Another Casualty of our Dysfunctional Insurance Market….

The 147 employees of Future Pipe Industries learned today the company will close its Gulfport location by the end of the year.

In a state that is hurting for jobs and tax revenue what reason do you think they cited to the Sun Herald for closing down their Gulfport plant, their first in the US and one of 11 worldwide?

Michael Olivier, regional president of FPI operations in the Americas, said Hurricane Katrina and its aftermath made building a workforce in Gulfport challenging.

147 good paying blue collar jobs vanishing with the wind because blue collar people can’t afford to live on the coast. Insurance of course is the main increased cost driver pricing people¬†off the coast.

I’ve been labeled anti-business for calling out those responsible for this mess. I wonder if Commissioner Chaney, Lt Gov Phil Bryant anfd the rest of the gang in Jackson¬†will be jumping in to take credit for this too?

Score this one Insurance Industry 147, MIssissippi Gulf Coast 0

sop

24 thoughts on “Another Casualty of our Dysfunctional Insurance Market….”

  1. sop, is insurance the ONLY increased cost on your coast? If so, than yep, you’re probably right. IF NOT, then I would venture you are putting your ‘slant’ on this story to your own end. Workforce issues and the ability to deliver products in a timely fashion were the specific reasons they stated they were closing the plant. IF it was insurance, don’t you think they could come out and say insurance? Why not use the “perfect excuse” everybody else likes to use? Every bad thing that happens down there is not JUST because of insurance. Be a little more open minded. If you can.

  2. Proximo, although I’m sure Sop will respond, I want to pick up and speak to the “workforce issue”.

    On the pre-Katrina coast, the primary home of a blue collar worker sat next to the vacation home of someone with their primary residence elsewhere.

    You see the insurance impact in a reduction of the accessible workforce a plant would need to maintain production.

    On my recent trip, Sop, too a shortcut back to the country and we passed an area where people had moved when they couldn’t afford to rebuild. A 30-mile commute – 60 round-trip – takes a chunk out of an hourly wage with the current cost of gasoline.

    Even when insurance isn’t the named cause, it’s showing up as a factor in every aspect of coastal living I can think of.

  3. Insurance is what pushed people to the brink. It is the increased price of gas and groceries that pushed them over the edge which is why the repo market here is so hot.

    The problems with labor shortages pre-date $4/gallon gas and increased costs at the grocery store though, the only constant has been insurance costs which causes housing to be unaffordable. A $700/month excrow payment is a tough nut for a working man on top of the P&I Mr Proximo.

    So you end up with a peverse situation of a glut of homes on the market along with pent up demand for single and multi family housing. Large well paying employers like Northrup Grumman can’t get staff and smaller concerns throw in the towel too.

    This is how an insurance company assaults a community with a pen. If a foreign country had done this to our coastline we’d be at war.

    These days Mike Chaney seems more worried about keeping State Farm happy and trashing Jim Hood instead of the vaporizing jobs here because of the lack of insurance. God help us all because with this bunch calling the shots in Jackson things are liable to get alot worse before they get better.

    sop

  4. It is hard to understand the impact insurance has upon economic development. Insurance has no physical form such as a factory or highway. This is a problem which the former CEO of Allstate Insurance Ed Liddy used the methaphor of oxygen to describe. He would note–

  5. I realize that everything that seems negative there is viewed through the lens of insurance problems but from what I have found out, State Farm hasnt had a rate increase since the storm. Yeah, they arent writing any new business (in the whole state,) but they were the ONLY big company that wrote any business on the coast in all of 2006 and part of 2007. The rate hikes I have seen have come from another big company (the good hands folks,) and from the state’s wind pool. What caused a 200% increase by the windpool there? It surely wasnt by paying flood claims with wind dollars was it? I have also researched and found that a lot of the building costs soared down there as well. (as here.) Is that driven by insurance? You are ABSOLUTELY CORRECT that an insurance premium of over 100% (which can’t be deducted on taxes, amortized over 30 years, etc.) would put somebody over the edge. I totally agree that if my premiums went up by 100% I would raise hell. If I am looking at an area to move to that would be a consideration as well. But how much of this issue is also tied to the national mortgage crisis which I hope you dont blame insurance for as well, or do you? I hope things do improve down there but everyone from Jackson to your coast have got to look at the comprehensive issues of what the problems are and not throw everything at the feet of insurance companies. Dont give them THAT MUCH CONTROL over your lives or your perceptions. (Insurers or government)

  6. I would be interested to see if any credible economist buys into your little economic fairy tale. Feel free to cite one.

