Would that have included litigation cases from cat losses in “2005″ not signed, settled and sealed until 2008? Delay, Deny and Deceive shows up on your balance sheets sooner or later.
Because State Farm is a mutual company, it has escaped most everyone having conversations about reinsurance and Katrina other than CLS and our Sop.
The rest of us, at one time or another, probably have moments in this wonderland of numbers that make us think It would be so nice if something made sense for a change. Maybe that’s why I identify with Alice and her effort to make sense of an illogical story.
Carroll’s use of symbolism in the text of his work is not a recent discovery. However, that it is thought to include the symbolic representation of mathmatical concepts is something I just noticed – and with that said, we take a closer look at the relationship between reinsurance and “extraordinary level of cat loss” State Farm announced last week and the associated miscalculation in the “branches of arithmetic” .
Reeling and Writhing, of course, to begin with, and then the different branches of arithmetic – ambition, distraction, uglification and derision. (Carroll)
As CLS has frequently pointed out in his comments, there is money to be made when an insurer uses the strategy of delay, deny, decieve. His theory was given unexpected support in Playing the “float” and the wisdom of Warren Buffett.
I have often said that insurance companies have an economic incentive to hold claim money as long as possible, play this “float,” and profit from it. Skeptics and attorneys who represent insurance companies always ask for me to provide proof of this allegation. While there are numerous examples, the quote from Warren Buffett in his 2009 annual letter proves the point:
“As predicted in last year’s report, the exceptional underwriting profits that our insurance businesses realized in 2007 were not repeated in 2008. Nevertheless, the insurance group delivered an underwriting gain for the sixth consecutive year. This means that our $58.5 billion of insurance “float” – money that doesn’t belong to us but that we hold and invest for our own benefit – cost us less than zero. In fact, we were paid $2.8 billion to hold our float during 2008. Charlie and I find this enjoyable.
…In the insurance business, it is economically efficient to cheat or underpay claims—-if the insurer does not get caught or never has to pay for such sin.
Such economic efficiency comes at a high cost – what some would call the wages of sin – particularly when the “float” is reinsurance needed to pay policyholder claims that have been calculated with the four branches of arithmetic.
I wonder if I’ve been changed in the night? Let me think. Was I the same when I got up this morning? I almost think I can remember feeling a little different. But if I’m not the same, the next question is ‘Who in the world am I?’ Ah, that’s the great puzzle! (Carroll)
Another corporate bulldog emerging from the shadows of the Palisades summit was Edward Rust. In the years following the high-level conference, he has been the most tireless crusader for standards-based education reform. A former collegiate wrestling champ and member of the National Wrestling Hall of Fame, Rust quickly rose to prominence in the corporate world with his hard-nosed approach.
According to Business Week (November 8, 1999), when his company, State Farm Insurance, was found guilty of fraud in five separate class action lawsuits between 1997 and 1999, Rust refused to admit any wrongdoing. Ordered to pay a total of $1.5 billion in damages, the State Farm executive didn’t budge, instead vowing to appeal each and every case. (emphasis added)
There’s a large mustard-mine near here. And the moral of that is — The more there is of mine, the less there is of yours. (Carroll)
Here is my understanding of facts and reasonable inferences: NFIP came down right after the storm to hold adjuster orientation or some such. Juan Guevara of State Farm asked for a private meeting with Maurstad and Shortley of NFIP to discuss an expedited procedure. Guevara and others from SF met with Maurstad in Mobile. Maurstad asked State Farm to draft something and send it to NFIP. NFIP sent the draft to AIA and others in the industry. The resulting memo from Maurstad said that WYOs could pay on flood policies without proof or detailed adjustments on any property within areas that had any flooding according to FEMA’s data. (Brian Martin)
Muarstad’s memo was the “key to the candy store.” Gene Taylor knew this early on. Once the WYO’s saw this memo, they took it as permission to pay little or nothing for wind damage under their HO policies.
Focusing on the part of the 9-21-05 memo that deals with slab claims, who in the world made the decision that when a structure was gone, it was washed off its foundation? We have tried many slab claims (Weiss, Grilletta and Veade to name a few) in which we proved just the opposite with competent record evidence; that the primary destruction of the home was high-velocity winds, which came long before the storm surge.
