Was State Farm not a good neighbor when it came to dealing with the multitude of Hurricane Katrina losses in Mississippi? Did this dispute really have to end up in court? Or should the carrier have been more proactive and flexible in adjusting claims where the source of damage wasn't clear?
I've heard grumbling within the industry that State Farm practically invited legal challenges and public scorn by the way it stiff-armed many claimants with wind-driven water damage. The result was another body blow to the industry's already tarnished reputation, prompting retaliation by angry state and federal lawmakers.
I got an earful from one industry official in an e-mail about State Farm's Katrina settlement (still a work in progress, with the judge rejecting the first agreement). This savvy individual complained about how much better insurers could have handled disputed claims--perhaps not only avoiding the lawsuits and horrible publicity that followed, but setting the stage for improved relations with regulators and the public.
"What I'd really like to ask State Farm (and others) is why on God's green earth didn't they go down there right after the storm and [settle these claims]?" wrote my correspondent--who insisted on anonymity for obvious reasons, but was unable to keep silent about the way the industry so often talks the talk but fails to walk the walk when it comes to putting policyholders first.
"Our industry is obsessed with talking about image building and reputation management," my contact noted. "In my view, image and reputation are based on behavior, not a PR campaign. Treating consumers well and honoring our social/moral contract (not just the legal one) seems like the best way we can do this--particularly after a disaster."
"I know all the problems with the cost of fraudulent claims and setting dangerous precedents," this individual conceded. "But how much did it cost in terms of public animosity--not to mention the cost of the ultimate settlement--to deny these claims and have your name dragged through the mud for 18 months? And how much more receptive would regulators and legislators be to requests for future rate increases when insurers can demonstrate that they went the extra mile to serve consumers?"
There is only so much public relations people can do to bolster a deservedly poor reputation--as President George W. Bush is painfully learning when it comes to the war in Iraq. Actions speak louder than words, no matter how effectively one wags the dog.
However, I've also heard disturbing talk about how State Farm was insane not to make sure the claims of federal big-wigs were paid--regardless of merit--to avoid drawing their wrath in the courts, the media and Congress. I think that's total nonsense.
Republican Sen. Trent Lott and Democratic Rep. Gene Taylor, both from Mississippi, not only sued when State Farm denied their claims, they also dragged the entire industry into the Washington spotlight. Sen. Lott slipped a provision into a Homeland Security Department budget bill ordering a federal investigation of Katrina claim-handling, while Rep. Taylor is one of the leading backers of a bill to undermine the industry's federal antitrust exemption.
That's unfortunate. But to have paid their claims no matter what their policies excluded would have been bribery--the last thing insurers need to be doing. Some might call me idealistic, or even naive, but I still think honesty is the industry's best policy.
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