Louisiana Legislature decides to punt and gives up score

One more example today of State insurance offices too cozy with the industry to remember they exist to serve the taxpayer.  The Insurance Journal has the story, Named storm deductibles – Louisiana Legislators want just 1 yearly.

The chairman of Louisiana’s Senate Insurance Committee says he will ask companies to use the percentage deductible for named storms only once for homes or businesses hit by both hurricanes this year.

Senator Don Cravis, a Democrat from Opelousas, says he, the chairman of the House Insurance Committee and Insurance Commissioner Jim Donelon are considering a bill to make such a limit mandatory. (emphasis added)

Many insurance companies are setting deductibles for named storms as a percentage of a property’s value – up to 5 percent. That could mean payments of up to $10,000 – $5,000 per storm – for someone whose $100,000 house has a 5 percent named storm deductable and was hit by both hurricanes Gustav and Ike.

Donelon told the committee on that he could support a one-storm limit. But he said banning the special deductibles entirely would keep many companies from selling insurance in Louisiana. (emphasis added)

As Judge Senter here in Mississippi has pointed out, hurricanes deliver a one-two punch of wind and water. Gustav’s wind definitely punched Louisiana and the policy holders that elected Mr. Donelon are picking up the cost.  The Advocate has that story.

Changes made to attract insurance companies to Louisiana after hurricanes Katrina and Rita have not yet taken effect uniformly across the state.

But a large number of insurance policies now require homeowners to first pay deductibles based on the value of the house — up to 5 percent of the house’s value — before the insurers begin paying to repair damages caused by Gustav. Five percent, for instance, is $7,500 on a house valued at $150,000…

“Named storm deductibles,” which are increasing as policies are renewed, apply only to damage caused by storms given names like Gustav. It was created as a way to give insurers the option of sharing the risk of storm damage with their policyholders…

What the named storm deductions do, it allows carriers to lower their rates because the consumer is taking some of the risk for themselves,” [Greg] LaCoste said. (emphasis added)

Some of the risk!  Try all.  Mr. LaCoste of  la-la land is vice president with the Property Casualty Insurers Association of America.

New Baton Rouge homeowner Linda Lodato said she realized Thursday that the $1,000 deductible in her policy does not apply to the damages she sustained during Gustav.

Lodato said she now has to pay $2,400 — 2 percent of the value of her home — out of her own pocket. The cost of removing the three trees that fell on her roof was $2,500, she said..

Is Lodato paying a lower premimum as a result of sharing the risk and assuming the cost?

Amy Bach, executive director of United Policyholders, a San Francisco-based consumers group, said she does not think anyone in Louisiana feels like they are paying lower premiums.

Since the Louisiana Insurance Rating Commission was disbanded last year, it is uncertain if any safeguards have been put in place to ensure that reductions in coverage have been accompanied by reductions in premiums, Bach said.

A letter to the editor of the Advocate explained how Lodato could find herself with even more expense uncovered.

…if you have that $7,500 deductible and Gustav hits your house and causes $6,000 in damage, the deductible applies and you have to pay all of that out of pocket, but then if Ike hits two weeks later and causes ANOTHER $6,000 in damage to your house, the insurance company can apply yet ANOTHER deductible, meaning you’d have to pay that $6,000 in Ike damages out-of-pocket too! And if yet a third storm hits two weeks later and does another $6,000, you are on the hook for that as well. In this scenario, the homeowner would have to pay $18,000 out of pocket, and the insurance company would pay NOTHING.

The whole reason one buys insurance is to avoid having to pay thousands and thousands when something bad happens! But — and this is what REALLY outrages me — our state government also allows the insurance company to impose this deductible on a PER-STORM basis.

What’s really outrageous to me is that state government in Louisiana allowed the insurance industry to to impose the deductible at all.  Perhaps limiting the authority of the Commissioner is something the Legislature should consider if they’re really serious about reducing the risk facing property owners in the State.

62 thoughts on “Louisiana Legislature decides to punt and gives up score”

  1. Very good post grasshopper. And these “named storm deductibles” are kind of like taxes: the more your home is worth, the higher your deductible before wind coverage kicks in.

    Here is a good example. In La., many “named storm deductibles” post-Katrina are 5%. For a house valued at $500,000, the named storm deductible would be $25,000, which means the house must have $25,000.01 in wind damage before coverage kicks in for damage from a hurricane, or even a tropical storm.

    You can negotiate the regular policy deductible, which is usually $500 or $1,000, depending on the premium. So, if a non-hurricane tornado hits the same house, the deductible for the damage is expoenetially less ($500/$1,000 vs. $25,000).

    But the real kicker is that the homeowner’s policy does not cover flood damage from a hurricane or tropical storm, so the named storm deductible only applies to the winds from a named storm. But, you already have a “wind deductible” ($500 or $1,000). And what’s worse, these deductibles used to be called “hurricane deductibles,” but now the industry has arbitrarily changed it to include even tropical storms.

    So, the bottom line is that for light to moderate damage, many people have no wind coverage for tropical storms/hurricanes. This is one of the biggest scams ever, and everyone just let it happen. ADHESIONARY.

    And instead of letting the legislature do the sensible thing and ban these adhesionary deductibles, Jim Donelon wants to limit it to one per season. Pitiful!

  2. Rick, what bothers me most is that facts are “deductibles” in the decision-making process.

    For example, let’s say that you presented your position to the committee and supported it with documentation showing the economic impact on families and the related impact on the State.

    What can you expect to happen when it’s obvious no one can beat you on fact?

    1. Trusted advisers to the Commissioner, AKA industry lobbyist, tell him “confidentially” that what you’re proposing will put them out of business – and suggest the reason that’s the case is the nation’s financial crisis.

    2. Armed with that “valuable information” [sic] the Commissioner then shares it on a “confidential basis” with Committee leadership.

