Jim Brown Joins Slabbed in Calling Out AIG: You’re Insolvent and We Know It

Thursday, August 6, 2009
Baton Rouge, Louisiana

INSURANCE DYSFUNCTION CONTINUES

IN LOUISIANA

Press reports, both nationally and at home, have confirmed what financial analysists and investigators have known for months. Louisiana continues to have the most dysfunctional insurance system and the worst insurance climate in the country. In almost every category, insurance rates are the highest nationwide. And just last week, the New York Times published a front page investigative report on major financial trouble involving Louisiana’s largest insurance company.

The American Insurance group (A.I.G.) does more insurance related business in Louisiana than any other company. A.I.G. recently received the largest bailout in history. Yet serious questions are being raised about insider swapping of both assets and liabilities among numerous A.I.G. subsidiaries. The Times article says A.I.G. is selling way too much insurance. “State insurance commissioners are supposed to keep insurers from writing new policies if in doubt that they can cover their claims,” the article concludes.

One of the voices raising alarms is former Louisiana chief insurance examiner W.O. Myrick. He was quoted extensively in the Times article, and has looked at a number of A.I.G. subsidiaries that do extensive business in Louisiana. W.O. was of great help in my initial days of taking over a deeply troubled department back in 1991. He assisted me in shutting down some 50 insolvent insurance companies. So he knows the territory, and when he says there is potential trouble, you can bet on it.

Remember now that we are talking not only about Louisiana’s largest company, but one that so far has received over $210 billion in federal bailout funds. That’s a lot of dough in anyone’s book. How much? Figure that $700 for you and each member of your family goes from the tax till to A.I.G. And since the government has to borrow the money, add in 10% for the next 30 years. We ain’t talkin’ chump change here.

Myrick is warning that “if A.I.G.’s incoming premiums shrink, the whole thing’s going to collapse in on itself.” His examinations of a host of A.I.G. companies show a pattern of self dealing and the use of insurance to, as Myrick says “bounce things around inside the holding company group.” Bottom line? Raise the red flags, particularly in Louisiana.

And sometimes prices can get too low. Pennsylvania’s insurance commissioner summed up the problem by saying: A.I.G.’s competitors have argued that the company is deliberately under pricing its insurance in a desperate attempt to maintain premium volume at a time when policyholders might otherwise move their business to a safer competitor given A.I.G.’s uncertain future.”

Myrick raises grave concerns about the possibility of “falsifying the liabilities” of A.I.G. But he says insurance departments, including Louisiana, are doing very little to protect the public. Here’s the problem he sees: The Fed and The US Treasury are hoping A.I.G.’s insurance operations will pay back the treasury, so they don’t want to rock the company’s financial boat. In other words, they are more interested in returns than solvency. “The insurance commissioners, for whatever reason, are letting them do this,” says Myrick. “I’d be jumping out of my shoes.” But the former Louisiana chief examiner seems to be raising his concerns to deaf ears.

Unfortunately for both tax payers and policyholders in Louisiana, the A.I.G. problem is just one of many the state faces. The Louisiana Citizens Property Insurance Co., a creation of the Insurance Department and dubbed Louisiana’s biggest financial disaster, has announced a 10% increase in their rates to homeowners this year. And every policyholder with every other insurance company in the state will face a 5% across the board increase in rates. Yet there have been no hurricanes in sight as has been the case for the past three years. In surrounding gulf coast states that are also subject to the dangers of hurricanes, rates have stabilized. But in Louisiana, rates continue to increase.

A new audit has found major overbilling to the tune of hundreds of thousands of dollars in legal fees at the state run Louisiana Guaranty fund. A just released report by outside auditors concludes that the Guaranty Association, that is supposed to be closely monitored by the Louisiana Insurance Department, “failed to complete recommended financial analysis that has resulted in lengthy and ultimately costly mishandling” of numerous legal bills. One firm alone billed $4.5 million over 3 years, which, as the audit points out, “would have required three attorneys and four paralegals to work eight hours a day, every day, every month, every year.”

The Insurance Department itself has just been court ordered to turn over numerous records the Legislative Auditor has been trying to obtain form the department for over a year. The cost of this litigation to the taxpayer has been enormous, including hundreds of hours of litigation, major legal fees, court time, depositions, preparation; and guess who is stuck with the bill? Every state agency by law has to make every document available to the Legislative Auditors. That’s basic state law 101. So again, the taxpayers are the losers here.

