Chaney closes door to State Farm’s proposed 45% rate increase – a screen door to let AIR in and out

The Sun Herald reports Mississippi Insurance Commissioner Mike Chaney on Wednesday told State Farm Fire and Casualty Co. he has temporarily denied its request to increase homeowners’ rates by 45 percent in the state’s three coastal counties. h/t Y’all Politics

Chaney said he notified the company he needs more information. Chaney said he ultimately intends to deny the request, but: “We’re open to negotiating with them.”  He said it could be months before a final decision is made…

State Farm spokesman David Majors said the company intends to fulfill Chaney’s request.  “We’ll provide as much information as we can and work with the department with any request so that we can get the rate we’ve requested in the lower three counties,” Majors said.

State Farm is the largest insurer in Mississippi. Chaney said the company has about 26,000 policies in coastal Hancock, Harrison and Jackson counties, which were hit by Hurricane Katrina in 2005…

Chaney said at a press luncheon this week in Jackson that he didn’t think State Farm’s 45 percent request is justified. “State Farm told us they would not write any new business on the Gulf Coast even if we gave them the rate increase,” Chaney said Tuesday. “I don’t know what the incentive would be to even give them a rate increase.”

FireShot capture #031 - 'ISO - ISO Family of Companies' - www_iso_com_About-ISO_ISO-Family-of-Companies AIRDuring those “months”, Chaney will receive a report from AIR Worldwide.

Mississippi Insurance Commissioner Mike Chaney and wind engineering firm AIR Worldwide have agreed to terms on a contract on a cost/benefit study required by the Mississippi Legislature leading to development of a hurricane wind damage mitigation.

AIR  – a member of the ISO Family of Companies – said it will also recommend the best ways to encourage use of these features in both new and existing structures, by providing incentives in property insurance premiums and education about the return on investment in mitigation.

“This is a very important first step in protecting lives and property in Mississippi,” Chaney said. “Once the specific requirements for Mississippi are established, we can begin to implement further steps in individual homes if funding becomes available. Not only would the property be more wind resistant and safer for the occupants, but this will lead to significantly lower premiums in the hurricane areas.”

Big-I has a game plan. Will it work?

When State Farm proposed the rate increase, Sop posted Lets give them the Chaney without vaseline – an interesting thought since State Farm is  really sticking it to people in Florida.

Kurt Bressner spent more than $16,000 installing storm shutters, a reinforced garage door and an impact-resistant front door on his Boynton Beach home. In return, he got more than peace of mind.

Effective this year, he got a $5,362 break on his annual insurance premiums.

Now, Bressner — and more than 700,000 other Florida consumers who spent big money to fortify their homes — could see their “wind mitigation” discounts dramatically reduced.

Insurers, led by State Farm Florida, are complaining that the discounts for installing shutters and other protections have become so popular that they are undercutting the industry’s bottom line.

Last year, citing the cost of the discounts, State Farm asked for a 47.1 percent rate increase. The state said no, but the Legislature agreed to review how the discounts are tallied. The first public hearing is Wednesday in Tallahassee.

Bressner thinks it is “counter-intuitive” for insurers to want to strip away incentives that encourage policyholders to make their homes better able to withstand a windstorm.

State Sen. Mike Fasano, R-New Port Richey, who serves on the Senate’s banking and insurance committee, recalled State Farm’s president testifying on behalf of the discounts.

“This is what they wanted and this is what they got,” Fasano said.  “Now they want to take away [the discounts] from homeowners. That’s a promise they’ve broken.”

No one can argue with the benefits of mitigation; but, not everyone can afford to make the costly improvements.  With the experience in Florida as evidence of the eventual outcome, public money spent on mitigation is just another public subsidy for the insurance industry.

Instead of relying on a member of Big I’s “family” for recommendations, the Commissioner should convene a group of construction experts in the State and rank the various mitigation options.  Some of the least costly options may be just as effective as those that cost the most.

One potential problem is that the various computer models that insurers and reinsurance companies base their rates on value mitigation credits differently, said Jack Nicholson, executive director of the Florida Hurricane Catastrophe Fund and a commission member.

The way homeowners put in for their hurricane discounts is also the subject of some wrangling.

Homeowners who make improvements must have an expert — an architect, engineer or building inspector — certify that the work was done. Those inspection reports are then turned in to insurers to trigger the discounts…

Bressner, whose job as Boynton Beach city manager requires him to be away from home during a hurricane, spent $16,600 to make sure his home could withstand a powerful storm. He knew firsthand about the dangers — his roof was wrecked by Hurricane Wilma…

Safety was the main goal, Bressner says, “but the premium reduction was a very nice savings to the bottom line.”