    3. After that, any time leadership is pressed to act as you’ve suggested, the response is one that affirms your position followed by some variation of “but we can’t do that because…”

    Happens all the time and not just on insurance issues – although I’d bet my bottom dollar it’s exactly what happened to HR3121.

    The “bailout” will prove to also be the biggest “cop out” in history unless Congress adds the transparency needed to determine the extent one of Paulson’s solutions is creating other problems.

    People who represent the citizen side of a business-related issue are going to have to work harder and smarter than ever to be successful in the current economy but it can be done.

  3. Folks the “Named Storm” deductible is why there is any coverage at all from the private sector. The industry cannot take on all the risk that is now on the US coast with $1,000 deductibles. There is just not enough capitalization by carriers to cover this increased exposure.

    It is going to get worse. Lexington Insurance Company has written much coastal business. They were perceived to be a good alternative becuase they were owned by AIG. That capitalization is gone. This will tighten the market more.

    It is not going to get any better soon.

  4. Supsalemgr

    Well then, why not have a 25% or 50% named storm deductible? Your response certainly addresses why insurers implement them, but it does not address any part of my (or Nowdy’s) assessment of how unfair and adhesionary they are.

    “There is just not enough capitalization by carriers to cover this increased exposure.” That’s what reinsurance is for. Is there an “earthquake deductible” in California? Is there a “tornado deductible” in Oklahoma?

    You are defendng the indefensible. In LA., the industry had a 40 year run without a real big storm. Remember, these companies made record profits in 2006; my heart does not bleed for them, nor does it give them the right to further limit coverage, while of course, raising premiums.

    And you don’t have to tell me about Lexington/AIG; we recovered bad faith penalties against them in Katrina litigation.

    But, what you seem to be saying is that because an insurance company (AIG) got too heavily invested in the mortgage market, we should have to pay more and have a stiffer, unreasonable deductible for less coverage. Those are “insurance copany rules.” And only one who makes a salary from an insurance company could even attempt to make sense of it.

  5. Guess the fact that Lexington carried the insurance for the Republican National Convention isn’t a factor in this but it strikes me as a factor elsewhere.

    Back to named storm deductibles. If the private sector can operate without it, why oppose the public sector adding it to NFIP?

    A much larger issue than insurance is involved here, Shifting risk to homeowners who are paying for coverage and getting little in return is not the answert.

    I’m not talking just about the low-income either but the general population – retired homeowners who are past the age that makes employment an option whose investments are decreasing in value every day ; those with children in college who have taken a second mortgage because of the rapidly increasing cost of higher education; and the list goes on – not deadbeats but the dead tired who have worked hard and done everything “right”.

    I’m convinced there are people in Louisiana who lack the money to make the repairs because the policy change came faster than they could prepare to assume the risk.

    People are going to lose their homes over this, make-do repairs are going to drive value of some homes down and that of their neighbors as well, kids are not going to be able to go back to college next semester.

    Some will point the finger at the victims for their failure to save and plan for such situations – but it is the industry that didn’t plan. It’s not right and opposing legislation like HR3121 in that light is as unacceptable as the named storm deductible.

  6. If you read between the lines of all of your posts it all comes down to “subsidize us that choose to live in US coastal areas”. That just ain’t going to happen. The good folks in Iowa are not going to be interested in that and the pols know it. By the way, this applies to the way folks in Tupelo and Shreveport think as well. They are not interested in subsidizing the coastal areas.

    Now that is harsh, but reality. I totally understand the dilemma that good folks who grew up in those areas are facing. However, well to do people from all parts of the coumntry have chosen to move to where “natives” have been for years. This lead to good economic times for many, but now the “chickens have come home to roost”.

    A prime example is Beaufort, SC. It is three different markets. There is what I call the “Hilton Head” market of very upscale homes. Then you have the natives and the military, Parris Island. The last two groups are being squeezed as they don’t inhabit these high value homes. This is what many of the good folks in the Gulf Coast area are facing.

    We live in a free country. Thank God! People move where they choose. This is an economic reality. If an area becomes very attractive the cost of living there becomes more expensive. Would you prefer the Soviet model? That is what you all are suggesting.

  7. Soviet model . . . like communism, socialism . . . like the government subsizing large corporations (AIG).

    I love how the terms “good folks,” “good people” and “fine people” are used in such condescending fashion. It’s always the case when someone really smart from above the Mason-Dixon line really wants to call us dumbasses.

    Only someone paid by an insurance company could make the quantum leap from named storm deductibles to “the Soviet model.” This sort of closed-minded reasoning is rank nonsense. Supsalemgr, if you make your iving in any way other than from an insurance company, please tell me.

    The bottom line is that I don’t need anyone to subsidize me, I just don’t like devious schemes by an out of control industry to screw me on the product I purchase.

  8. Baton Rouge is not a coastal area and that’s where the wind damage in my post took place – and folks there are dealing with the named storm deductible.

    Hilton Head isn’t the industrial coast we have here but affordable insurance isn’t just a coastal problem. I can’t speak to Shreveport but when the Clarion Ledger ran a story on coastal insurance recently, supsalemgr, I recall a comment from Tupelo saying don’t forget about the rest of us.

    supsalemgr is one of our favorite insurance people, Rick, and often open-minded on the issues.

    The problem with named storm deductibles is there’s not a solution that works with the current insurance model. If property owners have to assume more of the risk, regardless of where they live, their income and/or savings has to increase proportionately to avoid an adverse economic impact.

    IOW the change to named storm deductibles is too big to implement through regulatory change alone – but the bottom line is the insurance industry does not protect property from hurricane damage –

    I think it’s a bigger issue that we have on the table. The industry took on more risk than it could handle long ago and has been propped up ever since. I bet we’ll find that we’re bailing out more than AIG before all of this is over.

  9. Rick, what I know about named storm deductibles and hurricane deductibles is that both have been around for a fair amount of time, and one may be used over the other depending on what an individual carrier uses in their book of business (forms) and that a given state has approved/authorized. I would venture to guess that if a carrier wants one put on a given account, the customer can ask for a standard deductible and in most cases can get one. They will pay a higher premium for it, but when a storm hits, they have the same exposure would have from before. If they don’t offer anything but the hurricane type deductible, shop around for carriers that have other types. Any idea what Citizens is doing with deductibles? Haven’t heard myself.