    Wise up, boys. Housing markets are dysfunctional in lots and lots of places.

    And just because insurance was inappropriately cheap before, doesn’t mean you were entitled to that forever. (Although I will agree that your sense of entitlement is quite impressive.) The insurance industry wised up. They were bound to sooner or later.

    As I have noted before, if insurance was truly overpriced, someone would sell it for less. There is no shortage of HO carriers that want to write business and add customers. They are brutally competitive with each other. You can either go all Oliver Stone on us, and believe that a cabal of carrier executives fixes prices, or you reconcile yourself to the fact that this is what a free market in action looks like.

    I’m sure this process works a lot better in Venzuela. Go check it out.

  7. Your understanding about private wind pricing is not correct Proximo and those that were partially canceled for wind didn’t get a price cut either for their wind excluded HO either.

    The Louisiana insurance commissioner actually ordered some refunds there for that if memory serves for that reason. I guess our fire risk went up dramatiucally too after Katiina huh?

    The wind pool increases were dirven by reinsurance costs. Reinsurers were the big Katrina winners though you’d never know that from all the poor mouthing they do.

    Here are some reletaed links on Future pipe:

    WLOX print story

    WLOX print story

    WLOX video report.

    sop

  8. Sop, I don’t consider my knowledge of your insurance situation there all encompassing but I do have fairly recent “intel” about what is going on with some companies there. Tell me where I am wrong about SF, Allstate or the Windpool, I will happily accept the information. Other than allstate and farmers, who got their wind cancelled and how much was the discount? You say they didnt get any reduction at all?

  9. SF went up on my HO policy (around 15% or so). Others tell me they are paying the same or more for x-wind HO as their pre strom wind included HO for the first 200K or so of coverage. It is hard to get an apples to apples on slabs since the limits and such would be different for the new house but in my case I have continuity of coeverage so I can compare. That said I am also lucky.

    The wind pool went up 30% for individuals, far more for businesses. Far more ppl were forced into it after Katrina and the sticker shock was tough. The rates have moderated since but are still very expensive.

    I’d hunt you some links but I’m under the weather. Both Nowdy and I are walking wounded today in fact. Brian Martin is a literal walking coast insurance encyclopedia. Perhaps he’ll stop in and share some specifics.

    sop

  10. Sop, thanks and sorry you and Nowdy are under the weather. SF is something I have info about because of recent events….they apparently have filed for a 50% rate hike which hasnt been approved yet. The article I’m looking at says they havent had a rate increase since 2004 so if your rates went up is it for the same amount of coverage or did your coverage go up and the price along with it? I wonder because if it went up over the amount of coverage, the sun herald is covering for them (which I DOUBT.) The windpool rates going up are another story however. Since they are a state-run entity, are they the victims of reinsurance or squandering dollars? I have heard more than one instance where they paid 100% coverage to people that lived on the beach. The same people collected 100% on their flood policies but the wind adjusters didnt care and were told to pay 100% when 100% of structure was lost. Can a house be destroyed twice? IF State Farm paid flood insurance where it wasnt due, couldnt the reverse be said for the windpool adjusters in this instance and if so, why are all of you paying for higher windpool premiums to reimburse them for making people happy? As for the rest of the companies down there, I know a bunch of farmers insureds were thrown into the windpool and that had to be a shock. Did they not get a price cut on their fire policies? I know the agent I spoke with about state farm said they have to take 70% off their homeowners policies when someone is put into the windpool. True? Can you check with your agent to find out?

