CNN Starts Weeklong Katrina Series with Attack on Insurance Companies

     With a tropical storm threatening Florida and the one-year anniversary of Katrina approaching, CNN’s August 28 “American Morning” kicked off a weeklong look at “Red Tape and Rubble” in the Gulf Coast. But Ali Velshi’s first report in the series was unbalanced, treating insurance companies as guilty until proven innocent of greed or fraud.


     “We’re going to be there when you need us,” anchor Soledad O’Brien said is the promise insurance companies extend out to policy holders, “But many Katrina victims think uh, uh, that’s not true,” she complained.


      O’Brien set the stage for Velshi’s unbalanced report by painting insurance companies as “trying to get off easy” as compared to customers who probably “didn’t understand their policies.”


     Velshi did show an insurance industry spokesman to point out that private homeowners insurance plans have never covered flood damage from any cause, including hurricanes. Dissatisfied with the argument that homeowners have a personal responsibility to obtain separate flood insurance, Velshi turned to Mississippi trial attorney Richard “Dickie” Scruggs, who attacked the industry for making a profit.


     Altogether, the five companies Scruggs is suing on behalf of hurricane victims “reported profits of more than $12 billion last year,” Velshi complained, adding that 2005 was “the insurance industry’s most profitable year ever” even after “record policy payouts.”


     But rather than finding someone who would argue the insurance industry’s health amidst “record payouts” is good news for the economy and for the vast numbers of insurance claims paid out to hurricane victims, Velshi ended his story complaining that “it wasn’t a profitable year for Cecil Tillman,” a man suing his insurance provider, Nationwide (NYSE: NFS).


    What’s more, Velshi’s focus on “record profits” is misleading, according to an industry spokeswoman who talked to the Business & Media Institute recently.


     The American Insurance Association’s Julie Rochman pointed out that insurance company profits stemmed not from homeowners insurance but from other types of insurance such auto and fire coverage. What’s more, companies cannot pay out claims to hurricane victims from unrelated insurance pools.


     “Two of the last 28 years we’ve actually made money,” Rochman said, referring to underwriting income – meaning the industry takes in more in premiums than it pays out in claims. In fact, she added, “Last year in Mississippi and Louisiana, the insurance industry paid out the equivalent of about 20 years’ worth of profits for those states.”


     CNN wasn’t alone in presenting a biased portrait of hurricane insurance claims. Last week BMI documented similarly unbalanced coverage by NBC’s “Nightly News.”