And then there are insurance rates. Ouch! Across the board, Louisiana leads the nation in the high cost of buying necessary insurance. Some insurance you can do without. But in the lines that are critical to protecting every Louisiana family, the state’s exorbitant rates are the highest in the country.

Insurance.com’s quarterly Car Insurance Rate Report just released lists Louisiana as number one, with an average auto rate of $2,674 yearly. That’s a big jump ahead of second place New Jersey that averages $2,499. Washington, D.C. is a distant third art $2,515. And with the economy pushing more drivers into a tighter financial squeeze, expect the uninsured numbers to rise, which means even higher auto rates in the future.

The property rate news is just as bad. The latest figures from the National Association of Insurance Commissioners shows Louisiana policyholders paid rates that are almost 40% higher than the national average.  When you look at the comparisons figures or cost per $100 of residential property insurance, Louisiana property owners again lead the nation by paying an average $1.006.  Florida paid only 69.3 cents. That’s right.  Florida, the state that Louisiana insurance officials and legislators dismiss as being too proactive, is at the bottom of the Gulf South list while continuing to attract new insurance companies to the Sunshine state.

Health insurance is a whole separate column. Needless to say, Louisiana citizens are paying through the nose at a higher rate for insuring the health of its citizens than in any other state.

Insurance reform is a front burner issue in other states along the gulf coast in recent years. The issue has all but been ignored in Louisiana. With a population base that is both aging and dwindling, and unemployment rates on the rise, one would think focusing on this major additional cost just to live in the state would be of more concern. So far, there are few takers.

******

“Honk if you really like paying the highest insurance rates in the U.S?”

Bumper Sticker in New Orleans

Peace and Justice
Jim Brown

Jim Brown’s weekly column appears in numerous newspapers and websites throughout the south. To read past columns going back to 2002, go to www.jimbrownla.com.

13 thoughts on “Jim Brown Joins Slabbed in Calling Out AIG: You’re Insolvent and We Know It”

  1. AIG is broke. It’s FP division (AIG financial products), trading trillions in unregulated credit-default swaps, defoliated the entire 71 company family tree. Our gov’t then gave AIG billions when the company threatened that it was too big to fail, and the sky would fall.

    Anyone see a SF parallel here – pretend I’m SF, and I’m due to pay billions for Katrina, the biggest hurricane loss in history. Well ok, if you insist I pay, and keep pushing this, I’ll wreck your insurance market for the next decade or so. See how you like that: no construction loans, no re-builds, and massive de-population. And, BTW, thanks for instigating that “market conduct survey” with Comm. Chaney, there’s nothing more useful to our PR department than a market conduct report that fails to hold us accountable, even for federal flood fraud. The PR experts in our corporate “family” can write virtual poetry from this kind of stuff: “. . . announced today, after a thorough investigation by the . . . , the Commission failed to find any evidence of wrongdoing on the part of State Farm . . . “. Screw the good neighbor slogan, hell there’s nothing sweeter than a pimp insurance commissioner conducting sham “market conduct surveys” where we get to pre-approve the findings.

  2. I think I’ll make another pot of coffee, juriscribe, yours must have been stronger!

    PS. I think there’s just one pot of money and these men just pass it around but no one gets to keep it any longer than it takes to put it in the bank to take a picture of the balance sheet.

  3. Funny you bring up that market conduct study Juriscribe, it has been on my mind of late.

    Being State Farm’s servant is Mike Chaney’s vulnerability. The MCS contained some statements by him that were plain not true such as policyholder lawyers not cooperating. I’ve had two tell me off blog not only the date they spoke with Chaney’s examiner but also how much time they spent and what they told him. Such is no doubt why Joe Sam Owens went on record saying Chaney must be working for State Farm after the report’s release.

    Kevin McCarty in Florida called State Farm on their bluff and now they are figuring out how to stay without looking like complete asses. If Mr Chaney were the free market true believer he claims to be he shoudln’t be afraid to let the market work just like Mr McCarty.

    sop

  4. Yeah, well, SF will continue to look like a complete ass here in Fla. (and “nationwide” – no pun intended, but I’ll take it since it’s there) by “announcing” that they were leaving us high and dry – just the Homeowner’s – not the boats, autos, etc. I’m ashamed to say they’re my Homeowner’s (they pulled out of flood several years ago), but I”m looking around. But when you get right down to it, AN INSURANCE COMPANY IS AN INSURANCE COMPANY IS AN INSURANCE COMPANY – and as my old boss always says: “IT DOESN’T TAKE A FINANCIAL GENIUS TO FIGURE OUT THAT TAKING PREMIUMS IN AND NOT PAYING CLAIMS OUT IS MORE PROFITABLE.” I’m sure that’s true in any industry – but it’s still STEALING nonetheless.

