Bob Sargent at Specialty Insurance Blog points to the Mississippi Insurance Department's early guidance on insurance claims for Katrina damage.
Commissioner George Dale's letter (pdf) states that he has been "contacted by Mississipians who advise that their adjusters allegedly denied their homeowner's claims without inspecting the damaged property." Commissioner Dale states that when water and wind combined to produce a loss, "the insurance company must be able to clearly demonstrate the cause of the loss." He expects insurers to resolve doubt in favor of a covered loss. Specialty Insurance Blog: Katrina Coverage: Wind or Water?
As Bob Sargent rightly points out, reinsurers are not likely to be as responsive as locally regulated primary carriers to local insurance regulatory "jawboning." Reinsurers are expected to "follow the fortunes" of the primary carriers. They may (and often do) insist that the primary carriers clearly resolve legal issues before paying claims if they expect reinsurance participation. This may lead to extensive and politically painful litigation with large numbers of Katrina victims unless both the primary and reinsurance market leaders step up to the plate and do their part in relief.
This may prove very difficult, as the insurance industry is a business, not a charity. They have an obligation to their shareholders and other policyholders to construe policies both fairly and consistently in accordance with many decades of precedent and legal principles. This will be difficult times for their decision makers. Some will fare better than others. Adversity brings out both the best and the worst in people and organizations, and the insurance industry is no exception.
On the wall in a conference room of The Hartford hangs an oil painting of a legendary event in the company's history. Following the Great Fire of 1835 in New York City, many insurers failed and closed their doors. Eliphalet Terry, then president of The Hartford reacted differently, in a way reminiscent of "unauthorized" aid we see today. He borrowed cash on his personal credit, loaded it into a horse-drawn sleigh and personally drove it 100 miles through bitter winter weather to the disaster area and began paying claims. Although records of policies had also been destroyed in the great fire, he was able to reconstruct some information and relied a lot on the faith and good will of the people who made claims.
As victims of other insurers received reports that their companies had failed and would be unable to pay a dime, the stand-up insurers began selling policies to those failed by the competition. By the time he and his people finished in New York, Terry had paid the claims and also signed up enough new customers to provide the cash to pay off the temporary loans and establish the reputation of his company as one you could count on.
I retell this story not because The Hartford is alone in such behavior, but because I happen to be familiar with it from several decades working there and looking at that oil painting. Many other stand-up insurers did the right thing in that disaster, and will do the right thing in this disaster. We will learn in the coming months which insurers and reinsurers are able to figure out what is the right thing.
Posted by dougsimpson at September 8, 2005 05:44 AM