Every now and then, somebody writes something in a prominent newspaper that sounds an awful lot like my rhetoric. The Houston Chronicle recently published such a piece calling for major federal legislative insurance reform. Kia Franklin wrote the editorial. I know little of her, but her opinion sounds very similar to calls for reform made by consumer advocates in Florida following the 2004 hurricanes and from Congressman Gene Taylor of Mississippi following Katrina. She notes the claims frustratration of many in Texas following Dolly, Gustav, and Ike:
"As Hurricane Ike survivors rebuild their homes and their lives, their harrowing stories may soon become all-too-similar to those of Hurricane Katrina and Hurricane Rita survivors: people wrongfully denied insurance claims, or offered inadequate payments, for damages they were told their insurance policies would cover."
Her concern is valid. In my experience those with the greatest damage from a combination of wind and flood will be the most frustrated. The question is: what to do about the problem? Some, including Ms. Franklin, have suggested that rates may fall if the insurance industry is not given an antitrust exemption. I am not so certain about that. Indeed, having rates too low may allow a nearly bankrupt insurer to catch market share, hoping a catastrophe would not wipe it out.
From a historical standpoint, state departments of insurance needed to have insurance rates shared to stop this all too often problem of the 19th century. A bankrupt insurer does nobody any good, and a possible unintended consequence of complete adherance to Federal Antitrust laws would be that the public would suffer from more bankruptcies.
Legislative and common law rulings with strong remedies and penalties for bad claims handling are needed. Insurance companies that cheat policyholders should pay the consequences of their actions. They must be held accountable to the rules they agree to abide by and not allowed a competitive advantage over insurers that timely pay claims and ensure the policyholder is fully compensated.