    As for your question on the CA earthquake deductible, the answer is a resounding yes they have a hurricane deductible. I believe the minimum one is 10% of the amount of coverage, is heavily regulated by the California Earthquake Authority(CEA) and I believe they set the deductible amounts that apply. You example about for a $500,000 house has a $50,000 EQ deductible!!! That is a hit, for sure.

    I would love to see a flood policy that includes wind coverage and closed all the gaps in the coverages. In an ideal world it would be available to every property owner that lived within 10-20 miles of the gulf coast/atlantic coast and be “risk based” for the coverages provided and risk involved. In years that there are no hurricanes the policy holders can get rebates (like a mutual co) or pool the $ for future losses. If a cat 5 hits something like Houston or Miami, all policy holders involved in the group can be assessed for the any shortages. That way, all coastal proiperty owners share equally in the risk for insurance on the coast. They can set the deductibles like they would want, the government wouldn’t have to come in with a ton of grants, loans to provide assistance. As I mentioned before, I’m all for a comprehensice wind/flood policy as long as the owners of that coverage pay for it risk based, it the coverage is shared by those in the same risk class and no tax payers help out on it.

  10. What about the people who live inland and got wind and/or flood damage from Gustav and Ike? and those in inland states in further from the Coast.

    I know the named storm deductible / hurricane deductible isn’t brand new because it’s a part of so many of the Katrina cases I’ve read – folks who found out what it really meant and when they reached the deductible got screwed again by ACC language.

    Seems to me Beau there are parts of the industry that work – life, auto, and some type of property coverage. How much at risk is added to there that could/should be reduced by expansion of NFIP?

  11. Sop and Nowdy thanks for your comments. I am a proud “good ol boy” who has gratefully never lived north of the Mason-Dixon line.

    When I speak of the “good folks” on the coast you guys know I mean it. We disagree on some issues, but have the same desire for those “good folks” to enjoy their lives.

  12. I apologize to Supsalemgr for the Mason-Dixon line comment, but the rest of what I said still stands. And Beau, the carriers will not permit you to negotiate the NS deductibles down to a particular dollar amount in return for a higher premium. I personally tried to do that and a few carriers (agents) said no, take it or leave it. And as I understand it, all of the new policies here are being issued with NS deductibles, not hurricane deductibles.

    Contracts are never fair when a burdensome term is imposed by one party and the other has absolutely no ability to negotiate it. That’s why I always find it somewhat of a joke when insurance disputes are referred to as “contract disputes.” It’s not as if the insured has much, or often times any, ability to negotiate any of it.

  13. Mr. Trahant,
    You need to call a State Farm agent in your area. The friend of mine in your state is a SF agent and said they only have the hurricane deductible and it is not named storm. The deductible starts at 2% of the property value and can go as high as 15% at the owner’s choice not the company’s. He also told me there is a discount involved to the premium, not a higher charge. This is what he told me his policyholders get for the different deductible choices: 2% gets no discount but can be reduced to $1000 for a 1% increase in premium, 5% deductible gives you a 10% discount on premium; 15% deductible gives you a 25% discount on your premium. So then it becomes a matter of math…if you take the deductible, how many years do you go without a hurricane claim before you have saved as much as you have in deductible?

    What Beau was saying is essentially what I have said in other posts. It isnt a matter of what is fair, its a matter of what businessgovernment model the citizens along the coastline of the US want to live under. If it is going to be with heavily subsidized windfloodhurricane rates, that is a lot more like socialism than capitalism. If a company such as state farm charges too much for the too little coverage they offer, then they should suffer through lower sales and not by the government stepping in and telling them what they will do under a contract they have already had in place and charged for. If we can get to that level of government control, when will the judicial system and government step in to order grocery companys to lower the price of bread, or meat, etc.

  14. Proximo, I think all we want is part of that piece of the government pie that insurers are currently hogging all to themselves. When will insurers sprout some sack and take some business risks to go along with the all the profit.

    Then again to you corporate types money the government gives large priavte business is not socialism right? And the McCarran Fergueson anti trust exemption insurers fosters competition right?

    Down south the term we use to describe that mindset is hypocrite or more properly hypocritical.

    sop

  15. Sop, yeah, I get what you’re saying. It still depends on the rest of the story as Paul Harvey would say. The socialism reflection I think comes from more than just the money. The redistribution of wealth is as Marxist as it gets yes, but the other things that make it begin to look socialistic is when government itself decides to do what the private industry was doing before…venezuela takes over the private oil fields, england and canada take over medicine, etc. The govt. take over of the insurance industry may very well be what happens next due to this crisis. While some people think that would be just a terriffic idea, conservatives and us “corporate types” as you labeled us, dont want uncle sam taking over anything because so far, the track record aint too good. (schools, soon to be broke medicare, soon to be broke social security, fema, and the list goes on.) Now, the liberal “its governments obligation to take care of me no matter what” attitude is quite contagious when people have been wiped out.. in any situation (disaster, bank failures, depression, etc.) I’m not passing judgment on the individuals or their feelings but as a conservative (and not facing what you all are facing,) these things become obvious and all I and others are doing are pointing them out. As far as mccaran ferguson goes, the agent I talked with said in their insurance organization meetings (different companies agents having lunch, speakers, etc. I gathered,) the prospect of MF being taken away is making the big agents and their companies giddy and the small company guys are sweating it big time. Apparently the big companies would like to see it go away because they would be able to finally horde the claims information they have and not forced to share it with the rest of the companies as they do now. The bigger companies have more data and thus can set more competitive rates. The agent I talk with says their lobbyist has told them that would be one of the best things that could happen to SF because they have the largest database of any company.

