by policyholders Norman and Genevieve Broussard, whose Biloxi home was destroyed by the August 2005 storm.
Louisiana has been facing another insurance crisis. After it became clear that the state’s largest commercial insurer was planning to drop all commercial property coverage in the New Orleans, Lafayette and Lake Charles areas, Louisiana Governor Kathleen Blanco took action. She and state Insurance Commissioner Jim Donelon intervened. The two Louisiana officials briefed St. Paul Travelers Cos. Inc. on levee improvements and coastal restoration efforts, and Travelers modified its plans.
But this week high-level executives of the insurance industry invited the Louisiana governor to California for an intervention of their own. Governor Blanco addressed the quarterly board meeting of the Property and Casualty Insurers Association of America, asking them to come to Louisiana to write policies. And the insurers are interested in working with Louisiana.
Why the change of attitude? Rebecca Mowbray wrote in the New Orleans Times-Picayune (January 29, 2007),
In a special legislative session on insurance this month in the nation’s most hurricane-prone state, newly elected Republican Gov. Charlie Crist and the Republican-controlled legislature did a 180-degree turn away from the pro-business efforts to help the insurance industry that have dominated since Hurricane Andrew in 1992. They approved a spate of consumer-oriented reforms that one Florida newspaper described as “Ralph Nader-esque.”
Insurers say Florida destroyed its insurance market by rolling back rate increases for the state’s insurer of last resort and increasing the obligations of the state-run catastrophe reinsurance pool without adequate financing, essentially putting the state in competition with the private market. Insurers say the state’s credit rating is now in jeopardy, and that the experiment will have dire consequences and ultimately will prove anticonsumer.
The insurance industry didn’t see it coming, and rattled insurers want to make sure the revolt doesn’t spread to other states.
Hence, a sudden interest in the insurance needs of Louisiana.
Taylor said his campaign to eliminate the insurance industry’s antitrust immunity, push for all-perils insurance and secure federal oversight of the state-regulated industry will continue. “I can assure you that effort does not go away. They have hurt too many of my friends.â€
One can only wish that more of their friends would be hurt in other ways, say, not being able to find a full-time, permanent job with benefits because of free trade, outsourcing, etc., in order for them to pay attention to the needs of the American middle class instead of the needs of the corporatists.
What a very sorry state our country has gotten itself into that justice should depend on nothing more than who is friends with a particular Senator or Representative.
Taylor said he was motivated by what he believes is the insurance industry’s ability to fix rates and settle claims. “I’m convinced the big guys did call each other and say ‘don’t pay claims.’ It’s perfectly legal to do so.â€
Uh… no, it’s not. Claims must be paid according to the terms of the policy, which is a legal contract. In the event that the terms are ambiguous, courts will rule in favor of the insured, not the carrier. I know this because I work for a small, regional insurance company. The state departments of insurance are supposed to regulate us all, large and small, in all 50 states.
As with everything regulatory, some jurisdictions are better than others. I know Mississippi was a cluster-bleep of criminality after Katrina, e.g. requiring insureds to sign illegal waivers under the duress of the total loss of everything they own. The companies who did that should burn in the courts first, and later in hell.
As for Sen. Reid’s comments, unfortunately they’re more inflammatory than realistic. If by “fixing prices” he’s referring to premium rates, he is right about that one. McCarran-Ferguson should have been replaced long, long ago.
But I have to be perfectly frank. When I think of how hard– and honestly– the adjusters, claims examiners, and underwriters work at the small company that employs me, I can’t help but take a bit of offense at the general demonizing of insurance carriers. We’re “the enemy” until the furnace puffs back or the water heater leaks or lightning fries the electronics, or heaven forbid, the house burns down or is demolished by a twister. (That’s the region I live in.) We work unbelievably freaking hard to be sure that our insureds are paid fairly and promptly for their loss. My job is to recover from negligent or criminal third parties who caused our insured’s loss– uninsured motorists, adverse carriers who disagree on comparative negligence, crooked roofers, burglars, vandals, you name it– and we fight like mad to get back not just the deductible but every penny our insured spent out-of-pocket. So please factor into your opinions that “the insurance industry is the enemy,” that the industry employs people like me. And Sen. Reid doesn’t know bleep-all about me, or the company I work for.
Joanr – I am sure that you are a nice person as are thousands of people in the industry. A couple of secretaries for State Farm, if I recall correctly started documenting corporate practice post-katrina of refusing to pay engineering reports on damage that listed ANYTHING except water damage. The decision to commit massive fraud against the policyholders was not done by a local adjuster, and I won’t buy toilet paper, let alone insurance, from State Farm no matter what the price. Peoples lives have been ruined by executives in the industry who belong behind bars.
And the insurance industry employs people like me, and Sen. Reid knows bleep-all about me as well.
Gah. Been trying to write a comprehensive rebuttal, but gotta go home. Suffice to say that McCarran-Ferguson is MUCH more complex than folks like Reid are making it out to be, in terms of the effect it has on how insurance works in this country. There’s good and there’s bad. And there’s much disagreement about which is which.
