A Flood of Incomplete Insurance Coverage
As Katrina
survivors begin to file insurance claims, some politicians and
activists want to hold insurance companies and taxpayers responsible
for uninsured properties. The media are entering the fray, relying
on anti-business experts and often overlooking the fact that the
government flood coverage people want so badly cant even afford the
claims it will face.
On the extreme end, Mississippi Attorney General Jim
Hood said he would review insurance contracts to determine whether
he will try to override flood-exclusion clauses in homeowners
policies in that state, The Wall Street Journal reported September
8. The Journal said insurers are likely to resist any such effort,
though a fight could be a costly public relations nightmare. One of
those putting pressure on Hood is Richard Scruggs, the class-action
lawyer behind anti-industry tobacco and asbestos lawsuits. Media
coverage thus far has included other consumer advocates, benignly
labeled, who are anti-business.
And coverage of the issue is only beginning. The
Poynter Institutes Al Tompkins included
resources for journalists covering insurance on September 13,
saying he expected more coverage of the issue as coastal
reconstruction gets under way. It is important for journalists to
explain the insurance programs involved, to label their sources
accurately, and to highlight the suggested use of businesses and
taxpayers money to bail out the uninsured.
The problems with the coverage
The government-subsidized National Flood Insurance
Program (NFIP), run by the Federal Emergency Management Agency, is
the only source of flood insurance. Fewer than half of New Orleans
homeowners had flood insurance, and The Baltimore Sun reported that
about 10 to 20 percent of those in Alabamas and Mississippis
coastal areas were covered. The federal program offers up to
$250,000 for rebuilding and up to $100,000 to replace the contents
of a home.
The Washington Post on September 12 described insurance
companies responsibility to policyholders to make them whole after
a disaster. But policies have restrictions and limitations, as many
flood victims have learned. Reporters Justin Gillis and Amy Joyce
only briefly mentioned the fact that payments are expected to send
the governments flood-insurance program into the red.
Private insurance companies that write homeowners
policies have more than $400 billion total in reserves more than
enough to cover the estimated costs of Katrina-related claims, which
are expected to reach up to $35 billion. The government-subsidized
NFIP, however, is another story. CNN Moneys Shaheen Pasha reported
on September 6 that the NFIP has the ability to borrow $1.5 billion
from the Treasury Department but the agency has already asked to
increase its borrowing authority to cover expected claims from
Katrina.
That detail was absent from much media coverage of
insurance costs.
On CNNs American Morning Sept. 11, 2005, Soledad
OBrien interviewed consumer advocate Doug Heller but didnt make
it clear that Heller had a strong anti-business agenda. Heller
advised hurricane victims to try to get as much money from insurance
companies as possible: You know, insurance is a much better way to
get to rebuild your home because the insurance company gives you
money. FEMA and the federal government, we are just going to give
loans, you know or I should say theyre just going to give loans
to the public. And thats not the same thing. You are going to have
to pay that back. And thats why we got to make sure that the
insurance companies dont let the taxpayers pick up the tab where
theyre supposed to.
CNN simply identified Heller as executive director of
the Foundation for Taxpayer and Consumer Rights. FTCR bills itself
as a non-partisan, non-profit organization or a consumer group
when, in fact, its a radical left-wing, anti-business group.
According to its own Web site, the group takes on big industries
and the politicians every day in legislatures, the courts and in the
media.
The Web site listed industries it criticizes, including
oil, insurance and health care. FTCR is already attacking the
insurance industry for its approach to the storm. According to its
site, Hurricane Katrina could be made worse by insurance companies
that attempt to limit their losses by refusing to pay claims that
are due to homeowners. Insurers have already told some homeowners in
New Orleans and the Gulf Coast that it was flooding not the
hurricane that did the damage, so they are not covered. Of course,
the flooding only occurred because of the hurricane and insurers
should be required to pay claims.
Likewise, the Posts Gillis and Joyce included J.
Robert Hunter, from a consumer group called the Consumer
Federation of America an organization the reporters didnt
identify, but whose ratings of Congressmen betrays its loyalty. On
the CFAs Web site, it gave ratings of 100 to Democratic
Massachusetts Sens. John Kerry and Ted Kennedy for supporting the
interests of the organization. In the Post article, Hunter blasted
insurance companies that have written living-expense checks, saying
they were engaging in nice theater. And in fact, they owe the
money, he said. Hunter, like Scruggs, was calling on states to
pressure the companies to pay more, the Post said.
CNN Money focused on insurance rates rising as a result
of Katrina claims. Pasha wrote that flood insurance is relatively
cheap and that insurance experts say a rate hike is necessary to
keep the program functioning. Rate hikes and the controversy
between flood damage and wind damage have been leading insurance
stories. While wind damage is covered under most homeowners
policies, flood damage is not.
In a report on the September 6 Today, NBCs Janice
Lieberman painted the insurance companies in a more fair light. She
showed Allstate insurance adjustor Jerry Sampson telling a
policyholder, In any case that we can attribute damage to the wind
portion of it, were going to do that. And Matt Lauer added, It
seems, Janice, credit where credit is due. And that is that the
insurance company had people in place trying to take care of this
situation in a timely fashion.
Uncle Sam: helping or hurting?
Naturally, the subject of risk management is most
touchy in the immediate aftermath of a disaster. After Sept. 11,
2001, the Cato Institutes Doug Bandow wrote about the dilemmas of
the insurance market, saying that Congress should leave it alone.
In short, insurance will always be available, Bandow wrote.
People want subsidies to make it cheaper. But if the cost becomes
prohibitive, then it would be best to abandon the activity, not
subsidize it. He noted that allowing the market to work will force
insurers and insured to cooperate to moderate risks and that risks
dont disappear and costs dont fall when Uncle Sam gets involved.
In fact, Uncle Sam often makes things worse. James
DeLong, now a senior fellow at the free-market Progress & Freedom
Foundation, wrote about the NFIP in Reason magazine in 1999. DeLong
cited a study by the left-wing environmentalist National Wildlife
Federation that found 40 percent of the programs payouts between
1978 and 1995 went to 2 percent of the insured homes. The continual
payouts to these repetitive loss properties, which were rebuilt
only to be hit again, underscored the inefficiencies in the program,
DeLong said.
It takes on risks that no sane insurer would accept,
which encourages development in flood plains, DeLong wrote. This,
in turn, increases both the political pressure for more government
expenditures on flood control and the monetary losses that occur
when the inevitable 100-year or 500-year floods overwhelm those
defenses. Christy Black of the National Center for Policy Analysis
published a similar report on September 7, detailing government
spending on several flood-control attempts. (http://www.ncpa.org/pub/ba/ba525/)
Resources:
The Poynter Institute
Subsidizing Disaster
Insurance Information
Institute
Institute for
Business and Home Safety
