Having seen our do nothing legislature in action up close and personal I was not surprised to see this morning’s front page story in the Sun Herald which declared dead every meaningful consumer friendly insurance proposal introduced this legislative session including the basic policyholder protections contained in a policyholder bill of rights. Here on Slabbed we’re not nice in that we name names and point out broken promises unlike a typical newspaper which will rip a pol on page 1 while endorsing his re-election bid on the opinion page. For better or worse it is a reflection of my style from the finance boards where I post with money on the line. With that in mind let’s break down Michael Newsom’s report:
Several bills South Mississippi lawmakers submit annually in response to insurance issues discovered after Hurricane Katrina are poised to die Tuesday without debate in legislative committees.
Each year, Coast lawmakers submit various versions of the “policyholders bill of rights” designed to protect homeowners in the event they file an insurance claim and also measures removing the “anti-concurrent causation” clause, which insurance companies used to deny payment of wind damage claims in cases where they said water also played a role. Court cases and insurance law experts have said the clauses don’t apply to hurricanes because the two weather events cause different kinds of damages.
I don’t know if this is bad editing or bad journalism but once again we see anti concurrent causation slaughtered by a reporter. To understand the ACC all one must understand is the definition of concurrent:
1. operating or occurring at the same time.
Damage patterns in a Hurricane are sequential (the wind blows first and then the surge comes ashore) thus the covered peril of wind does not occur concurrently with the non covered peril of flooding thus the langauge does not apply. We’ve also provided proof here on slabbed insurers knew the true meaning of this clause before they disingenuously invoked it as a reason to deny otherwise valid claims. David Baria is up next as he pins the blame for legislative inaction on the people as we continue:
Lawmakers said late last week they would be working to get the bills out of committee before the deadline. Though he isn’t a member of the Senate Insurance Committee, Sen. David Baria, D-Bay St. Louis, who has filed several insurance reform bills in each of his three years as a lawmaker, said South Mississippians have reason to be upset that the bills usually die in committee without even a discussion. If they don’t clear committees Tuesday, they will be considered dead again this year because of a legislative deadline.
“People should be disturbed about it,” Baria said. “People should be outraged that we can’t get simple, pro-consumer reforms done in our state Capitol, especially after what we went through following Katrina. People should be up in arms. They should be filling up the e-mail boxes and mailboxes of their senators and representatives. They should be calling, e-mailing and writing the Insurance Commissioner. They should be raising hell about this.”
This is true, the people in this state are getting exactly the kind of government they deserve. It is also equally true folks who try to make a difference like the coast’s Kevin Buckel are generally ignored. The special interests control our legislature and until Kevin shows up with a big bag of loot to spread around like insurance companies do every year in Jackson such is unlikely to change anytime soon:
House Insurance Committee Vice Chairman Brandon Jones, D-Pascagoula, said he is spending the days leading up to the deadline trying to get measures brought up before the committee when it meets Tuesday. Lawmakers must find ways to protect homeowners, but not make laws that discourage insurance companies from doing business in the state, he said. Baria and Jones say insurance companies have much influence over the Legislature.
“We are trying to strike a balance between homeowners being protected and encouraging insurance companies to come back to the Coast,” Jones said.
I personally cringe anytime I hear a pol talk about striking a balance between insurers and the policyholder as it is fluff that distracts from the real issues. Insurance companies know they can bully small market states into doing pretty much anything they want and there is no such thing as balance in that equation. In fact going a step further I’d submit spending any effort on our legislature (besides throwing most of them out come election time) on this is futile because expecting any state, especially a small one, to adequately regulate global financial services companies such as large insurers is pure folly. That said getting basic consumer protections into the law has Coastie Kevin Buckel fighting the good fight as we continue:
Buckel asked Rep. Diane Peranich, D-Pass Christian, to submit a version of the bill of rights this year. The four-page measure, which hasn’t cleared Robinson’s committee yet, would require the Mississippi Insurance Department to produce annual reports on insurers in the state that would be available on their Web site. The bill would require insurers to notify homeowners if they intend to increase the premium by 10 percent or more, by sending written notice of the increase 30 days before the renewal date, among other provisions. If the company doesn’t send notice in time, the policy renews at the same rate. Buckel also backs Peranich’s standalone bill requiring the annual reports for the insurance companies. That bill is also stuck in Robinson’s committee.
