Monday, September 12, 2005

Blessed National Relief - Repeal McCarran Ferguson

With all the anxiety since Katrina paid the Gulf Coast a howling visit, hurricane victims have not had a good night's sleep in over two weeks.

For the lucky, an insurance policy can provide sustenance; implicit in the contract is restful indemnity in the aftermath of natural disaster.

But indemnity is not guaranteed to all, even those insured; said disaster must be caused by an insured peril as defined in the fine-print of a policy.

And it is this definition etched in policy language that has consumer groups worried carriers staving off insolvency or simply protecting their bottom line will scam policyholders.

After Florida's Hurricane Andrew in 1992, eight insurance carriers went belly-up, some quit writing new policies and others simply pulled out of the state. In the meantime, the fate of many claims dragged on for years, as the state fund that guaranteed losses from bankrupt carriers had to be shored up after more than $20.9 billion of losses to the industry and agency fund.

Raw Story reports an extensive band of consumer groups is setting up a hotline to help policyholders weave through bureaucracy and ensure companies do not escape their contractual liability.

Hopefully, the Mississippi and Louisiana’s insurance state funds will be in better fiscal shape than the state insured fund for injured employees in Ohio, which recently lost $300 million from dubious investment decisions by officeholders.

One possible bone of contention is whether flood damage from Katrina is a separate and distinct “occurrence,” apart from actual hurricane.

Using standard policy language, proximate cause for losses from a hurricane with wind speeds of up to 140 miles per hour, which in turn created a huge surge, which in turn broke the levee, which in turn created the “flood,” are covered. Katrina’s "floods" do not square with policy wording for flood: rising water due to rain.

What is likely to happen is a number of bankruptcies, such as those we saw in 1992. And similar to the deluge of water that recently overwhelmed local and state government, the ultimate price to bail out "large insurance firms" and safeguard their survival will be left to the federal government by way of grants and loans to state, and direct aid to the public.

Unbenown to the public, insurance carriers have enjoyed protection against antitrust laws, courtesy of the McCarran Ferguson Act of 1945; oversight is left to individual states and the law exempts insurance companies from antitrust laws prohibiting pricing and underwriting collusion.

The little gem of law is the gift that's been giving to the industry for the past 60 years.

After the Supreme Court ruled federal government oversight extended to insurance going-ons in United States v. South-Eastern Underwriting Association, the industry was able to convince Congress to immediately grant them waivers.

But does anyone believe part-time legislators can match behemoth corporate conglomerates with their surfeit of resources and army of lawyers and lobbyists to protect the public...?

Perhaps the soon-to-come industry handouts from Katrina will convince legislators that federal oversight is necessary.

Insurance companies try to misdirect the reasons for industry losses by blaming runaway juries that must be stopped through another give-away law: tort reform.

But legal reform does little to prevent companies from continuing the deadly practice of price wars and then price gouging, euphemistically dubbed "industry cycles," which leave consumers in a lurch when the madness stops, markets shrink and prices go up.

Nor does it ensure citizens rights will be universally guarded across state lines; currently, a mishmash of state insurance laws achieve different degrees of consumer protection. The Supreme Court rightly linked insurance to interstate commerce in their ruling of 1944.

A better way to mend the industry is to abolish the antitrust exemption and hold insurance business accountable to a national audience with full transparency.

Oversight should rest with Congress. Like the beleagured mayor and governor of Louisiana during the latest hurricane, sometimes a job is just to big for locals or part-time public officials.

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