Insurance Fraud On Capital Hill

Group: Insurance Profits Show Federal Terrorism Backstop Unnecessary

The insurance industry is lobbying for a federally funded backstop to insulate the various insurance companies from any losses based on the threat of terrorism and the losses (or should I say supposed losses) experienced from covering the victims of Katrina, Rita and other hurricanes.

While it is true that some significant profits were lost due to covering the damages caused by Katrina and Rita, it is also true that the insurance industry, on the whole, has fought paying off claims every inch of the way. It is also true that the insurance industry--a necessary evil in the view of most working people--has a reputation for misrepresenting itself through its sales efforts. If I counted the number of times I was told a "horror story" regarding insurance sales agents and/or brokers, and received a buck for each of them, I would have a steady income for at least a decade.

But, without the least bit of shame, the insurance lobbyists are parading through "Gucci Gulch" up on Capital Hill, decrying the losses they have suffered, all the while posting mega-profits to the tune of almost $60 BILLION in 2006 alone. Combine that with the history of profits for the last five decades and we find that the insurance industry has a lot of nerve sauntering up to the Hill pleading poor mouth. Unfortunately, the politicians on the Hill haven't a clue as to what the ethical options are, so the insurance lobby is most likely to get its way and the federally funded backstop will probably be passed as an addendum slipped into some unobtrusive sounding bill that holds a lot of other stuff that we want passed.

Along with the so-called "ethics reforms" proposed by the Dems now that they are in the majority, there needs to be some fundamental changes in how bills are proposed and amended. There needs to be rules that strictly construct the subject, scope and jurisdiction of bills, as well as stringent rules about only attaching amendments directly related to the original intent and scope of the bill. By this I mean that a bill dealing with education matters cannot be amended to include a project for roads. A bill dealing with criminal law matters cannot be amended to deal with some hidden pork.

And the so-called "earmarks" must be completely eliminated. If a pet project is desired by a particular congress critter, let them propose that bill as a single piece of legislation, expose the full parameters of the cost and the full scope of the project, allow full debate on the issues (with or without limits on the debate) and then let the earmark bill be voted on its merits. No one with a realistic sense of government wants to prevent a congressman from bringing home federally funded projects that benefit people in their districts... but we all want to make sure that our tax dollars are being spent wisely for projects that will benefit people in a general welfare approach (in keeping with the Preamble of the constitution) rather than a solicitation of corporate greed and influence peddling.

As of late I have been reading a book entitled "The American House of Saud" which discusses the extent of influence peddling that the Saudis have been doing in our nation by way of influencing the bottom line of major corporations like Bechtel, Halliburton, Foxboro Company, Aramco, and the various oil companies. It seems to me that my skepticism toward corporate America--which I thought was pretty damn strong--is vastly underestimated. This story on the insurance companies going to Capital Hill crying about losing a few measly millions while posting mega-billions in profit illustrates the sureptitious approach of Corporate America, as well as the extent of greed present in our business people and congress critters. And neither group seems to mind the negative attention unless they get caught red-handed screwing up enough to go to jail.

The Consumer Federation of America issued a study Monday showing that property-and-casualty insurers realized a record profit of almost $60 billion in 2006; the consumer group urged lawmakers to resist industry calls for a federal backstop for terrorism risk insurance and natural disasters.

The CFA said that within the last within the last 10 years the industry has suffered losses only in 2001, which was a result of the Sept. 11 terrorist attacks. Robert Hunter, director of insurance for the group, argued that payouts for claims continue to drop and that the industry is overcapitalized, forcing some insurers to engage in stock buybacks.

"Profits and a solid insurance industry are a good thing, but unjustified profits and excessive capitalization harm consumers," Hunter said. "Unfortunately, a major reason why insurers have reported record high profits and low losses in recent years is that they have been methodically overcharging consumers, cutting back on coverage, underpaying claims, and getting taxpayers to pick up some of the tab for higher risks."

The issue of insurance company profits will be a focal point as Congress gears up to tackle reauthorization of the federal government's terrorism risk-insurance programs. The industry already faces skepticism in Congress, as Senate Minority Whip Trent Lott, R-Miss., and Rep. Gene Taylor, D-Miss., have sued State Farm, alleging that the company denied their own wind damage claims from Hurricane Katrina -- which the companies would have to cover -- and instead registered them as water-damage claims to be covered under the National Flood Insurance Program.

CFA supports only a limited extension of terrorism risk insurance, for only nuclear, chemical and biological attacks.

"This law is getting in the way for building private capacity for terrorism coverage," said Travis Plunkett, legislative director for the group. It also opposes a proposal by Allstate and State Farm to create a federal reinsurance fund for natural disasters in the wake of the 2005 hurricane season, which resulted in $80 billion in insurance losses.

The Insurance Information Institute, an industry-supported group, said that 93 percent of insurers' profits from 2006 would be set aside in reserves to pay for future claims.

Marc Racicot, president of the American Insurance Association, noted that home and auto insurance rates are falling across the country, but not for coastal property insurance, another major concern to lawmakers. "This makes sense, given that insurance rates are set according to the risk of loss in each state," Racicot said.