    Anyway, I’m not saying -any- of this stuff to pick a fight with you guys n gals down there. I just love the dialog and I think its a good thing to have this conversation and hope it goes nationally. Until the whole country gets a handle on what is and isnt part of our American business and govt. model, there will be this type of argument.

  16. Bring on that dialogue Proximo. It is especially topical given the events in play in DC.

    I’ve heard the same arguments on McCarran Fergueson. I’m not afraid of competition but then again in the small business world we compete everyday.

    As Sup willl tell you State Farm and ALL have been 1-2 for the past 60 years or so. Can anyone name me another industry that has so long been dominmated by the same two players?

    sop

  17. Well, that kinda makes my point. SF is my carrier and they get my money because they have always done what they told me they were going to do in exchange for my premium. I havent had the issues you are dealing with by a long shot so I can’t offer anything of value to that argument. My point is, does a company get into that position and hold it that long because of the government keeping it there or because their customers continue to buy their product and keep them there? Unhappy customers will flee from a bad company pretty quickly and the company either changes what is making the customer leave or they fail. That is the absolute beauty of a system free from government influence. It is Darwin Capitalism. The strong and able to evolve will survive, others will fail and die.

  18. In insurance unhappy customers do not have much choice Proximo.

    Where you see as a success story in SF and ALL I see as a sure sign of a sick, ossified marketplace.

    Every other oligolopy is heavily regulated for good reason I might add.

    sop

  19. I dunno about that. There seems to be a fair amount of homeowners and auto insurers in my state and I’d bet yours too. As far as regulating other industries, where was it for lehman brothers, fannie mae, freddie mac, enron, worldcom, etc. They werent regulated and their own greed got them and the customers said no thanks. Business should fail when it isnt run properly. I cant say I agree with the bail out of AIG…but apparently they feel that is cheaper than dealing with the fallout from them going under. My conservative nature says let em fall! It sucks. I know it sucks for the employees and others that get pulled down by such a huge entity failing but what is the alternative? Does the government HAVE TO take over (nationalize) the insurance and money industries? That is a question that is beginning to look more and more like will be a national one. Do we want to do business with the local branch of the US Bank (no more local owned banks, thrifts, etc.) I mean, on paper, socialism LOOKS great (it is about as close to the Christian model as it gets) but that is not what has let our country survive as the longest running democratic republic in the worlds history. Do we change now? Is every industry uncle sam takes over just one more inch down the slippery slope of ending this form of democracy? Man oh man I hope not.

  20. Proximo:

    Believe it or not, I have a State Farm agent who writes my business policy. The options you speak of definitely were not in place in June of 2007 when I purchased my home in Metairie. In fact, State Farm was not writing any new policies in my area at that time. Only one company was writing new policies and this was nearly 2 years after Katrina. I asked several agents about the NS deductible and was told the same thing each time.

    You state, “Well, that kinda makes my point. SF is my carrier and they get my money because they have always done what they told me they were going to do in exchange for my premium.” What type of claim(s) have you made?

    From the perspective of a plaintiff’s attorney (a term which to many people is synonymous with “child molester”), the State Farm of Katrina is a far different company than State Farm.

  21. I’ve only had the occaisional auto bump so nothing as major as what you all have faced. But the claims that you guys have had lawsuits and insult over are only about 1% of all the claims they handled from that storm? I mean I know it isnt like a brain surgeon only making a mistake on 1% of his surgeries BUT, by most objective standards that is a pretty small measure of their overall performance. The wind-water claim issue was the only thing I have seen them sued over down there and that is only the people within striking distance of the gulf. I for sure don’t know if the 1% figure is accurate but if they only had 1000 lawsuits out of the tens of thousands of claims they had, I think my math would stand up. Dont know though.

    Dont worry about the plaintiff’s attorney title. You guys have a profession and have to do your jobs. People dont like it no more than they like tax collector but it is still a job. The stigma is you guys get paid because of other peoples misfortune and the insurance companies would rather nobody -ever- have a claim. They make more money when nobody has misfortune. BUT, they are lumped in with you guys due to all of this stuff. It still doesnt make what you do any less honorable. Just sayin.

  22. The question we are dancing around is how we can have our cake and eat it, too – because we’ve been on the “slippery slope” a long time and just not recognized it until now when it could no longer be hidden.

    When you talk about nationalize money and insurance industries you’re talking about the models of the European Union and Solvency I (money) and Solvency II (insurance) – I wrote about Solvency II and cat bonds in the post like a cat chasing its tail.

    http://slabbed.wordpress.com/2008/07/06/like-a-cat-chasing-its-tail/

    The lack of regulation in the insurance industry opened the door to the “slippery slope”

    When the industry took on more risk than it could cover, one thing led to another – and another leads to cat bonds and the concept of merging insurance into the capital market. I believe the deeper we dig into the current crisis, the more that will be evident.

    Check out the post and then google Solvency II and poke around. You’ll see many of the “advisers” are companies we think of as “American” playing a leading role.

    Do we want nationalized insurance and money industries – no, hell no. Do we want them regulated? You bet your sweet a$$ we do. Where does our country/democracy fit when we are not the leader in the global market? That’s what I’ve been trying to figure out since I looked into cat bonds and found the cat was a tiger.

  23. Proximo:

    Lots of the remaining State Farm/Katrina claims are not wind vs. water in coastal areas, some are. But as a surface analysis, your 1% assessment might hold water (no pun intended), but the reality here on the ground is far different. Some people with legitimate $25,000 claims, who were only paid $19,000 for their claim, are far from satisfied. But, they are not going to file suit that will drag on for years over $6,000. And as a practical matter, most attorneys cannot afford to hire experts and expend the time and money over a potential $6,000 case. Those are the people who fall through the cracks and have no recourse. I’m sorry (and borderline ashamed) to say that I have turned some of these cases away.