  11. I found this on State Farm’s rates. The timing of the last increase coupled with my policy expiration confused my sense of timing just like it did Tammy Hardison’s rendition of The Insider.

    Wind pool commissions have been the subject of a good bit of controversy. Commissioner Chaney was successful in jawboning them down recently. Reinsurance is their major cost driver.

    The wind pool did indeed tender structural policy limits universally in the flood zone. My adjuster told me they would not pay first floor contents but would pay for the second floor. Given the circumstances that struck me as very reasonable. I was not paid a dime by wind for my contents and NFIP did not cover the total loss there.

    In hindsight, especially given the results of the litigation, the adjusting decisions made by the wind pool proved to be the correct one from a legal standpoint. IMHO this exhibits the very meaning of good faith since at it’s heart wind-water is a contractual dispute with a large amount of established case law.

    You bring up a good point about apportioning damage. Dave Maurstad at NFIP should have told the insurers to pay the flood limits quickly, then adjust the claim properly and provide a mechanism for NFIP reimbursement if flood overpaid a claim. Instead he opened up the US Treasury to private enterprise without oversight and the results were disastrous for us taxpayers.

    sop

  12. Sop, good post but I am unsure what you mean in the last paragraph. If the homeowners companies came in and determined there was say, 40% loss to the structure before the water arrived you believe a provision should have been made to pay that 40% to NFIP instead of to the insured? That is an interesting idea indeed! What about the people who did not have adequate limits? One of the lawsuits I remember had something to do with allowing people to collect double (flood and homeowners,) if they didnt collect enough to match the value of their property. (In other words, they were allowed to underinsure themselves and due to being “lucky” enough to have a total loss in a wind and water storm, collected more than they would have if they had suffered only a total loss due to fire for example.)

    If the insurers had come in and agreed to come up with some percentages of wind damage in each location (that I’m sure would have led to just as many lawsuits….) and said to the policyholder: “you collected 100% under your flood but you had 50% damage to your house before the water came so we are paying that 50% back to uncle sam and now you are made whole” don’t you think that would have gone over like a cowpaddy in a punch bowl?

  13. The calculation would get complicated quickly as you point out when the value of the struture exceeded the NFIP policy limits. Assume a $1MM value to make the math easy with max NFIP structural coverage and 35% wind damage 65% flood. The entire $250K from NFIP was tendered immediately:

    1MM x 35% = $350K wind damage.
    $350K + 250K=$600K total paid.

    Assume same facts but $100K value:

    NFIP paid immediately $100K
    Wind Damage $35K
    Insurer reimburses NFIP $35K

    There are other complicating factors such as underinsuring as you point out but I think a process could have been put in place.

    sop

  14. I agree that would have been a good way to work this out. I feel however that the lawsuits would have still come. Based on what happened thus far in the courts, people have continually sued for policy limits under their homeowners policies even though they were “made whole” by their flood policies. They WANT to double dip from what I have read in the papers.

  15. The issue of double dipping, while related, necessarily follows in litigation. Related to that concept are grant recipients that were allowed to double dip because their settlements were on a confidential basis.

    The courts have split with Fed districts on the Coast and the Western La allowing policyholders to keep all their insurance recoveries. The Eastern District is the oddball down here.

    Once the litigation ball starts rolling all bets are off.

    A better way would be a multi peril policy which would enable consumers to collect their limits if they are slabbed. Eliminating the high cost of capital needed to attract private capital for right tail cat events would make the premiums semi affordable.

