Thursday, August 6, 2009
Baton Rouge, Louisiana
INSURANCE DYSFUNCTION CONTINUES
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’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.