  24. Hiya Nowdy. Been a while but glad to be posting back with ya again. To what you and Mr. Trahant said I think jives with what I was saying. If someone felt they were shafted by their company to the tune of $6000 or more, even if they didnt file a lawsuit, wouldnt they change companies? If there is nobody else writing policies that is one thing but is that the case? It seems to me that if homeowners insurance is such a good place for these companies to make money by stealing it from their customers, there should be a lot of companies writing policies there. That is supply and demand and if the companies are ripping people off and getting away with it, there should be plenty of pigs at the trough. Since so many companies have pulled away from the coasts of the country, it seems that something has happened to make that business undesirable. Does the govt. step in and make businesses write policies in those areas at a loss? Does Uncle Sam get into the insurance business himself? He already has done so with flood insurance and from what I can tell, nobody is happy with that either. No additional living expenses, low limits, not actuarially sound rates, etc. That program hasnt changed since Katrina and since gene taylor and congress have the only ability to make that change, it makes me wonder why they havent pulled it off? Does the industry have so much power over our congress that they can’t act? That seems very hard to swallow considering the aftermath of Katrina. Anyway, the results of this storm, aig, the mortgage crisis, etc and the lack of progress in congress have really brought the socialism and nationalization of industry to the forefront which I hope enough people get involved in to enact a workable solution that doesnt involve any more take overs by uncle sugar daddy.

  25. Your 1% stat includes hundreds of thousands of inland claims for minor and moderate damage where wind was the only possible cause. State Farm did not blame storm surge for damage in 79 counties in Mississippi, or in most of Louisiana, Alabama, Florida, Tennessee, or Georgia.
    What does that prove? Those claims are not relevant to the question of proper adjustment of losses caused by both wind and flooding.
    You also are including cases where the flood policy was paid within a month and the wind claim finally was settled after 2+ years. That is not proper adjustment of the claim, even if it no longer is in court.

  26. Mr. Martin, it does prove something. If any company is evil, in bed with Satan, making children smoke and drink, killing defenseless pets, molesting children, or any of the other hundreds of deeds you and your boss attributed to the insurance companies there, it is funny they only did such devilish deeds to people on the water. Surely such demons would have had the same plans to rob everyone else that had a claim. Why would they only pick on the wind-water people? Why only 1% of their claims when they could have robbed from everyone? Hmmm, guess they just couldnt rely on the rest of the decieving, tricky, adhesionary, confusing, gotta be a lawyer to understand it policy language to rob them eh? BUT, since your boss is part of a group of people that have THE SOLE POWER to change the flood program or develop laws to make sure this never happens again, and HAS NOT DONE IT, what does that say about the people who are in control of EVERYTHING? Your boss and his partners in congress didnt do anything that would have helped the people in Galveston now did they? If you think I am coming off strong against the guy, dont get me wrong, ANYONE that has that much power to have done so much good but didnt do it, is to blame for what the people in Galveston are feeling. Where are the higher flood limits? Where is the additional living expenses under flood? Where are the replacement cost coverages? Basically my point stands – if the industry leaders there are still industry leaders after all this time, they must have done more good than bad.

  27. “if the industry leaders there are still industry leaders after all this time, they must have done more good than bad.”

    Or enjoyed an anti trust exemption that effectively shut out competition.

    It also means they are good at keeping the deck stacked so the oligolopy is perpetuated at the expense of consumers. Follow the money Proximo, striaght to pols like Chris Dodd, George Bush and Dick Shelby.

    sop

  28. You just throwing out things that are not to the subject of the complaints. The complaints of fraud are about combined wind and flood losses.
    The fact that people did not sue over their roof claim in Tennessee is not relevant. It does not mean all those people were satisfied with their claims, though.
    The House passed a bill that would have done a lot for the people of Galveston and for the taxpayers, but the insurance money blocked us in the Senate. Our bill had higher policy limits, additional living expenses, business interruption coverage, as well as the option for wind and flood coverage in one policy at risk-based rates. Your guys fought every bit of it.
    Instead, Texans will have some NFIP coverage, but not enough, some wind coverage but not enough, a depleted wind pool, and a delayed recovery dependent on a barely functional FEMA. This will cost taxpayers much more in disaster relief than the net cost of an insurance program that plugged the coverage gaps.

  29. They’re not “my guys” they are businesses as I am a business owner. That makes us kin in that respect only. But, if you are saying that the insurance industry is stronger than the United States government, just say so. Who are they going to put in as president? Will they let your boss keep his job after what he said about them? With that much power why did they pay anyone at all? They should have just said no and apparently nobody could touch them according to your statements. They “blocked you ” in the senate? Wow, I need to be better friends with my agent since his employers can control the government of the strongest country on the planet!

  30. Proximo:

    Your attack on Congressman Taylor and Mr. Martin appeared unusually (based on previous posts) ad hominem in nature. I liked Mr. Martin’s reserved and measured response. And how could anyone argue against the proposed legislation he spoke of . . . except for the insurance industry and its well-heeled lobbyists.

    One of the main problems was, and continues to be, that it is virtually impossible to have your property covered for all damages from a hurricane. I always revert to what a friend of mine (an anesthesiologist and one of the smartest people I know) said to me after he lost his home in Lakeview (New Orleans): “I paid for the most flood coverage and the most wind coverage I could get, but I still took a financial bath on the loss of my house. How can this be?” He also asked why he could not recover the maximum under both policies he paid premiums for when nobody could ever figure out exactly what was destroyed by wind and what was destroyed by flood. It’s not rocket science, a hurricane is wind AND water, not wind versus water.

  31. Proximo, those who type faster have probably beaten me to the punch is saying that what you were singing the industry’s song – “fix the problems with NFIP don’t just extend EXCEPT you missed the verse that connected the industry’s “imperatives” to the “slippery slope” – and in that regard, the nation is indebted to Gene Taylor

    (see below as I moved this point forward in message that began…)

    Glad to have you back, Proximo, as these are complex issues that usually get discussed in isolation but they are very much parts of the big issue AKA the slippery slide – just saying that so no one will think the subject has changed and decide it’s too late to comment on earlier point.

