There are so many investigations being launched into how insurers handled Hurricane Katrina losses that you wonder whether the inspectors will bump into one another as they poke around insurer claim files.
First, Sen. Trent Lott, R-Miss.–who is suing State Farm over his own Katrina claim–slipped a provision into a funding bill ordering the U.S. Department of Homeland Security to look into hurricane claims-handling and report back to Congress by April 1.
But that's not fast enough for another member of Congress with an axe to grind–Rep. Gene Taylor, D-Miss., who is also suing State Farm. Rep. Taylor sent a letter to the House Financial Services Committee, asking for an immediate probe into the industry's performance in Hurricanes Katrina and Rita, and Rep. Barny Frank, D-Mass., who chairs the panel, has given his request the green light.
While acknowledging the Lott-driven Homeland Security's April 1 report, Rep. Taylor pleaded with Rep. Frank that he not wait until then to begin the committees investigation,” arguing that it is clear that the insurance companies have a conflict of interest when allowed to assign damages to the federal flood program rather than to themselves.
Meanwhile, in Mississippi, as State Farm got hammered with a $2.5 million punitive damage award for mishandling a Katrina wind-versus-water claim, and with 600 other contested claims looming, state Attorney General Jim Hood impaneled a grand jury to hear evidence of State Farm's alleged misdeeds.
Mr. Hood has the industry in general, and State Farm in particular, over a barrel, and he knows it. He's got to be licking his chops as he sees one negative development after another turn up the heat on State Farm and others to settle a suit he filed challenging the flood exclusion in wind-driven water claims.
I hope the insurance companies will come to their senses and reach a settlement agreement,” he said, vowing to “continue to work with them towards a speedy settlement. However, he warned, if insurers continue with their robber baron mentality, he flashed the hammer of federal intervention and national insurance reform over the heads.
This crisis is really spiraling out of control for the industry. But while Mr. Hood and friends might win out in the short term, Mississippi Insurance Commissioner George Dale noted last week how concerned he was about securing a viable private insurance market for his storm-prone state going forward.
Don't even get me started about what's going on in Florida, as Senate and House lawmakers look to coerce carriers back into their battered homeowners market. I'll comment on that debacle next week.
Meanwhile, better get your paperwork in order. A federal or state investigator could be visiting your office or calling you to testify any day now.
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