Insurance non-payoffs: There oughta be a law

Author's Note: The following column appeared in today's ediiton (Sept. 9, 2007) of the Dallas Morning News' Colln County Opinion pages.
This summer has been another horrible weather period for people in different parts of the country, due to massive flooding from a host of extraordinary storms. New Orleans and the Gulf Coast have YET to recover from 2005’s Hurricane Katrina and one of the major reasons for that lack of progress falls at the feet of insurance companies — unwilling to pay full restoration and damages on legitimate policies. These companies, who are flush with profits to the tune of many billions of dollars have spent much time, and legal expense doing all they can NOT to pay hurricane and flood victims.
In 2005, despite paying an estimated $56.8 billion in losses (according to the Los Angeles Times and the National Association of Insurance Commissioners), insurance companies earned a record $44.8 billion in profit — a whopping 18.7 percent higher than in 2004. The figures were posted despite Katrina, acknowledged as the worst disaster in American history.
In fact, all those losses were paid by policyholder premiums, with another 7 percent added to the industry’s surplus, which was NOT touched in 2005. The industry is paying a much lower percentage on policies, going from 60 percent of losses in the 1990s, to less than 50 percent after the Florida batch of hurricanes in 2005 to about 30 percent for Katrina victims.
Oh yeah, the insurance companies themselves had disaster insurance coverage with overseas firms, and those payoffs (up to two-thirds of insured losses) were added to the treasuries.
The problem lies with flood damage, which insurance companies will not cover. Homeowners are pushed to the federal flood insurance coverage and in many areas on the Gulf Coast and eastern shore, companies like Allstate have stopped offering homeowner policies at all.
The stories of how ordinary people have been treated by those supposedly in their "good hands" make you cringe as an American. The lack of fairness — seeing hard-working citizens who faithfully paid their premiums thinking they were fully covered only to forced (by desperation) to accept pennies on the dollar for a settlement claim — is unconscionable. Something should be done on the federal level, and applied across the nation and across the board.
My legislation would provide for the following:
1) Comprehensive coverage, which would be mandatory on homeowner policies, should include all natural possibilities — under ONE umbrella. This nonsense about having to purchase different policies for wind, rain, flood, fire and hail damage, when all these can occur during storms, only enriches the coffers.
Storms produce lightning (which can cause fires), hail, tornadoes and … yes, flooding in the form of wind and rain; you can’t have one without the other. Hence, flood damage should be covered instead of pawned off to the federal government as a secondary purchase.
2) If a policy says replacement for damages is to be paid at market value, the company does NOT get to set that value. A designated third party should be the determining factor. Failure to adhere would result in stout fines — enough to make it really hurt and discouraged companies from opting to pay fines rather than pay policies.
3) If a policyholder has met all premiums according to the signed agreement, insurance companies are totally bound to pay.
4) It should take no longer than one year for a policyholder to receive 100 percent of his or her payment.
A law should bring the full force of federal penalties against those companies that violate this trust. I wouldn’t go as far as to claim racketeering within the industry, but when all these folks warble the same song-and-dance, the smell is unmistakable.
Such comprehensive coverage should be the standard regardless of region. As we’ve seen, no section of the nation is immune, from the Texas Hill Country to the Minnesota range to the Gulf Coast to Northern California.
Insurance companies are not hurting, but many of their customers are. These giant corporations should not be in the business merely to collect premiums while failing to fully pay legitimate claims.
It is time fairness returns to our rules and our business. And for that, as the old comic strip said, there oughta be a law.