After he had threatened to stage a sit-in at Robinson’s legislative office today, Buckel received word Friday from Jones that the House Committee may take up a version of the policyholder’s bill of rights on Tuesday. If it passes out of committee Tuesday, the bill would remain alive and head to the full House. Jones was working on the measure Friday.
Rep. Jessica Upshaw, R-Diamondhead, authored a bill this year that would encourage Coastians to set higher deductibles on their homeowner’s insurance, which could lower premiums, if the state would offer a tax credit to them if they file a claim after a storm. Upshaw said the government would be faced with losing tax revenue only if there is a significant storm. It is in danger of dying Tuesday.
Senate measures are also in danger of dying in committee on Tuesday. Sen. Debbie Dawkins, D-Pass Christian, submitted a bill this year that would prevent insurance companies from using a policyholder’s credit information when underwriting and giving ratings. It has also not cleared committee. Dawkins also wants to require the state Attorney General to study the accuracy and reliability of catastrophe models that insurance companies use.
With due respect to Senator Dawkins exactly what does she expect our Attorney General to study in these complex Cat models? This is a topic we’ve blogged about a good bit since the early days of slabbed most recently here. Maybe the good Senator could invite Karen Clark, the woman who pioneered Cat modeling that has since become a vocal critic of their misuse in setting rates, to the state capitol to hear it straight from the horse’s mouth. I’m sorry Senator Dawkins but when it comes to insurance in general and insurance fraud in particular General Hood has proven himself mostly worthless (and he remains Sheila Birnbaum’s bitch).
I first saw Rep Jessica Upshaw’s proposal in a column written by the Sun Herald’s Geoff Pender back in December. I didn’t highlight it for a couple of reasons the main two being it will do little to lower rates and represents another tax-money give away in the tax credit scheme. Beyond bogus cat modeling used to set rates, the problem with our high rates relates not to the first dollars paid but with the tail risk associated with certain perils like hurricanes and earthquakes so raising the retentions will do little to help. Actuaries and statisticians as a group do not like Nassim Taleb’s body of work but it was Taleb that describes the problem best in a concept that now bears his name in the Taleb distribution:
In economics and finance, a Taleb distribution is a probability distribution in which there is a high probability of a small gain, and a small probability of a very large loss, which more than outweighs the gains. In these situations the expected value is (very much) less than zero, but this fact is camouflaged by the appearance of low risk and steady returns. It is a combination of kurtosis risk and skewness risk: overall returns are dominated by extreme events (kurtosis), which are to the downside (skew). The corresponding situation is also known as the peso problem.
The term is therefore increasingly used in the financial markets to describe dangerous or flawed trading strategies. The Taleb distribution is named for Nassim Taleb, based on ideas outlined in his Fooled by Randomness.
The only way to ameliorate that problem is raise the rate of return which is part of the reason coastal wind insurance rates are so high (bad actuary rate assumptions is another part). The bottom line is that raising deductibles would be of very little help in this situation.
Senator Dawkin’s bill on credit scores is one that merits further study. The topic of using credit scores to set rates is one we’ve had some interesting off line exchanges on with people in the industry who I’ll add are split on the topic. Without going into a dissertation on Donald Cressy’s fraud triangle I will probably surprise a few people in saying my professional opinion is that credit scores probably do correlate to a degree with the propensity to file a future claim. I also think it is more than likely overweighted in rate setting.
Despite slaughtering anti concurrent causation the entire article is worth the read as is today’s companion Op-ed where the names of the “guilty” were not revealed. It may come as a surprise to the Sun Herald that last year’s Senate committee meeting that was held to pay lip service to our problems involved lots of self-congratulatory bullshit on part of Buck Clarke’s committee on how well the insurers did here after Katrina. After the meeting adjourned the gang went over to the State Farm legislative reception which I’m told was nothing short of first class. And it is in this environment people actually expect change. Fat chance.
And the beat goes on.