It’s been almost two years since Hurricane Katrina decimated the Gulf Coast and many wards in the great city of New Orleans continue to resemble the back lot of a WWII movie. The insurance industry, which many beleaguered residents trusted to help them rebuild, has instead abandoned them without hope. By blaming the destruction on floodwaters, uncovered under homeowner policies, rather than the winds and the rain, the insurance giants have deserted faithful premium payers and are now laughing all the way to the bank.  

This tragedy has focused national attention on a business that enjoys a perquisite available to very few others – immunity from antitrust laws. The bullying of Gulf Coast residents has angered the nation and it appears the U.S. Congress might finally be ready to address this special privilege afforded to an industry that doesn’t deserve it.   

The rationale behind Congress providing the insurance industry with such a powerful favor is something of a mystery to begin with. Beginning in 1868 and extending until 1944, insurance regulation was solely within the province of the individual states. That changed when the U.S. Supreme Court ruled, in United States v. South-Eastern Underwriters Association, that the business of insurance was involved in interstate commerce, hence shifting oversight responsibilities to the federal government.

Lawmakers reacted in knee-jerk fashion by adopting the McCarran-Ferguson Act, effectively exempting the insurance industry from most antitrust laws. While the solution was intended to be temporary, affording Congress an opportunity to sift through the implications of the court’s determination, it has now lasted more than 60 years.

The result has been arbitrarily high insurance premiums and a stubborn unwillingness on behalf of the companies to provide policy holders with the sort of assistance they often desperately need. This particular tragedy played out on the national stage in the aftermath of Hurricane Katrina. But it often has proved true in the handling of other, less publicized, disasters.

Under the present system, giant insurance companies, like Allstate and State Farm, can legally collude to fix prices, a chilling practice that serves as the very definition of anti-competitive conduct. McCarran-Ferguson also opens the door to agreements that assure policy holders don’t receive appropriate compensation in the wake of instances like Hurricane Katrina. And they can even divvy up areas, with one company agreeing to avoid areas monopolized by an alleged competitor.

If competition breeds lower consumer prices, as the marketplace generally holds, it stands to reason that a non-competitive environment, fueled by a lax regulatory regimen, results in higher costs to the public. It also, not surprisingly, stuffs more dollars into the pockets of the insurance industry. A.M. Best, a ratings agency, estimates that the property-casualty industry earned a record $68 billion in 2006. That’s an increase of $19 billion over 2005. This year, profits could total $62.2 billion if the storm season is relatively mild.

Even worse, it means the insurance industry can easily snub policy holders, leaving them with little leverage in attempting to collect due compensation on their policies. Gulf Coast residents, too many of whom lost practically everything they had during the 2005 hurricane season, turned to the insurance industry for relief, seeking recompense for the premiums they invested in, some for decades. The companies, as has now been thoroughly documented, turned their backs on policy holders.

Adding insult to injury, Allstate and State Farm recently announced that they are abandoning the Gulf Coast. This cruel move means potential residents, looking to plant new roots in the region, will find it difficult to get insurance to protect their property. At best, the price will prove exorbitant.

Exasperated Gulf Coast residents have, as a last resort, taken legal claims to court in a desperate effort to collect the compensation they richly deserve after years, sometimes decades, of pouring money into the insurance industry’s coffers. The courts remain the best place to hold these companies accountable.

Legislation has been introduced in both the House and Senate to deprive the insurance industry of this unwarranted favor. The repeal of McCarran-Ferguson is being pushed by lawmakers, like Sen. Trent Lott, R-Miss., and Sen. Mary Landreau, D-La., who suffered first hand from the storm and witnessed the tragedy that befell neighbors and friends. Hopefully the legislation stands a better chance of making it through Congress than a New Orleans homeowner’s claim has a chance of making it past the insurance company.