Insurance Transparency Project

I-Fans,

Nice to be back among you as we start a new year of insurance work. I’m counting years by the Jewish/Katrina calendars, which both begin around the same time.

I pass along a rather lengthy bit I wrote for the Columbia Journalism Review about insurance reporting in the business press. It contains a down payment of praise for Becky Mowbray and Anita Lee, as well as a review of some substandard Katrina reporting by Forbes and the WSJ and some high-level work by The New York Times and Bloomberg Markets Magazine.

That’s here

I was largely correct about the business press, too, I’m afraid. Somehow, national outlets devoted to business news, The Wall Street Journal, Forbes, Fortune, Business Week, and the Financial Times barely notice that 2005—year of the worst-ever insured loss in the history of the world—was also the most profitable insurance year ever, by a long shot. No one asked how that could be so.

No one asked, moreoever, how it could be that, according to State Farm Insurance, Allstate Insurance Co. and Nationwide Financial Services Inc., Hurricane Katrina caused no wind damage—none at all—in thousands of cases. Commonsense alone calls that assertion into question.

Worse, though, Forbes and The Wall Street Journal’s editorial page both mischaracterized the nature of the dispute between insurers and Katrina policyholders. Both frame the problem as one in which policyholders are seeking to force insurers to pay for flood damage, which private insurance does not cover. The dispute, according to these outlets, is a natural consequence of insurers’ unavoidable (albeit regrettable) decision to protect their solvency by denying illegitimate claims and to prudently (again regrettably) leave unprofitable coastal markets.

As Forbes writes:

After Katrina, Allstate and other insurers refused to pay for flood damages. Why should they? The policies excluded floods. Many homeowners didn’t buy coverage available from the federal government.Unsurprisingly, the exit from unprofitable markets prompted a lot of anger. People must now scramble for coverage from smaller carriers at much higher rates, if they can get coverage at all. The Mississippi attorney general and irate flood victims have sued Allstate and its peers in a bid to force payments for the water damage.(1)

Audit Readers, this represenation of reality, while hewing closely to a talking point of the Insurance Information Institute, is flatly false. That this mischaracterization has gained saliency among the public is worth billions to insurers. Among its other faults, it falsely portrays policyholders as either too stupid to know what their policies say or too desperate to care.

As even a half-hearted attempt at reporting would have discovered, plaintiffs in the Gulf overwhelmingly are suing for noncoverage of wind damage. Wind. Not water. Hurricane winds are explictly covered in homeowners’ policies, and that’s the basis of the complaints in most all of the key early cases, including Broussard, Guice, Shows, and Weiss. Most were filed at the time of the November 2006 Forbes piece and covered extensively—available online, for free—by the New Orleans Times-Picayune and the Biloxi Sun-Herald.

I look forward to being in touch and reading all my back-email from Ida.