Now, it looks like he might take a direct hit, not from a storm, but from the people who insure him against one.

Forewarned, forearmed; to be prepared is half the victory.

5 thoughts on “Chaney closes door to State Farm’s proposed 45% rate increase – a screen door to let AIR in and out”

  1. Chaney has one such construction expert on the windpool board in Dave Dennis.

    You beat me to the post, I’ll save my picture of Fred Astaire for the next Chaney tapdance.


  2. Wish I’d know and I could have tried another door! Not to worry, I’m sure Fred will be needed soon since the AIR/ISO mitigation report was due the end of summer.

    Speaking of “closed doors” – the door to the windpool is not just closed, it’s locked! Guess no one wanted to risk another close call after getting out of the suit Corlew filed on a “technicality”.

  3. Great post Nowdy. State Farm is very good at the art of whipsawing: “give us a rate increase or we’ll have to pull more coverage.” If this sounds a little like the way Guido gets 400% return on a payday loan . . . well it is. SF can whipsaw the live long day because the company’s exempt from the Sherman and Clayton Acts, meaning in plain English, it can price fix.

    This new rate gambit, “proposition 45 or die,” is slightly more exotic than a mere whipsaw. If you’re SF, first you thing you do is ask for a rate increase you know is exaggerated – that way when the approval comes in it lands about where you wanted, and the Commissioner looks like he stood up for policyholders. This is called “slagging.” “Slag” is the waste percentage the commissioner “cuts” in his mock fight for policyholders. If still around, I suppose ol’ Eric Berne would just call it “everybody wins too.” (Y’all do remember Dr. Eric don’t you . . . the Canadian shrink who defined tasty human deceptions like . . . “let’s pull one over on Joey” . . . or the sexy “let’s you and him fight (for Carla Jean)” etc).

    Now, if you’re still not insulted, along comes ISO with a new offer to sell us some “AIR.” Gotta love that name . . . it’s Exacta-mente what we’re paying for. The AIR idea comes from an old dog eared page in the corporate playbook. How often do we hear the buzz words “scientist’s say . . . blah, blah blah.” AIR’s purpose is to sell us an envelope stuffed with junk science about how we can lower our household premiums – a sorta self-help guide. The real objective is to make us self-insure, yet go away feeling like we did our part to reign in the ol’ premium tab. You gotta admit, getting us to spend out own money to reduce SF’s claim risk is dark genius. The idea here is to wrap this trick in a “scientist’s say . . . ” report, and get pimp commissioners to hawk it as a cost control measure. We all know insurance has never been about risk transference; it’s about creating and holding profit. Anything that enhances profit is good corporate policy. SF’s wet dream is to design a phantom policy, which actuarially as near as possible, covers no perceptible risk, yet still cash flows at an approved, escalating rate.

  4. Can you take the exemptions that allow an insurer to “price fix” a little further? I recall comments, testimony maybe, claiming insurers do not “price fix” but rather their common use of certain data sets gives that impression.

    What I’m wondering is how the change to for-profit status made it possible for OSI to control all the data sets without setting off alarms.

  5. Don’t think I’m answering but here goes. Once upon a time, when the world was too happy to notice, a pack of pit bull insurers formed ISO, up in Jersey. There probably weren’t five forms total in ISO’s military surplus file cabinet. Remember, insurance was not interstate commerce = no federal regulation = no Sherman/Clayton regulation = 50 pimp commissioners looking for re-election money. ISO operated as a non-profit shill, designed to game the 50 commissioners. NAIC sat by, masquerading as a 50 state trade association.

    Years passed and ISO gained stroke, largely by data farming and re-packaging it as actuarial rate science. The big perks ISO delivered for its shadow owners were coverage uniformity, and finessed rate increases. Price fixing was easy for insurers because ISO was carefully groomed to look like an independent gold standard, when in reality, it was the insurers who owned and fed ISO it’s data. Price fixing works best when you and I agree “there’s plenty for everybody . . . let’s always keep that in mind as we set rates.” As long the big boys had a piece of ISO, everyone sang in harmony.

    The change to “for profit” was ISO’s way of resetting the ownership roles to let big insurers back in. The only way ISO could get out of the San Francisco anti-trust case was to voluntarily divest its big insurance owners. The suit over, bullet dodged, ISO went from non-profit to for-profit, issued stock, and let the big insurers right back in.

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