    1. Brian/Rick are correct in that the 1% greatly overstates reality – data derive meaning from context and often contextual data are seen as secondary or weaker when it is actually the primary data that are flawed.

    What we need and don’t have is the full set of data – total # of claims, # settled for amount the policyholder claimed was due, # settled above/below amount policy holder requested, and so forth.

    That level of transparency is not there – it should be – the companies have it but they aren’t required to release it and that guts the idea that consumers have a choice.

    Good read on this is ITP discussion linked above on left sidebar under insurance.

    2. Choice of provider

    “You don’t choose your family” and I don’t think my family was much different from others when I was growing up in that our insurance provider was considered “extended family”.

    In other words, even today, people are reluctant to change insurance providers when they’re dissatisfied with the outcome of a claim.

    Two reasons for that – the personal nature of the purchase and the belief that “a devil that you know is better than one you don’t.”

    3. So, connecting the dots – consumers know there’s a problem, they don’t feel like it’s one they can solve, and think it’s a matter the government needs to address.

    4. As you pointed out, government didn’t and problems that surfaced after Katrina are now visited on those with property damage from Gustav and Ike.
    (other text on this point moved forward)

    5. None of us want the insurance industry nationalized – but the industry is not national, it’s global and the current state regulated system is a barrier to the industry in the global market… which brings us to the points I made earlier about Solvency II and where we fit in the changing picture of insurance on a global scale.

    6. Our inability and/or unwillingness to understand how “cat bonds” are connected to the “slippery slope” means we have more to fear than a “nationalized” industry and don’t know it.

  32. I guess I wasnt very clear about where I stand on some of these issues. I apologize for the attack but I guess I am really, really, sorry for those people over there and dont understand why, 3 years later, they would get the screwing they are about to get. This issue about the flood policy, if nothing else, was totally within the governments power to fix and it didnt happen. They probably will have a much larger problem than you on the coast due to the density, property values, etc. My heart aches for what they are about to face as it did for you there. That being said, here are a few other of my feelings: I am absolutely FOR congressman Taylor’s bill and hope that a combined windwater hurricanetsunami, whatever policy gets developed. I do believe it should have its rates based upon the risk but I also feel the federal government should “assist” with the rates to a certain extent. I dont think they need to make it completely cheap and risk free to build in harms way but I think they should have input into the rates in what I would call “draconian” ways. For example: they subsidize the rates by about 25% but if you dont have this new policy and suffer a loss after a storm, too bad. NO FEMA GRANT, NO SBA LOAN FORGIVENESS. ZILCH, nada. If the government wants to be a backstop and GET RID OF cat bonds in overseas banks….good for them. I think they should. Keep our bucks in the US. I think the insurers need standards placed on them at the federal level as a part of having this federal backstop. Sorta like the states have to have certain laws in place to get federal road funds for example. Now if the federal “hurricaneearthquakecatastrophe” whatever policy is just like the flood policy (same language, same policy no matter which carrier sells it to ya,) then if a customer feels shorted by their carrier, they have a redress with the US to get the thing handled (sorry Mr. Trahant but I feel if there is a federally mandated dispute process there will not be a need for the class action and other suits after a disaster.) Kinda like going after a workers comp carrier (had to do that…yikes, but was satisfied with the process.) I cannot stand the thought of the government taking over any business and seeing what is happening with the financial arena is scaring me to my core. I want to retire one day and not have my life’s savings wiped out by judicial or legislative whim. I stand by what I said in regards to the insurance industry being so strong. ARE THEY STRONGER THAN CONGRESS? I simply cannot believe this.

  33. Proximo:

    I would be no less pleased than you to see catastrophe disputes resolved in a way other than litigation; so no apology necessary. I never set out to be a hurricane lawyer, and I look forward to the day when I put my last hurricane case to rest. That having been said, several of my colleagues and I got drawn into this war for reasons other than money; we neither advertised nor sought these cases. I’m pretty sure my practice was more profitable before hurricane litigation consumed so much of my time. Also, I was not involved in any of the Katrina class actions.

    When devastated people come into your office and you have been through almost the same thing they have (damage and insurance problems), it’s hard to say no. Sop and Nowdy know the look in a person’s eyes when they have been through IT.

    On a good personal injury case, every plaintiff lawyer will find the money to fund the case. But, the same is not true of property damage claims, and that’s when the playing field becomes very unlevel because companies like the Farm are willing to spend $200,000 to defend a $20,000 case.

  34. Spot on Rick I know that look; a deep hurt combined with a feeling of helplessness and hopelessness.

    And that was before SF and the others denied any claims for wind damage.

    As the community recovered some, that hurt turned to anger and anger to determination.

    Nobody who has lost homes and possessions thinking they were fully insured should ever have to experience what happened here in 2005/2006.

    And that is why were are here.

    sop

  35. We represent a grass-roots movement without Inside-the-Beltway institutional support.
    We are up against a powerful lobbying force that has already contibuted $34.7 million to federal candidates for the 2008 election cycle:
    http://www.opensecrets.org/industries/recips.php?ind=F09&cycle=2008&recipdetail=S&mem=Y&sortorder=U
    Insurance: Top Recipients 2008
    Top 20 Senators
    Rank Candidate Amount
    1 McCain, John (R) $1,761,110
    2 Obama, Barack (D) $1,332,191
    3 Clinton, Hillary (D-NY) $1,266,444
    4 Dodd, Christopher J (D-CT) $851,806
    5 McConnell, Mitch (R-KY) $342,483
    6 Coleman, Norm (R-MN) $264,699
    7 Baucus, Max (D-MT) $261,350
    8 Cornyn, John (R-TX) $239,269
    9 Sununu, John E (R-NH) $232,449
    10 Collins, Susan M (R-ME) $187,300
    11 Dole, Elizabeth (R-NC) $183,712
    12 Reed, Jack (D-RI) $180,850
    13 Smith, Gordon H (R-OR) $180,450
    14 Shelby, Richard C (R-AL) $147,749
    15 Chambliss, Saxby (R-GA) $136,861
    16 Wicker, Roger (R-MS) $126,450
    17 Johnson, Tim (D-SD) $121,586
    18 Durbin, Dick (D-IL) $115,950
    19 Roberts, Pat (R-KS) $111,500
    20 Pryor, Mark (D-AR) $106,115

  36. Sop passed me an assignment that I’ve posted – one that makes me wonder how much insurance contributes to the national Chamber of Commerce and its various arms.

