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Mississippi poses PR challenge for State Farm and industry

It’s the latest version of the Hatfields versus the McCoys but with billions of dollars and an insurer’s, if not an industry’s, reputation at stake.

The State Farm Insurance Co.’s communications staff is compelled to retort as Mississippi Attorney General Jim Hood and the plaintiffs’ Scruggs Katrina Group fire volley after volley in the effort to garner settlements nearly two years after Hurricane Katrina.

Last year, Hood, in his over-the-top style, sharply criticized five large national insurers’ including State Farm for their denial of Hurricane Katrina claims in his state, charging they were “in lockstep like Nazis locking arms, coming at those people down there on the coast.”

Those comments were labeled “hysterical and irresponsible” in a quick response from the industry.

In other situations, State Farm has faced the barrage on its own.

Earlier this year, the insurer stopped writing new policies in Mississippi, never a popular move. The insurer said it was concerned that its insurance policies were being reinterpreted after the fact to provide coverage not contemplated when the policies were written.

In response, AG Hood again blasted State Farm with language sure to garner headlines. “We’re looking a robber baron in the face,” Hood said. “State Farm is not a responsible corporate citizen.”

Hood argued that the company oversold itself on the coast and was unable to pay claims based on the rates it charged. In one of his catchiest phrases, Hood described the situation of dealing with State Farm as “being in a death roll with an alligator.”

Hood’s attack prompted a State Farm spokesman to respond, “We never intended to pick a fight.”

The Scruggs Katrina Group, headed by Attorney Richard “Dickie” Scruggs, has not been kind to the insurer either; its most recent lawsuit alleged racketeering by the insurer and some of its adjusters. It charged them with, among other things, concealing information that would work in the policyholder’s favor and destroying or falsifying reports.

State Farm called this latest Scruggs volley “a regurgitation of every wild charge he (Dickie Scruggs) and his firms have made to date. This is Scruggs using one of the oldest tricks in the book: if attacked, deflect,” Jonathan Freed, State Farm spokesman, said.

In this case, the U.S. Chamber of Commerce offered some help. According to Lisa A. Rickard, president of the U.S. Chamber Institute for Legal Reform, this latest lawsuit by the Mississippi attorney general has little to do with compensating homeowners for their Katrina losses, and more to do with plaintiffs’ lawyers getting their cut of the money.

In March, Miss. Insurance Commissioner George Dale announced an agreement with State Farm requiring the company to reopen all “slab” cases — effectively mirroring the defunct court agreement that the Scruggs Group previously backed away from. At the time, Scruggs accused Dale of an election year ploy.

Rickard said the arrangement Dale brokered with State Farm after Scruggs withdrew the settlement offer cut out Hood’s trial lawyer friends from the deal.

“… With this newest lawsuit, the bottom line is not whether the people of Mississippi will get fair compensation on their losses, it is whether or not the state attorney general can subvert a fair process in order to give trial lawyers a cut — ultimately at the expense of Mississippi homeowners,” Rickard charged.

Perhaps State Farm’s most critical public relations challenge has come in delaying until relatively recently what it finds itself doing now — reopening Mississippi claims that it once deemed non-payable, citing storm surge versus wind damage. In January, State Farm agreed to pay about $80 million to end lawsuits filed by 640 policyholders and to pay an additional $50 million minimum to reconsider claims of up to 35,000 additional policyholders.

State Farm confirmed that 35,000 letters have been mailed and that the insurer has offered or paid more than $17 million to date.

Release du jour

The public exchanges remind one insurance public relations and marketing expert of a presidential campaign, with a “new release du jour issued by alternate sides with all sorts of snappy sound bites.”

“It actually would be rather entertaining if it weren’t for all the suffering on the part of Katrina victims,” says Peter van Aartrijk. CEO and managing director of the van Aartrijk Group LLC. “I’m afraid there are many people who are buying the argument that State Farm is intentionally screwing over its policyholders. That just doesn’t make sense.”

State Farm faces the difficulty of sparring with an elected official. “If you’re a politician, what better industry to pick on than insurance? How far did that get Eliot Spitzer? So far, all the way to governor,” van Aartrijk said. “It begs all the questions: Who loves paying for insurance? Who loves the insurance industry?”

While the State Farm case has evolved into a “he said/she said” scenario, van Aartrijk argues that the entire industry must be involved to do everything it can to encourage debate about how to mitigate the exposure homes and businesses face on the country’s coasts.

“The more the industry is on the record in pointing out exposure, rather than simply silently hiding from it by actuaries, underwriters and lawyers making proclamations such as, ‘We’re managing our catastrophe exposure,’ the more consumers will cut it slack in a disaster,” van Aartrijk said.

The industry imaging veteran thinks the public will eventually be on the industry’s side. “Ultimately the coastal exposure will be a growing taxpayer issue and insurance consumer issue in all parts of the country. The spread-of-risk doctrine that is fundamental to insurance is going to continue to be challenged big time,” he adds.

When it comes to effective public relations, van Aartrijk advises companies to be proactive and fight for what’s right for policyholders.

“The truth is always easier. For too long in our industry we have let lawyers do all the talking. Hopefully those days are over,” van Aartrijk said. “I don’t think tomorrow’s consumer will allow our industry to be beaten up like it has in the last 25 years. In my mind, the ‘insurance industry is evil’ message doesn’t add to the debate, it isn’t fair, and it doesn’t make good public policy sense for anyone. Insurance is too important a product. Deep down, consumers understand that. I believe tomorrow’s consumers will come to respect the private insurance industry more.”