    SHIRLEY HEFLIN

  5. sop: what is that image that’s always to the right of your name in blog entries? I can see that Nowdy’s is of a map; yours looks like a wierd plate of sushi. Really, I can’t make it out.

    SHIRLEY HEFLIN

  6. Wow, talk about kicking people when they’re already down. For LA to have ins. rates that are “…the highest in the country” is ridiculous.

    Did it take Hurricane Katrina for the rest of the world to be alerted to the problems yall are facing? Sure, we have problems, but nothing compared to your state’s.

    LA NEEDS A MAJOR OVER-HAUL – EVERYWHERE!!

    The middle-class must be non-existent there; and the really poor have to be homeless. Even in states w/o the problems yall have, getting a job w/a college degree is a major hurdle.

    Perfect example: CRESCENTCITYRAY – probably making it day to day b4 Katrina; no savings, no rich relatives to help out – what ashame. The rich don’t care – they’re too busy “protecting” what they have to help out the little guy. Sure, there may be exceptions w/the class barriers, but not many.

    SHIRLEY HEFLIN

  7. Shirley et al, if y’all care to, I recommend reading “The Invisible Bankers,” Andrew Tobias, circa 1982. It’s the first book I read on the insurance industry, decades ago. Tobias’ little book is truer than ever today. Every time I hear the NPR announcement: “this program is brought to you by the John D. and Catherine T. MacArthur Foundation,” I just laugh. MacArthur was an insurance mogul and corporate thief who in part originated the mass claim denial model. A loser in other businesses, he scrabbled together some funds and bought a pitiful little life company, turning it into a profit juggernaut by using one unflinching strategy – deny every damn claim on its face, the minute it comes in the door, then stand back and watch how many evaporate. Profits soared. Today, he and the wife are remembered as great American philanthropists.

  8. Why that image is me Shirley, decked out in my Mardi Gras costume along with my maid who happens to also be my best friend’s wife. It was taken in January 2005 just before we paraded through the streets of Waveland. Now, I’m one of the behind the scenes guys that works to help put the ball masque and parade on for the all female krewe (though not nearly as hard as many of the other husbands).

    sop

  9. Dear Juriscribe: Well, one thing’s for sure, the “claim denial” legacy left behind by Mr. MacArthur never went away. I worked for an ins. atty. here in Tampa, FL, for 20 yrs (from the Plaintiff’s side – Atty Chip Merlin) so I’m pretty well educated in the world of insurance, but I jotted “The Invisible Bankers” title down because I love to read almost as much as I love to blog.

    What does “NPR” stand for?

    TX
    SHIRLEY HEFLIN

  10. SOP: tx for clearing up the picture image for me…I can make out one person, but not two. One day when you have NOTHING to do (ha, ha), plz send me a blow-up.

    Just when things seemed so bleak to me about New Orleans, you remind me of Mardi Gras. Though I’ve never been, it’s nice to be reminded that people – of all classes – can smile at least on that day and EVERYONE is invited to party.

    We have a parade similar to Mardi Gras here in Tampa (it’s called the Gasparilla Parade) and “Pirates” invade our city, they (and many, many floats) make their way through downtown and then down Bayshore Blvd. (a 4-5 mile sidewalk on Tampa Bay)..people are literally packed on both sides of Bayshore Blvd. This is an alcohol free event though – JUST KIDDING!! We do have a “children’s only” parade though a day or two b4 the BIG, ADULTS ONLY PARADE.

    Gotta admit though, yall have us beat w/Mardi Gras as far as size goes.

    SHIRLEY HEFLIN

  11. NRB= No Respect for Berrigan as in Ginger Berrigan who never met a murderer or insurance company she didn’t like. A full bird judge she is as bad as Ozerden and Walker over here.

    Kurt Engelhart is the worst by far however.

    sop

  12. [email protected]:51 – as far as I know, Chaney didn’t issue or serve a single subpoena on SF during the so-called “market conduct survey” his office conducted. SF loves a phonied up MCS – it’s a very useful propaganda tool.

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