I received a flood of responses on my blog to the issues raised in last week's column ("Your Own Worst Enemy") about the political fallout from State Farm's handling of Hurricane Katrina claims in Mississippi. The carrier intends to settle with thousands of policyholders to fend off lawsuits and a grand jury probe, but the reputational damage is already done, with a Congressional hearing set for Feb. 28.
"I think if claims departments were run by claims people instead of numbers-crunchers, the outcome of the dilemma would have been different," wrote Marc Dubois. "Mega-insurers have lost contact with the reason they were successful in the first place."
BJ lamented that "we have become an industry insensitive to the needs of the people we serve, and subservient to those whose sole purpose is to count the beans in the jar...Might as well scan the scene from Google Earth and send out machine-generated denials if you're going to remove the human element and real concern for the toll this type of loss takes on your policyholders."
James Greer, president of the Association of Property and Casualty Claims Professionals, who spent six months in Mississippi handling claims for the state's carrier of last resort, said he was "ashamed" of the industry's performance, citing "an overwhelming lack of claims adjusters...The industry simply did not respond."
(Ironically, Mr. Greer reported, "State Farm did have one of the largest [catastrophe] facilities, located centrally on the coast, but there was little evidence of other carrier presence.")
"I personally walked through the carnage, saw the people, and felt the sorrow. I climbed the roofs, measured the slabs, and personally witnessed very visible and clear damage caused by both water AND WIND," he wrote.
"I personally observed large carriers simply refusing to respond, or even consider arguments of wind involvement...," he added. "The silence from industry officials far from the field who retained the authority for claim decision-making was deafening."
However, Ron Joas raised a counterpoint in regard to whether carriers failed to honor a "social/moral contract" with Katrina policyholders.
"Since when did a contract cease to be a contract?" he wrote. "I'm not questioning that insurers should pay what is owed under the contract, and if it's found that they didn't (whether or not they acted in bad faith), then let them bear the consequences. But your comments and those of the frustrated insurance official appear to take this to a different (and dangerous?) level."
He went on to worry about "the ramifications of settling every claim based on a 'moral' obligation? What is a 'moral' obligation, and does it extend to just victims of a catastrophe, or to all victims of unfortunate events, regardless of whether insurance was purchased?"
"There are so many more questions that could and should be raised by this commentary before blithely accepting this notion without questioning the impact, and wondering whether it's merely an extension of what appears to be a cultural phenomenon of 'entitlement,' or whether there is truly a basis on which to proceed," he added.
Mr. Joas makes an excellent point. Insurers should not pay claims that are clearly not covered out of the goodness of their hearts. That would unfairly raise the cost of coverage for all and complicate legitimate claim declinations down the road.
However, what happens when a carrier holds to the letter, rather than the spirit of a policy--especially when the cause of loss is not black and white? That's the looming question here.
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