    Otherwise, just a reminder that a lot of money has been lost in the past week, but we’ve still got grass and its growing!

  37. Some awfully good dialogue. Glad to see additional folks on the board with civil discourse. As most know on this board I am not long winded.

    I just bring us back to the basis of the issue of availability of insurance in coastal areas. All insurance carriers are designed to be “for profit” endeavors. This applies to the mutuals who techically are owned by their policyholders. I am not sure many SF insureds feel they are owners.

    That being said, if insurers are making all this profit in coastal area why do we not see other carriers flocking to these areas to reap those available profits? The reason is they are not willing to accept the potential loss. Thus the dominant players remain dominant. I can’t speak for all states, but I do know in some states ALL “grandfathered” many of thier existing clients “with wind” coverage in areas eligible for the wind pool. In these same markets other carriers non-renewed the wind and pushed those clients into the Wind Pool. That is one reason why SF and ALL keep their position in the marketplace.

    My experience is in order for a carrier to be successful in coastal they must have two major characteristics, “deep pockets” and ” a strong stomach”. That eliminates many carriers from the marketplace.

  38. I think the problem Sup is insurers have left the coastal marketplace leaving all the risks, good and bad, with the state’s insurer of last resort.

    Despite the fact there is very little in private market capacity today these pools were set up specifically not to compete with private insurers. So even if Mike Chaney and the wind pool could find cheap reinsurance, by law the savings could not all be passed along if the price windpool coverage dropped under what private insurers were charging. Louisiana citizens runs a year behind but follows a very similar model.

    One of my points has always been if the private market don’t want the risk then they should no longer care what our wind pools charged or if they merge to create bigger risk pools of coastal insureds.

    Instead consumers have the deck stacked against them by the way the State pools are setup and opposition to change some from private insurers that supposedly no longer have a financial stake in the game. The reinsurers are a different story because they do have a stake and keeping the wind market fragmented helps keep their bottom lines fat.

    sop

  39. Brian,

    Thanks for the link and post on who got what from the insurance industry. looks to be a pretty close split between Dems and Rep parties and if you added up the $ for each party on the top 20 I would guess the Dems and Rep would be neck and neck. I noted for the house, which is below, it runs about the same typs of split. That being said, why would the house be able to pass the legislation so easily and the senate not. Big bucks going to each party pretty equally in House and Senate, and the Dems control both chambers.

    Rangel, Charles B (D-NY) $340,165
    2 Kanjorski, Paul E (D-PA) $267,798
    3 Pomeroy, Earl (D-ND) $230,300
    4 Bean, Melissa (D-IL) $217,858
    5 Cantor, Eric (R-VA) $188,450
    6 Boehner, John (R-OH) $186,325
    7 Crowley, Joseph (D-NY) $186,018
    8 Tiberi, Patrick J (R-OH) $158,531
    9 Frank, Barney (D-MA) $155,798
    10 Royce, Ed (R-CA) $154,101
    11 Neal, Richard E (D-MA) $143,850
    12 Hoyer, Steny H (D-MD) $135,400
    13 Emanuel, Rahm (D-IL) $133,400
    14 Bachus, Spencer (R-AL) $124,750
    15 Murphy, Chris (D-CT) $124,699
    16 Moore, Dennis (D-KS) $116,750
    17 Camp, Dave (R-MI) $112,649
    18 English, Phil (R-PA) $110,300
    19 Pelosi, Nancy (D-CA) $104,000
    20 Jones, Stephanie Tubbs (D-OH) $103,749

    Just to throw my two cents into the debate, the flood/wind issue on gaps, limits, Concurrant Cause Clause issue, storm/cane deductibles are not new issues. they were around well before Katrina and show up at every hurricane party. Congress has known about the problems surrounding this for years, not just 3 and have done nothing. Rep Taylor, to his credit, has done more then anyone else has ever done to address it and try to correct it, but it took a hurricane destroying his house and bringing havoc to his district before I ever knew of him taking the bull by the horns. He may have well been inf=volved in this before that, and if so, I am not aware of that.

    I think a chunk of his bill and ideas are very sound and good in princple. I think that if the rest of congress could be convinced that his type policy were truely risk based in cost and the policyholders would be held accountable for shortfalls in it, but also be able to reap the benefits of excesses it would have an easy chance of passage.

  40. That being said, why would the house be able to pass the legislation so easily and the senate not. Big bucks going to each party pretty equally in House and Senate, and the Dems control both chambers.

    I’ve always looked at contributions as a way of making sure (1) your “friends” remember you and help when needed and (2) those who aren’t your friends won’t hurt you as badly as they could.

    A variation of keeping your friends close and your enemies closer, I suppose.

    Appreciate your recognition of Congressman Taylor. You won’t find many elected officials that keep their focus on “winning the war” – and he will win.

    It’s just a shame the folks developing the plan to save the housing market don’t realize they can’t do it without HR3121 in the plan.

  41. why would the house be able to pass the legislation so easily and the senate not

    Because Speaker Pelosi is 19th on the list and Barney Frank doesn’t show.

    Insurers suddenly like Democrats not from Illinois or Connecticut because they are good at reading the tea leaves. The numbers from 2006 tell a different story as to which party the industry liked back then.

    Gene will have plenty of time to lobby reluctant Senators with the extension. I think everyone down here understands there is something more important on Dodd and Frank’s plate right now besides NFIP reform. (At least those who keep up.)

