Industry Fights Back Against Charges of Bad Faith

By Jeffrey Brewer | March 10, 2008

The University of Michigan’s Ross School of Business’ latest American Customer Satisfaction Index (ACSI) shows that property and casualty insurers continue to rank above average in customer service compared to other industries. The property casualty insurance industry improved this year by 2.6 percent to achieve a score of 80 on the 100-point scale. This is the industry’s highest ranking in more than a decade. In comparison, the ACSI overall score for all sectors dropped to 74.9. Other regulated industries such as health insurance scored 71, banking 78, energy utilities 73 and airlines 63, according to the ACSI rankings this year.

The competitive nature of the insurance industry places strong pressure on insurers to deliver good customer service not only during the sale of the policy, but especially when a claim must be paid.

Events Provide Rests

Recent events such as hurricanes Katrina, Rita and Wilma, as well as last year’s Southern California wildfires provide dramatic examples of extreme tests for the insurance industry’s claims settlement practices. While the insurance industry can be very proud of its handling of claims following these events, some in the trial bar and the news media saw this as an opportunity for exploitation. Some lawyers and reporters have used these catastrophic events as fodder for painting insurers as not treating customers in good faith.

Insurers clearly understand the critical role they play in the rebuilding process, particularly following a major disaster and are willing to pay all they owe under their contracts. Nevertheless some in the trial bar have waged very public battles in an attempt to force insurers to cover losses they are not obligated to pay under the contract. However, insurers can not — should not — be forced to retroactively cover risks like flood that are normally excluded and have been for decades. By and large the courts have agreed and insurers have won nearly all of the major cases arising out of the storms. Although the industry has won the legal battles its image has suffered and the trial bar continues to try and exploit these circumstances.

Some news stories during the last year on CNN, CNBC, PBS and Bloomberg have at times presented a very biased picture of the industry. Most recently CNBC aired a segment on its news magazine Business Nation called “Cashing in on Catastrophe” that was designed to give the appearance that all insurance companies were greedy profiteers willing to cheat their customers by not living up to promises made in their contracts. These types of reports help to create an environment that supports the agenda of these attorneys.

Fairer Media Coverage

The insurance industry has a good track record of service and satisfaction and there are strong unfair claims handling laws and regulations that are currently on the books. But the insurance industry is under attack because the trial bar seeks to expand its ability to bring lawsuits when there are disputed insurance claims. Year after year, the insurance industry is in the crosshairs as they pursue a legislative agenda that would have the effect of discouraging insurers from protecting their policyholders’ interests. The trial bar would like nothing better than to create a legal environment where virtually every insurance claim has the potential to become a bad faith lawsuit. The agenda, which features bad faith legislation, would make it very difficult for insurers to even investigate suspect claims or effectively fight against fraud. This agenda has the potential to increase both fraud and the number of frivolous lawsuits. It could also lead to higher costs for all consumers and businesses.

However the industry has been successful in fighting back against the trial bar’s bad faith agenda. Both state and national insurance trade groups diligently work to get out ahead of the news cycle and work with reporters on a daily basis to achieve more balanced coverage.

Grassroots Effort

Additionally, the insurance industry is successful in fighting back when it forms coalitions with the business community and consumers to beat back negative legislation. Last year’s legislative battles and public affairs effort in Minnesota is an excellent example of a successful effort. However, the trial bar is back and has made Minnesota a priority state once again.

One of the best ways for insurers to stop negative legislation is to be active in the political process by communicating with elected officials on these issues that matter. An easy way to become active is to visit www.InsurersForAction.org. Through this site you can be alerted to key issues that affect the industry. It also provides you with the tools you’ll need to effectively communicate with lawmakers and encourage them to protect consumers from fraud, lawsuit abuse and higher insurance costs.

Topics Carriers Legislation Abuse Molestation Market

About Jeffrey Brewer

Jeffrey Brewer is vice president of the American Property Casualty Insurance Association, which represents home, auto, and business insurers.

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Insurance Journal West March 10, 2008
March 10, 2008
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