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last updated on March 30, 2007

ISSUES ARISING FROM DISPUTED CLAIMS FOLLOWING KATRINA

THE ISSUE IS. Since Hurricane Katrina, a small number of homeowners have disputed their coverages. In response, some policymakers have called for investigations and changes to current industry practices.

IT'S IMPORTANT BECAUSE. 2005 was one of the worst years for natural disasters in American history. According to the latest estimates from the Insurance Information Institute, Hurricane Katrina caused approximately $40.6 billion in insured losses arising from 1.7 million claims. A year later, roughly 95 percent of homeowner's claims and 99 percent of auto insurance claims have been settled. As a result, while residential building permits declined by 4 percent nationwide, the two states hit hardest by Katrina-Louisiana and Mississippi-saw building permits increase by 4 percent and 32 percent, respectively.

Despite the insurance industry's best efforts, a small number of homeowners have yet to settle their claims. While some are still negotiating, or in mediation with their insurance carriers, others are pursuing legal action. Despite the fact that almost all homeowners' policies specifically exclude damage caused by floods, some homeowners argue that they were unaware of this exemption, were told not to buy flood insurance, or that their damage was due to wind rather than flood.

While the number of outstanding policyholders claims is minimal, their voices are loud and their cause has been picked up by several policymakers. In response, several members of Congress have proposed hearings or investigations and plan to introduce legislation that would address some of the complaints. Last year, Sen. Trent Lott, R-Miss. and Rep. Gene Taylor, D-Miss., were successful in enacting legislation that called for the inspector general to investigate the claims practices of insurance companies, following Hurricane Katrina.

In the 110th Congress, several lawmakers have already called for hearings on this issue. The Chairman of the House Financial Services Committee, Barney Frank, D-Mass., announced that his committee will look into "the failure in the insurance industry" as related to Katrina claims. Representative Bennie Thompson, D-Miss., Chairman of the House Homeland Security Committee will be, "investigating the assertions that insurance companies are wrongfully passing the costs of Katrina onto an already-burdened federal flood insurance program."

Finally, some members led by Sen. Lott and Rep. Taylor have called for reforms or full repeal of the McCarran-Ferguson Act. In the last Congress, the Chairmen of the House and Senate Judiciary Committees, Reps. John Conyers, D-Mich., and Patrick Leahy, D-Vt., sponsored legislation to modify or repeal McCarran-Ferguson. Rep. John Dingell, D-Mich., who chair's the Energy and Commerce Committee, previously sponsored legislation to limit or repeal McCarran-Ferguson and is a vocal critic of the industry.

NAMIC POSITION. While NAMIC is sympathetic to the plight of those homeowners who were affected by the storms of 2005, we believe that the current regulatory and judicial systems are sufficient and should be allowed the proper time to remedy the few outstanding claims. Therefore, NAMIC believes that any investigations or legislation would be pre-mature.