    Great comments all.

    sop

  42. Brian’s and Beau’s posts reference the unfortunate reason these issues can only be resolved in courtrooms. Congress is too easily influenced by these lobbyists, and Joe Consumer does not have lobbyists on retainer. Shame on both McCain and Obama for being #1 and 2 (yes, I fully understand why they are).

    I’ve said it before here and I’ll say it again, I wish southeast LA had a Gene Taylor. De La Salle should have made him the principal to keep him in N.O.

  43. In the House, Pelosi, Frank, Waters, and Clyburn listened and gave their full support. They were never going to sell us out. Pelosi and Frank get some insurance money since the Dems took charge, but they are not going to be bought.

    In the Senate, the Banking Committee is stacked against us from top to bottom. Schumer and Martinez were the only ones who cared about the issue. We really needed Lott to stay and take up the fight.

  44. Members of the House and Senate are not necessarily bought by these big donor industries, but they are afraid to cross them. We would meet with people who nodded and agreed with us, but all the time we knew they were hoping this would never come to a recorded vote.

  45. Sop, I do not disagree the state pools are ineffective, but this is not the fault of the private sector. I challenge anyone with full knowledge to identify any state pool that is actuarily fiscally sound.The reality is state pools are impacted significantly by political motivations. The private sector is impacted by these political implications and have to act accordingly.

  46. To Brian’s remarks I’ll add that in 2007 Speaker Pelosi mentioned the money herself to the assembled crowd in Bay St Louis and she promised she’d back Gene completely. The words were cheap but her actions in doing just what she promised speak volumes about the level of personal integrity that goes into the promises she makes. She didn’t strike me as the type of woman who is afraid to say no either.

    sop

  47. Sup I don’t disagree with anything you posted. To the extent the political will of the insurance industry shapes how these wind pools look they share responsibility for the bad impacts on consumers.

    No denying the industry interest. But as Farmers leaving North Carolina illustrates they are a double edge sword, espcially if the goal was to keep insurers writing policies through-out the state.

    sop

  48. Brian:

    I might be a true (maybe idiotic) idealist, but when you say, “Members of the House and Senate are not necessarily bought by these big donor industries, but they are afraid to cross them,” that seems kind of contradictory to me. If someone can pay you not to cross them, I thought that meant you were bought.

  49. Sup, the reinsurance costs to these pools are much too high. What the industry calls actuarial rates guarantee big returns for investors plus a lot of other padding. There is no competition so there is no market pricing. No private company would pay the reinsurance premiums that the MS and TX wind pools are paying. No insurance company would pay that either.

  50. Brian, you make a good point there is little competition for wind pool business. The reason is the reinsurers are not idiots. They understand the pools are already underfunded because they are political entities and do not charge adequate premiums. Therefore pools get charged more than private insurers which try to charge adequate premiums. The reason for this is simple. Reinsurers understand the probability of them paying with pools is much greater than the private sector.

    DUH?

  51. What you said makes no sense.
    The wind pools do charge high premiums. They can’t build up reserves because almost all of the premiums go to reinsurance. The pools pay full price and then some for reinsurance. Higher premiums would not make losses less severe for the reinsurer.

  52. Brian, you just answered your own question. If all the premiums are to pay reinsurance costs with none left over for building reserves then the premiums they are charging are inadequate. Whether they are high is irrelevant. They are high because the exposure is high. The reinsurers have recognized the inadequacy of the rates and consequently charge the pools more to cover the inadequacy of the pools’ capitalization.

    Reinsurers are “for profit” enterprises. Therefore nobody gets a free ride dealing with them.

  53. Sup the state pools can not build meaningful reserves by statute. It was one of the those things insurers insisted upon when these pools were set up.

    Three card monte Sup, you are telling us we deserved to get gouged yet the way the wind pools are set up it guarantees it.

    I am all for building bottom layers but you guys would fight it tooth and nail just like you’ve fought every other way of getting relief to coastal consumers. Tell me Sup, you guys that write off coast policies can build reserves and pass some of the savings along to inland wind consumers. Why should we on the coast deserve any less? You actually wonder why people here are pissed off? Give me a break.

    sop

  54. Sop, I don’t understand why carriers would not want a solvent wind pool. Admitted carriers are first in line to pay assessments for any shortfall of pool funds. Now, carriers are opposed to funds becoming anything but a option of last resort. Look at the situation in FL where Citizens has grossly underpriced their product. This is actually good for other states as it frees up some capacity from the loss in market share in FL.

    If the industry is as you speak I am totally opposed to that position.

  55. In Mississippi we have enough reinsurance on our wind pool to cover a 1 in a 100 year cat event before insurers kick in the first penny if I’m not mistaken.

    In addition to premiums our insurance commissioner has sweet talked around $70MM out of the legislature to purchase that reinsurance coupled with the premiums. Of course the GOP here in Mississippi has never explained why that isn’t socialism but hey the money was going to a big reinsurer so I guess it is OK right?

    I believe the rationale behind not allowing a build up of reserves is to insure premiums remain well above what private carriers charge. That made some sense once upon a time when there was a private wind market here outside of a few boutique carriers. That is no longer the case however yet we still operate as if it were.

    With the way the coastal wind market have changed since 2004, the current way of doing things no longer reflects the realities on the ground.

    I know this, throwing tax dollars at reinsurance is the worst solution to the problem hands down.

    sop

  56. That being the case in the great state of MS they have put together an excellent plan. History has shown us we always underestimate the actual loss of a “big one”.

    There is another thought as to why some would be opposed to “pools” having additional capitalization. These are state funds, where are they on the balance sheet? Where are they invested and who controls where those funds are invested. Can you imagine a state fund having $1B in reserves and pols keep looking at it , especially in a state the size of MS. May I ask folks to think about about the “Social Security Trust Fund”? Does anyone know where that fund is deposited? It doesn’t exist. I would suspect that any additional capitalization in a “wind pool” would be very attractive to pols wanting to buy vores with someone else’s money.

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