WASHINGTON – Insurance companies need more federal oversight after their handling of Hurricane Katrina-related claims,according to a new report issued Thursday by House Democrats.
The report,created by the Democratic Caucus' Katrina Task Force,suggested that claim adjusters in the Gulf Region had an “obvious conflict of interest” because they could decide whether to bill the claims to the federally funded National Flood Insurance Program or to their private companies.
Rep. Gene Taylor,D-Miss.,the task force chair who is also among thousands of Gulf Coast residents suing insurance companies for Katrina-related losses,said weak anti-trust laws for insurance companies let them collude to avoid paying for billions of dollars spent to repair flood damage.
Most insurance companies do not offer flood coverage. Instead,the NFIP,provided by the Federal Emergency Management Agency,is the primary supplier of flood insurance.
“These companies decided to stick it to the taxpayer every time,” Taylor said at a news conference.
But Taylor said too many insurance companies denied claims as flood damage that resulted from a 20-foot surge of water instead of wind damage caused by Katrina,for which the companies would be responsible.
The report said insurance giants State Farm,Nationwide and Allstate paid hundreds of thousands of wind claims inland “where they could not possibly blame the storm surge.”
But Jim Whittle,an assistant general counsel for the Washington-based lobbying group American Insurance Association,said insurance companies work with companies outside of the insurance industry that collect statistical information so insurance companies can standardize policy forms and use historical information to make long-term predictions about probable losses. This allows companies to set policy prices.
Whittle said insurance companies are prohibited by law from dealing directly with each other.
“We don't think there's collusion,” he said.
Whittle said that,if the insurance companies paid for what they deemed flood-related damage,”Companies will be obligated to pay for things they never received any premiums for.”
Taylor said if Democrats take the majority after the Nov. 7 election,investigations into insurance companies would follow. He said House Republicans have been reluctant to do so.
The task force also recommended that various agencies should:
- Rebuild levees and flood controls to higher standards.
- Relieve FEMA of its recovery mission and reassign those responsibilities to appropriate federal agencies. Reform FEMA contract procedures to eliminate noncompetitive contracts to large companies such as Bechtel Corp. and allow smaller,local businesses to receive federal contracts.
- Re-equip National Guard units to fulfill their civil support mission.
- Improve emergency communications by distributing satellite phones to emergency officials.
- In areas near large bodies of water,deliver emergency supplies via boat,not by truck,because of congested roadways caused by a disaster.
Sen. Trent Lott,R-Miss.,is also suing his insurance company,State Farm,after the destruction of his beachfront home. Lott could not be reached for comment.
Hurricane Katrina cost $45 billion in insurance claims,according to the Insurance Information Institute.
The task force included 17 Democrats,all but one from coastal states.