The demagoguery aimed at the insurance industry is reaching a new low in Washington, as the federal government, which has done a miserable job of carrying out its own responsibilities in the wake of Hurricane Katrina, is now claiming it should be the one to make sure all those awful insurance companies live up to theirs.

The Insurance Information Institute says carriers have paid out about $40.6 billion in Katrina losses. In Louisiana and Mississippi, they've paid $15.5 billion to settle some 95% of their homeowners claims. Yet politicians vilify them for not coming around fast enough on the toughest cases: those where wind and water left nothing but slabs. Too bad for insurers that one of those slabs belongs to Sen. Trent Lott (R-Miss.). Now he is out for the industry's scalp. Last month, just to show how much grief he can cause, he and other political heavyweights in Congress introduced legislation in both the House and Senate to remove the insurance industry's limited antitrust exemption under the McCarran-Ferguson Act and put the industry under the thumb of the Federal Trade Commission and the Justice Department.Typical of the nonsense being purveyed was a press release from U.S. Rep. Peter DeFazio (D-Ore.), in which he said the McCarran-Ferguson Act "leaves every American at risk to collusion and price fixing by the insurance industry…. So many residents of Louisiana and the Gulf Coast can no longer find insurance coverage, much less affordable coverage, and something must be done to change that."Does DeFazio think repealing the industry's limited antitrust exemption will make cheap coverage magically appear along I-10? For the record, the McCarran-Ferguson Act specifically bars any agreement or act among insurers to "boycott, coerce or intimidate." Rather, its practical effect is to allow the standardization of forms. It also permits small insurers, whose own databases are not large enough to be statistically significant, to base business decisions on industrywide data. State Farm, which insured Lott's house and seems to be the immediate object of his wrath, is so big it doesn't need this data. But any small carriers wanting to compete with it in places like Mississippi sure could use it.I don't agree with how insurance companies, particularly State Farm, have dealt with the "slab" cases, but I don't think their behavior has been unconscionable either. State Farm–which has paid more than $1 billion in the storm's aftermath–took the position that its homeowners policy barred recovery whenever flooding or storm surge contributed to a loss, even if there was wind damage too. End of story. Then the insurance company lost a key lawsuit in a federal district court. That ruling led State Farm, while appealing the decision, to start settling lawsuits–including Lott's–and reopen cases. Personally, I feel it should have negotiated long before it was compelled to do so by litigation. But I also believe its original interpretation of its contract–while hard-nosed, short-sighted and terrible for public relations–was not arbitrary or malicious.If anyone has been arbitrary, it's been the politicians. Jim Hood, Mississippi's attorney general, filed a lawsuit that would rewrite insurers' contracts and force them to cover hurricane storm surge. Then he was shocked, shocked when State Farm announced last month that it would not write new property business in the state. So Hood is asking legislators to require insurers to continue offering the coverage if they also are going to write auto insurance in Mississippi. In the interim, he urged Gov. Haley Barbour to force State Farm to continue to write new property insurance. Barbour replied he had no authority to do so. (Memo to State Farm: Cutting off the entire state was needless escalation and brought you down to Hood's level. Withdrawing from the coastal areas would have sufficed.)Those in the federal government who would criticize State Farm and other insurers for how they've responded to Katrina, should first get their own house in order. Of the $110 billion that Congress and President Bush have allocated for Katrina recovery, less than half, about $53 billion, has been spent, according to the federal Office of Management & Budget. How's that for speedy claims processing? And a significant part of that $53 billion has been misspent. The Government Accountability Office estimates that FEMA has made about $1 billion in incorrect or fraudulent payments.The problem is that state and local governments have encouraged building in extremely risky areas, like coastlines and barrier islands vulnerable to hurricanes and storm surge. They want the condos, casinos and all the rest of the development, and the jobs and tax base they provide. But are they being candid with constituents about the cost of the associated risk? I doubt it. It's so much easier to deflect the blame for their lack of leadership to the insurance industry.And now, rather than acknowledge the true cost of insuring property in these dicey areas and working with carriers to make coverage available, some governments are opting to provide it themselves. Florida has passed legislation enabling Citizens Property Insurance Co., a state-owned market of last resort, to underbid private insurers on home-owners insurance. Apparently the state thinks its can draw or force the carriers into a fool's price war. Florida also has doubled the size of its hurricane reinsurance fund, which could drive out private reinsurers and leave state residents with most of the tab for the next big storm.Most ludicrous of all, legislation has been introduced in the U.S. House of Representatives to give consumers the option to have windstorm coverage thrown in with the flood insurance they buy from FEMA's National Flood Insurance Program. Now here is a program that already is $20 billion in the hole, looking for a way to dig itself in deeper.If the politicians really want to take on this problem and then shift it to the taxpayers, maybe the insurance industry should just let them.