AIA: Paper on Insurance Claims Handling is Reckless

January 12, 2006

A paper issued Thursday by Americans for Insurance Reform (AIR) is “untrue, irresponsible and reckless,” according to the American Insurance Association (AIA).

“Tens of thousands of insurance company employees have worked around the clock since Hurricane Katrina struck to overcome unprecedented logistical challenges in the claims settlement process,” said John Marlow, AIA assistant vice president, Southwest Region, which includes Louisiana. “It is misleading and possibly deceptive to allege that a small collection of one-sided, anecdotal conversations from a telephone hotline comprises ‘research.’ It is the height of irresponsibility to use such supposed ‘research’ to smear an entire sector of the financial services community.”

“In truth,” Marlow stated, “despite tremendous challenges in the post-hurricane environment – such as a total lack of communications infrastructure, dispersal of policyholders across the U.S., and being prevented from entering whole counties and parishes along the Gulf Coast for several weeks after the storm – insurance companies have handled hundreds of thousands of hurricane claims quickly and fully.”

According to the AIA, AIR’s reckless report also “demands payments” from private sector insurers for flood-related losses, even though water damage has been broadly excluded from state-approved homeowners insurance policies for decades. Such losses are typically covered by the federal government’s National Flood Insurance Program.

Marlow noted that forcing private sector insurers to pay claims that clearly fall outside the boundaries of their policies, and for which premiums were never paid, would be extremely unfair to those people who did pay for flood insurance and would render contract law meaningless, which would wreak havoc on the American economy.

State insurance regulators have reportedly taken a very active role in all of the Gulf States to protect consumer rights, while making sure that insurers can stay in business in their states, and pay valid claims.

For example, the Gulf State regulators have placed moratoriums on policy cancellations or non-renewals until repairs are made on properties. Mediation programs also have been instituted to help policyholders and insurers work together on resolving any conflicts that arise.

“Regulators are monitoring the recovery process in the Gulf States and working closely with both policyholders and insurers,” said Marlow. “It is ludicrous and sadly transparent for AIR to use the Hurricane Katrina tragedy to advance its long-standing anti-competitive, counter-productive regulatory agenda.

Finally, Marlow noted, “AIR is correct in noting that insurers are well-positioned financially to withstand last year’s devastating hurricanes. This is good news for policyholders, because it reduces the likelihood of insurance company insolvencies; fortunately, none have been attributed to Hurricane Katrina thus far. However, AIR is off the mark in using the industry’s financial health as an excuse to implement regulatory restrictions that could destroy state insurance markets.”

“Consumers would be much better served – and AIR could add value – by working with insurers as the Gulf Coast rebuilds to manage future catastrophe exposures through implementing and enforcing stronger building codes and creating insurance regulatory environments that foster competition among insurers,” Marlow concluded.

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