    sop

  16. When the flood policy is handled by a different company than the wind policy, the adjusters are supposed to coordinate. That was hard to do after Katrina because communication was so difficult. There may have been a few people who received a windfall from the combination of the two policies, but I am sure it is a much smaller cohort than those who paid for full wind and flood coverage and only received flood money for at least a year and a half.
    You have to remember that few people had flood coverage for the full value of their homes and contents and many also did not have enough wind coverage to pay the increased costs of contruction to replace their homes. Also, wind might cover loss of use or business interruption which are not covered by NFIP.
    The average MS wind pool claims payment was $46,000 in Hancock County, $38,000 in Harrison, and $23,000 in Jackson.
    Private insurers averaged $25,000 in Hancock and Harrison and $14,000 in Jackson. Those are 2006 numbers, so do not reflect the subsequent settlements that were forced by legal action.
    NFIP average claim was $158,000 in Harrison, $133,000 in Hancock, and $129,000 in Jackson. That is policy limits for almost every flood policy in force in Hancock and Harrison. In Jackson County, some flood policies up the Pascagoula River and its tributaries did not receive payments to the policy limits.

  17. The MS wind pool premium increases are all due to reinsurance costs. The wind pool is paying $65 million in premiums for $470 million reinsurance coverage of the first $570 million of wind pool losses. The wind pool covers the other $100 million with a $20 million deductible and $80 million in layers of self-insured retention in between reinsurance layers.
    So, the wind pool has to pay premiums that are more than one-eighth of the amount of coverage.
    The reinsurance premiums would have caused policyholder premiums to increase by as much as 300 to 400 percent except that the state has used federal and state tax dollars to subsidize the pool by paying a large share of the reinsurance premiums.

  18. So the windpool is not actuarially sound? What happens to the premiums when the federal grants run out?

  19. Regarding insurance premium increases, here is a May 2007 brag from George Dale:
    http://www.mid.state.ms.us/newsletters/may07news.pdf
    “Instead of approving the 282% rate increase for the six coastal counties originally requested, Commissioner Dale got Allstate to agree to cap renewal rates at 90% in Hancock, Harrison, and Jackson counties and 80% in George, Stone and Pearl River Counties.”

  20. That merely tells me Allstate is no worse or even slightly better than the states windpool since in your previous post you said the state was going up by 300 to 400 per cent. Right?

  21. The point is that the premium increases are real and are a major obstacle to the housing and economic recovery. You doubted the point of the original post.

    The wind pool is being gouged by reinsurers. The best available option might be for the state to take on a layer of risk. Rather than subsidizing premiums by sending tax dollars to Bermuda or Lloyds, use them to build up a reserve fund. That way the taxpayers would not be overpaying to ensure 20% returns for investors.

  22. Mr. Martin, THAT is a reasonable idea. I would rather those dollars stay in the states and in state coffers than in overseas accounts. And I do favor a “federal response” to the wind\water issue but shudder at the thought of another federal bureacracy (read that FEMA part deux) I would rather see the effort put behind the creation of a federal backstop or fund of reinsurance the private carriers of the US could buy from instead of overseas. I also think there needs to be a stick with the carrot come claim time… in other words, you don’t buy the insurance, you dont get a bail out, sba loan, etc. after a catastrophe. All in or all nuthin. I get your point about the premium as well. I did not realize allstate had that big jump. But still, if I pay to live in the mountains, one has to pay to live by the beach…correct?

  23. To the point about the industry trend to withdraw from coastal markets, forcing more properties into the state pools, I looked up the financial reports of a few state-sponsored insurers of last resort:

    North Carolina Insurance Underwriting Association Beach Plan http://www.ncjua-nciua.org/html/fin.htm
    As of June 30, 2008:
    168,774 policies, $69,836,757,701 insurance liability

    Four years ago, June 30, 2004:
    58,857 policies, $16,819,346,224 insurance liability

    So the NC plan has picked up almost 110,000 more policies and $53 billion more in exposure in 4 years.

    Texas Windstorm Insurance Association http://www.twia.org/news.html#financial
    http://www.tdi.state.tx.us/pubs/pc/pctwiabrief.ppt
    As of June 30, 2008:
    221,390 policies, $59,764,452,097 insurance liability
    Galveston County alone has $18.6 billion of liability in the wind pool

    December 31, 2004:
    $20.8 billion insurance liability, so
    an increase of $39 billion in exposure in 3 1/2 years.

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