So then you have the HO insurers coming back in litigation years later saying, “you admitted your house was damaged or destroyed by flood when you accepted your flood limits.” Trust me, these people had no choice but to take the flood checks because they were left twisting in the wind (NPI), sometimes for years, before they got a penny from their HO carrier, if even a penny. (Rick Trahant)
If I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn’t. And contrary wise, what is, it wouldn’t be. And what it wouldn’t be, it would. You see? (Carroll)
Uglification: Make something unappealing
Damage to interior fasle ceiling due to rain from wind damage to roof also showing impact of wind suction on windows
A review of the post Katrina pictures taken by the home owner show very clearly the sever destruction to the front and back elevations, detachment and displacement of the blown out window, and cracking of the outward walls and separation from the main house elevation due to suction forces. The internal structure ofthe house was severely damaged by this open harsh wind environment, and the open toof for rainwater to enter the attic and destroy the false ceiling and the interior partitions of the house, see Figures 9 and 10. The damage to vegetation, trees, in the yard of the house as a measure of wind forces can be seen in Figure 11. ( Engineer’s report on damage to McIntosh house)
Focusing on the part of the 9-21-05 memo that deals with slab claims, who in the world made the decision that when a structure was gone, it was washed off its foundation? We have tried many slab claims (Weiss, Grilletta and Veade to name a few) in which we proved just the opposite with competent record eveidence; that the primary destruction of the home was high-velocity winds, which came long before the storm surge. (Rick Trahant)
Alice: I’ve had nothing yet, so I can’t take more. The Hatter: You mean you can’t take less; it’s very easy to take more than nothing. (Carroll)
Just days after attorneys for Thomas and Pamela McIntosh of Biloxi, Miss., acknowledged State Farm handled their claim properly and admitted there was “no credible evidence” State Farm engaged in bad faith, a compromise settlement has been reached over insured damages to the McIntosh home for $250,000 which is less than 25 percent of the amount the McIntoshes alleged as damages in their breach of contract suit…
The company noted that the McIntoshes’ former attorney Dickie Scruggs made up allegations in this lawsuit to launch a public relations plan to lure politicians, the media and others into publicly attacking State Farm. This was a tactic that diverted precious time and resources away from resolving Katrina claims.
“Dick once said he used every trick in the book, political, public opinion, and legal to force State Farm to pay him money. This case was his centerpiece,” said State Farm Senior Vice President and General Counsel Jeff Jackson.
State Farm handled more than 295,000 property claims and paid (not including payments made under the National Flood Insurance Program) more than $3.1 billion as a result of Katrina. “We dedicated tremendous resources to handle and pay claims,” said State Farm Vice President Claims President Susan Hood.
Closure of the McIntosh case should put to an end allegations State Farm acted in a dishonorable way in the handling of this particular claim.
“All these cases have been focused for too long on Dick Scruggs and that has obscured what is really the issue,” Gilbert said. “And that is, did State Farm violate the provisions of their insurance policies and commit fraud against the policyholders and the government of the United States?
“Dick Scruggs is not on trial in the Rigsby case. State Farm is.”
State Farm is “on trial” in every claims dispute, even disputes claim wind damage was allocated to the flood insurance programs.
Your Majesty, members of the jury, loyal subjects… and the King… the prisoner at the bar stands accused of enticing Her Majesty, the Queen of Hearts, into a game of croquet, thereby and with malice of forethought, molesting, tormenting, and otherwise annoying our beloved…[policyholders] (Carroll, emphasis and “policyholders” added)
Nothing about the Expedited Claim Handling Process altered the WYO responsibility as a fiscal agent for federal funds or officially authorized the use of those funds as the key to the candy store or, as CLS later suggested, the “lock box on the bonds” signed, sealed and delivered. It’s one thing to “play the float” and a far different matter if it’s calculated with the branches of arithmetic and holds others under the water.
Better read it first, for if one drinks much from a bottle marked “Poison”, it’s almost certain to disagree with one sooner or later. (Carroll)
2 thoughts on “the arithmetic of reinsurance and the miscalculation of ambition, distraction, uglification, and derision following Katrina”
Buffet comments on ” float” in all of his annual letters. But he has never stated that his business model is to delay claims.
His business model (in Geico in any case) is to be the low cost provider, and to cherry pick the more profitable accounts.
In life insurance Z
Buffett simply provided documentation a “float” can be financially beneficial in an acceptable way.
I completely agree with your opinion about what took place following Katrina. The “Katrina float” was not in any way acceptable – and the sad result at this point seems to be both insurance companies and their clients (policyholders) are “just hanging on”.
Buffet comments on ” float” in all of his annual letters. But he has never stated that his business model is to delay claims.
His business model (in Geico in any case) is to be the low cost provider, and to cherry pick the more profitable accounts.
In life insurance Z
Buffett simply provided documentation a “float” can be financially beneficial in an acceptable way.
I completely agree with your opinion about what took place following Katrina. The “Katrina float” was not in any way acceptable – and the sad result at this point seems to be both insurance companies and their clients (policyholders) are “just hanging on”.