In a broader attack, lawmakers kept hammering away at how unfair it was for the insurance industry to have recorded big profits the last two years while many Katrina claims went unpaid. The clear implication was that insurers got fat by not paying policyholders what they are owed on hurricane damages.

The industry's sole witness and sacrificial lamb–Insurance Information Institute President Bob Hartwig–kept politely reminding the panel that while the industry posted profits when combining all lines of coverage nationwide, the homeowners insurance sector took a huge loss. In fact, he pointed out, that catastrophe-prone line has been unprofitable on an aggregate basis for quite some time.

But why would carriers continue writing coverage at a loss, the legislators demanded to know? Mr. Hartwig cooly explained that in less disaster-prone states, homeowners coverage could be written profitably, but thanks to record catastrophe losses, that's not the case nationally.

Meanwhile, many of the lawmakers insisted that insurers had dumped unwarranted claims onto the National Flood Insurance Program that should have been covered under standard homeowners policies. NFIP Director David Maurstad was raked over the coals, with Rep. Taylor ripping him to shreds for his agency's appalling lack of oversight.

Mr. Hartwig tried valiantly to keep the scope of the problem in perspective, reporting that insurers had paid an estimated $40.6 billion on 1.7 million claims for damage to homes, businesses and vehicles in six states from Hurricane Katrina–the largest loss by far in the history of insurance, dwarfing Hurricane Andrew's total in 1992.

He said that more than 95 percent of the 1.1 million homeowners insurance claims from Hurricane Katrina in Louisiana and Mississippi–totaling over $15.5 billion–were settled within one year of the storm. He estimated that fewer than 2 percent of homeowners claims in Mississippi and Louisiana are in dispute, either through mediation or litigation.

But Rep. Maxine Waters, D-Calif., did score two points in cross-examining Mr. Hartwig. First, she got him to concede that his figures on the percentage of claims settled do not include applications for coverage that were rejected outright under policy exclusions. We consider that a claim, she snapped. You evidently dont.

Second, she demanded to know “whether insurance companies talked together” about how to handle Katrina claims–presumably about how to deny them and get away with it, characterizing any such discussion as “behavior normally called collusion” under federal antitrust law. Mr. Hartwig emphatically stated that “no such conversations” took place. However, when pressed later on about this point, he wisely retreated to safer legal ground, saying only that, “I am absolutely unaware of any such conversations.”

Of course, no one presented any hard evidence that insurers actually did get together to conspire on how to cheat policyholders. It was all conjecture and innuendo, but the damage was done.

After the hearing, the Institute put out a statement that “the industry did not, as was suggested, conspire to defraud homeowners seeking compensation for property damage they suffered. The statement that insurance companies are legally allowed to discuss and agree on claims handling activities is untrue.”

State Farms's vice president of public affairs, Mike Fernandez, also issued a statement, calling it “absurd” to charge “that the industry colluded to avoid paying claims and to push claims to NFIP because the companies are exempt [from federal antitrust law]…Insurers do not and did not operate in this manner.”

But, of course, those industry disclaimers came after the hearing.

So, where do we go from here?

For all the bluster and showboating, Rep. Taylor and friends did raise some very valid criticisms of how the system operates. There may in fact be conflicts on the part of adjusters and carriers when it comes to determining causation. There might have even been some bad actors at work–when you have nearly two million claims, there's bound to be some misdeeds (just like there are bound to be fraudulent claims filed). Those responsible should be held accountable if the evidence confirms the charges.

My concern is that we may be witnessing a repeat of the contingency fee scandal that rocked the industry a couple of years ago, in which you have a very small group of individuals caught abusing the system with smoking gun documents, which then sets off a chain reaction that harms the vast majority of those in the business just doing their jobs as best they can under difficult circumstances.

After all, I can't help but wonder, if the industry was really involved in a massive conspiracy to deny legitimate wind claims and dump them all on the federal flood program, they didn't do a very good job if they ended up paying over $40 billion in losses to nearly two million policyholders. And would State Farm risk terrible retribution in rejecting claims by two members of Congress if they didn't believe they had contract law in their favor?

The only thing for sure right now is that the industry won't be allowed off the hot seat anytime soon. There will be plenty more hearings, including next Wednesday's Senate Judiciary Committee extravaganza on whether to repeal the industry's limited federal antitrust exemption–a threat I'll discuss in more detail in my blog on Monday afternoon.