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Why Is Everybody Beating Up on the Insurance Industry?

It seems like all of a sudden, everybody is beating up on the insurance industry. Consider: There are bills to repeal the industry's limited...
April 6, 2007

PIA National Senior Vice President of Communications Ted BesesparisBy Ted Besesparis
Vice President, Communications
PIA National

It seems like all of a sudden, everybody is beating up on the insurance industry. Consider:

There are bills to repeal the industry's limited antitrust exemption under McCarran-Ferguson. Lawmakers are calling for the industry to be regulated by the Federal Trade Commission, or by a newly-created federal insurance regulator and new federal regulatory bureaucracy.

Congressional hearings are being held whose main purpose seems to be to give industry critics platforms from which to hurl accusations and just vent.

Some state Attorneys General are attempting to appropriate legislative and regulatory powers for themselves to which they are not entitled, so they can use those powers to punish independent agents for things they did not do, which in turn gives a competitive advantage to the very firms that signed agreements to settle investigations into allegations of wrongdoing in the first place.

Florida has decided to expand its role of reinsurer as a means of lowering property insurance rates, rolling the dice that there won't be many hurricanes before its reserve fund builds up enough reserves. So who do they hire as their actuary? Insurance industry critic and gadfly J. Robert Hunter.

Has the world gone mad?  What is going on here?

First, there is a major effort underway to change insurance regulation, backed by the "big boys" - major players that stand to benefit from shifting regulatory authority away from the states toward the federal government. These include big banks and large securities firms, along with a handful of major insurance carriers.

Second, politicians are always in the market for people or businesses that can be used as scapegoats. Voters who are upset often look to fix blame. Elected officials, not wanting to be blamed themselves, will look for someone who can be tagged with the blame.

The American Ethic - Doing More

After Hurricane Katrina, some in the insurance industry failed to realize that Katrina was viewed by the public as a national tragedy on the order of the terrorist attacks of 9/11, not merely as another bad hurricane. When national tragedies occur, the American ethic says that you are supposed to do more than you are required to do, not less. The brave firemen who entered the Twin Towers on 9/11 knowing that they might die trying to save others represent the kind of selflessness we expect of ourselves as Americans.

After 9/11, the insurance industry took great pride in paying claims and not niggling about them. The approach was, "Just pay it!" Then, Hurricane Katrina hit and there was a disconnect. The public regarded Katrina as a tragedy like 9/11 and expected a similar response. But the government and some in the insurance industry failed to respond to Katrina in the same way. While the federal government failed utterly, some in the insurance industry went back to niggling on claims, aggressively embracing the concept of "wind vs. flood."

The fact that one year following Hurricane Katrina, according to the Insurance Information Institute, most claims in Louisiana and Mississippi had been settled was overshadowed by the publicity given to the relatively few claims in dispute. Bad news always trumps good news. To be sure, this bad publicity was whipped up by trial lawyers who had a vested interest in litigation they were pursuing, but it nevertheless had the intended effect of tarnishing the industry and putting it on the defensive.

There are times when it makes good business sense to pay more than you are required to under the letter of a contract, when the spirit of a contract should govern. This was one of those times.

An insurance policy by nature is a series of "technicalities." Some perils are covered while some are specifically excluded. But in the face of human suffering, it is sometimes difficult for the public to appreciate that insurance is a contract that, by design, excludes certain risks. The public may have a vague understanding of this, but at some level of catastrophe, people will stop accepting it. If a catastrophe is bad enough, or widespread enough, or horrific enough, people will stop seeing insurance as a contract and start viewing it more as a public safety net.

A Matter of Faith

Insurance is often marketed in a way that broadly encourages customers to place their faith and trust in a company and an entire industry. This kind of overstated message encourages people to develop an inaccurate view of what insurance is and what it does. It promises too much. It sows the seeds of misunderstanding. It causes self-inflicted damage to the image of the industry.

Some people see the insurance industry as a target of opportunity to be attacked, while others view it as a cash cow to be milked.  But very few see it for what it really is, the engine that keeps our free enterprise system on track and moving steadily forward.

The insurance industry is the backbone of the American economy. The good people in this industry, especially Main Street agents, care about their neighbors, their communities and their country. Professional insurance agents help people protect their dreams. That's the good news that will give the insurance industry a better image. But in order for this good news to get out, we need to be sure that we are not inadvertently assisting others in their efforts to give the industry a black eye.

Ted Besesparis tedbe@pianet.org is vice president of communications for PIA National.

PIA Connection

This article originally appeared in the March 2007 PIA Connection.

 

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