The controversy over litigation and outstanding unpaid wind vs. flood claims and what could result in the marketplace if Mississippi Attorney General James Hood and attorney Richard ‘Dickie’ Scruggs are successful in their lawsuits will be discussed by Bill Bailey, director of the Hurricane Insurance Information Center during the Feb. 8 to 11 Seventh Annual Windstorm Insurance Conference at the Hilton Walt Disney Resort in Orlando, Fla. Max Mayfield, director of the National Hurricane Center in Miami, will also present conferees with an evaluation of the 2004 and 2005 hurricane seasons and his outlook for the 2006 hurricane season.
Bailey told Insurance Journal he will take a close look at past, present and future hurricane issues the insurance industry is going to have to deal with.
“I don’t believe Hood and Scruggs will be successful, I don’t believe they should be, but on the other hand in the past I have been surprised by court decisions many, many times,” Bailey said. “Homeowners whose claims have been turned down by carriers that say the damages were caused by flooding, not wind, are adamant that they are going to collect flood damage claims from carriers.
“I am absolutely convinced that if you look at the language Congress put into the purposes and rationale for the legislation, it is clearly spelled out that there is federal preemption. Any attempt by the court to backdoor the insurance industry would be a major disruption and a disabling blow to the Federal Flood Management Program.”
He said a community can not obtain flood insurance from the federal government until they pass certain requirements and make certain improvements.
“That’s the leverage the federal government has and that private carriers lack,” Bailey explained. “So if the court decides flood insurance claims should be paid by private carriers, they would be dismantling the Flood Management Program.”
Bailey said such a decision would mean flood loss claims would be even worse than they have been.
“The question then is who is going to pay for all that? If the insurance industry is going to be tagged with it, to the extent that we aren’t able to write language to satisfy the courts on how to exclude flood damage, the insurance companies will then have to decide what to do: “Will we withdraw from the market? Totally? Partially? Or to what extent?
Bailey asked, “Along the Gulf coast, in the Panhandle and on the east coast, how are we going to deal with this in the future and who is going to pay? These are the fundamental issues the insurance industry faces and we as a society face.”
Changes in the natural environment
Bailey and Mayfield will discuss changes in the natural environment that have resulted in the unprecedented number of recent hurricanes.
“No one took Colorado State University professor Dr. William Gray seriously when he warned several years ago, before the catastrophic 2004 and 2005 hurricane seasons that the U.S. should expect more storms and more intense storms,” Bailey said. “He obviously knew what he was talking about.”
“What does the future look like if a Category One hurricane strikes, who is going to pay for it, and what does that do to the industry in terms of our freedom of action vs. greater regulation?” Bailey said these are all questions he will address during the conference.
Bailey has completed extensive tours of the southeast states most effected by recent hurricanes, including Baton Rogue, New Orleans, up the coast to Slidell and across to Gulfport, Biloxi and Pensacola.
Before the conference he plans to make another visit during which he will talk to homeowners and carriers in an effort to provide conferees with up-to-date information on how many claims have been settled and how many are still unsettled.
Scrutinizing underwriting procedures
Bailey will discuss the necessity for the industry to look at how its underwriting is done and procedures need to be changed.
He said it is essential to talk about financing. “Who is going to pay for the damages that Mother Nature causes in our country?” he asked.
Federal involvement troubling
He said a lot of questions remain to be answered: Should we have a National Natural Catastrophe Fund to which everybody contributes? If so, how do we run it? How do we allocate who is going to pay for it? Should we have regional funds because we have more fires in Phoenix, New Mexico and California than we do in Florida, but on the other hand, we get the hurricanes in Florida and the southeast. People on the west coast feel it is an unfair allocation of their insurance claims to pay for hurricanes.
“These are the kinds of issues the industry is going to have to deal with, and at the same time worry about federal involvement,” Bailey said. “It’s the old story about the camel getting its head under the tent. The more responsibility you give the government to become involved and respond to catastrophic events, the more you invite regulation.”
According to Bailey, major carriers would rather see us work our way through our problems than have a federally regulated catastrophe insurance pool.
He suggested one solution is to establish regional catastrophe funds.
Windstorm Conference topics
“Overview of the 2005 Hurricane Season,” Feb. 9 at 8:15 a.m., Mayfield will share insights into what happened during the 2005 hurricane season and what to expect in 2006.
“Florida’s Hurricane Mediation Program,” Feb. 9 at 9:15 a.m., Melvin A. Rubin, a key participant in developing Florida’s mediation programs, will discuss new developments in Florida’s mediation programs and challenges posed by 2004 and 2005 hurricanes.
“The Return of the Hurricane Panel, Part II,” Feb. 9 at 10:45 a.m., moderated by Bailey, will feature a question-and-answer session in which industry leaders will discuss lessons learned from the 2005 hurricane season and what they expect to happen in the future.
“The Catastrophic Loss: The Integral Rules of Adjuster and Expert,” Feb. 10 at 8 a.m., will feature well-known panelists discussing how to avoid claim expert bias, the selection of experts for catastrophe claims, what they should and should not do, directions they should be given and what to tell the other side.
“Ethics: Why ‘Good Enough’ Never Is,” Feb. 10 at 9:15 a.m., Dr. Dale Henry, who speaks and trains more than 100,000 professionals and executives each year to achieve higher levels of individual and team excellence.
“Victors Without Victims: Managing Conflicts for a Positive and Ethical Outcome,” Feb. 11, 9 a.m. Dr. Audrey Nelson, an internationally-recognized consultant specializing in organization and interpersonal skills will discuss conflict management, how to confront conflict and how to make your adversary your ally.
Insurance Journal’s Feb. 6 issue will feature more comments by Bailey. The issue will be distributed at the registration desk at the 2006 Windstorm Conference. Detailed information about the conference schedule and registration is available at www.windnetwork.com.
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