WASHINGTON, D.C. - The State of Mississippi continued its battle against the insurance industry Wednesday, with Attorney General Jim Hood and Rep. Gene Taylor testifying before a House Committee on Financial Services subcommittee.
Both called for the insurance industry's antitrust exemption to be revoked because they feel the industry has conspired to not pay homeowners claims from Hurricane Katrina.
"I'm here to tell you that three storms occurred as a result of Hurricane Katrina," Hood said. "One was Katrina itself, the other was the failure of the insurance industry to pay what it owed and now we're facing an increasing escalation in costs as we try to rebuild."
Robert Hartwig, the president and chief economist at the Insurance Information Industry, testified that increasing costs are natural, given the dangerous locations of the policies.
He said the hurricane seasons of 2004-05 wiped out every dime of profit ever earned in the states of Louisiana and Mississippi, and that overall homeowners insurance has been a "losing proposition" over the past 25 years.
"The rates in each state must reflect experiences in that state and that state only," he said.
"Hurricane Katrina was the largest, most expensive disaster in this history of insurance," Hartwig said, adding that in 2005 $57 billion in claims was paid out. "Insurers are justifiably proud of their performance."
He said that the 04-05 hurricane seasons showed that "living along the hurricane-exposed coastline of the United States is an increasingly risky proposition.
"Only a financially strong insurance industry can deliver the relief necessary to help a community recover from catastrophic events."
State Farm Insurance Co. recently announced that it will stop accepting new homeowners and commercial policies in the Mississippi because of an "untenable" legal and political climate. State Farm is the main target in Hood's Hurricane Katrina-related class action lawsuit filed against it and four other insurers that claimed they weren't responsible for flood or storm surge damage, only wind damage. The case was filed just weeks after the hurricane, and the attorneys general of the other affected states have not filed similar suits.
Hood said he believes State Farm's decision to withdraw partially from the market was intended to intimidate U.S. District Judge L.T. Senter, who is handling Hood's case.
Recently, Hood and State Farm reached a settlement that would provide an estimated $500 million to policyholders who claimed damages incurred during Katrina were covered by State Farm. Part of the settlement was rejected by Senter, who worried that State Farm had too much control of the arbitration process in which policyholders and State Farm would participate if the policyholder rejected State Farm's initial offering, an automatic 50 percent of the structure's value according to the policy.
The proposed settlement separated policyholders into two groups -- those who have already filed suit against State Farm, and those who haven't but will.
Senter's rejection of the settlement did not stop 640 of those who had already attached their names to the suit from being given their money by State Farm. Checks have already been sent to several.
But the second group, estimated at 35,000 policyholders who will make claims, was more problematic to Senter. He did not feel it could be certified as a class because policyholders' homes were affected in different ways by the hurricane.
A meeting between the sides took place Wednesday. Hood has said that reopening a criminal investigation against the company will be a possibility if a settlement is not reached, and he is introducing legislation designed to prevent State Farm from scaling back its business in Mississippi even though he compared the company to a "cult" and called its business practices "decadent" at a recent press conference.