It's Time for Insurance to Pay Up.

By former Insurance Commissioner Jim Brown

It has been over three months since Katrina devastated much of the Gulf Coast, yet many insurance companies are still refusing to honor the agreement they made with thousands of homeowners to pay for much of the damage.

Now these insurance companies that are denying payment will tell you that the policies they sold excluded specific types of water damage, pointing out that most insurance policies have a phrase for exclusion that is called "rising water." But can any reasonable person conclude that the billions of dollars of property damages caused by Katrina was nothing more than rising water?

In recent weeks, there has been ample evidence by a cross section of experts that levees built to protect much of the greater New Orleans area were poorly designed and not built to specifications by an under-funded U.S. Army Corps of Engineers. There is no Act of God involved when a flood control system is improperly designed and built. Throw into the mix an ineffectual patchwork of levee boards and other agencies overseeing the flood control system, and you have a recipe for disaster.

The insurance industry will argue that if they have to pay thousands of water-related claims, they will be financially devastated and forced into bankruptcy. Even some state insurance regulators are harping this tune. But the financial facts don't bear out such baseless concerns.

At most, the Katrina-related damage along the Gulf Coast is projected to peak at approximately $32 billion. Reserves held back to pay claims for such disasters by these companies operating in Louisiana and along the Gulf Coast total some $450 billion. Of course, paying these claims will affect a number of insurance companies' bottom lines. But isn't that just the cost of doing business?

Most insurance companies operating along the Gulf Coast protected themselves by buying re-insurance from major re-insurers located primarily in Europe. So the protests from insurance companies ring hollow.

There is also a major move in Congress to authorize a program similar to that implemented following the 9-11 attack in New York. The federal government stepped in to protect the insurance industry and implemented a program to cover insurance losses for this terrorist attack. Discussions are taking place now to set a ceiling limiting the exposure of insurance companies from the damage of Katrina, letting the federal government step in to be the re- insurer of last resort.

We need to realize that the amount at stake here is enormous. If the insurance industry is not required to pay the amounts set out in individual policies, some $11 billion will be lost to homeowners in the greater New Orleans area alone. This means that thousands of citizens will not be able to rebuild their homes, and could well be financially devastated for years to come.

It's time for state and local officials to join in this effort, and take a much stronger stand in support of these thousands of homeowners who risk their whole financial future. In Mississippi, state officials have been much more pro-active than similar officials in Louisiana. Statewide officials from the governor on down in our neighboring state, as well as members of the Mississippi Congressional delegation, have actively spoken out calling for the insurance industry to meet the obligations of their contracts.

These homeowners are not looking for a hand-out or any special consideration. They just want to receive what they paid for. And at a time like this, they certainly need to collect what they are owed without further delay.

Jim Brown was Louisiana's Secretary of State and chief elections officer from 1980 to 1988. He can be reached through his Web site at www.jimbrownla.com.