I’ll think more on this, maybe have more to say tomorrow.
-me
Oh and yah, State Farm sucks. I ain’t gonna tell you who I work for as that would be a breach of corporate conduct rules … if I did, it would be too much like I was representing some kind of Official Point Of View … but I will say it ain’t for State Farm.
And on balance, I think that’s all I will say. I’m skirting too close to those conduct rules. So, I’ll shut my mouth. Just wanted to register that I am OFFENDED by Reid on this one.
-me
Reid was undoubtably wrong to paint the entire insurance industry as the enemy. IMO the vast majority of those who work in the industry, want to, and believe they do, provide an invaluable service to the homeowner.
However, IMO, for those at the top of the pyramid, it’s a game. Rules are made to be broken. Special protection and influence are comodities for sale. Profit, not integrity, rules their world. Angry words against the industry will be spoken, because promises to so many were broken.
Suffice to say that McCarran-Ferguson is MUCH more complex than folks like Reid are making it out to be, in terms of the effect it has on how insurance works in this country.
Ian, you are absolutely right. Here are two more points to consider: 1) McCarran-Ferguson is a separate issue from the criminal behavior that arose during the Katrina claims handling (and it sucks that it took the catastrophe to bring it to the forefront); and 2) when a politician makes statements out of his ass about an entire industry following a catastrophe, he’s doing it for reasons of personal aggrandizement. If Reid were as aggressive toward the administration’s misdeeds as he says he is toward the insurance industry (and that’s like comparing liver cancer to psoriasis), I wouldn’t be quite so pissed at him.
However, IMO, for those at the top of the pyramid, it’s a game. Rules are made to be broken. Special protection and influence are comodities for sale. Profit, not integrity, rules their world. Angry words against the industry will be spoken, because promises to so many were broken.
Doug, that is well said (and has a couplet at the end, like a sonnet). Similar malfeasance famously existed in the S&L industry, the accounting industry, etc., but there’s a critical difference: we in the insurance industry are there to indemnify folks who have suffered a loss. Catastrophic losses are the worst, as bad as a death in the family, because they involve grief, economic devastation, and often bodily injury. So insurance, in a better world, should be a sacred trust between the carrier and the insured. Any execs who prey on insureds in a catastrophe are worms of the lowest order.
Here’s something else you may not know. An industry magazine called Claims crosses my desk each month. In the past year I’ve noticed that one of its editors in particular (whose name, sadly, escapes me), is a thinly-disguised, Bush-loathing Democrat. (A dangerous thing to be in our biz, as you can imagine.) This editor has whaled again and again on the Katrina response not only by the feds (easy pickings there), but also by those industry worms I just mentioned. I read this guy’s columns (which aren’t quite as witty and outraged as maha’s blogs, but they are as well-informed) and I think, These are the people who can clean things up… given the chance.
Pingback: Suspect Device: The Blog » Mahablog on the state of insurance post-Katrina
Well, lots of good information here, and that includes the comments.
I suspect that the insurance industry [especially the huge insurers] suffers from what so many other corporate industries have experienced, which is that the top CEO level has been gaming the whole deregulation system for what it is worth [to them at the top], even if that gaming is destructive of the industry below them. Thank Ronald Reagan for helping promote this can of deregulation worms. Praise Jim Webb for speaking on this topic last week.
I just love the anti-government people like Trent Lott who think that government should be down-sized until they can drown it in a bathtub. Then, when their property swirls down the drainhole, all of a sudden, government should step in and save them.
Trent, you helped carry the government to the bathroom. You helped put it in the tub. You helped to pour in the water. You helped to hold its head under the surface. You helped drown it. You helped to start it down the drain. But, when your pinky-ring went down with it, you demand WE call Rot-Rotter.
Trent, &@*% you.
Sorry, that should read “We call Roto-Rooter.” I was so ticked off, I was “plumb” out of my mind when it came to spelling…
I probably should have made it clearer that Senator Reid was talking in the context of health insurance. But the more you learn about what’s going on with commercial and personal property insurance in the Gulf the more apparent it is that a whole lot of people have been screwed by their insurers, and that many companies — maybe not all, but many — are taking advantage of their McCarran-Ferguson exemptions in ways that are harming a lot of people.
When people criticize the oil and gas industry they’re not criticizing the person who pumps the gas. When people criticize Bush for waging an unwinnable war, they’re not blaming the troops. When Senator Reid said the insurance industry is the enemy, I’m going to go out on a limb and say he was talking about the people at the top who make the decisions, not the claims adjusters.
AkaDad, inaccurate analogies all the way around. There are no small, regional oil companies getting lumped in with Big Oil. And the people most immediately injured by Bush’s war do take it out on the troops. An adjuster getting screamed at by an irate homeowner should thank heaven s/he has it so good.
Most people don’t seem to understand how insurance works. The fact that the completely different industries of property and health insurance can be muddled, just goes to show.
Pingback: Git a rope… « Homeless on the High Desert