Blessed be the Slabbed. Let's revisit State Farm's departure from the NFIP from the perspecitve of agents that compete with State Farm.

Slabbed traces its roots to the broad topic of finance and economics and the smaller topic of insurance, especially how it doesn’t function well when large multi national companies with an anti trust exemption decide to put the ol’ boot to the throat of an area, in this case the Katrina impacted Gulf Coast. It has truly been a labor of love and I’m gratified that many folks within the industry have seen past the talking points promulgated by industry trade groups and taken time to truly understand how basic economic not only applies to insurance but also how anti-competitive practices actually hurt the industry as a whole. Unfortunately there are also those who judge a book by its cover and despite being honest themselves can’t help themselves trying to defend the indefensible taking on the sins of their competitors in the process.

Off blog I’ve had the pleasure of communicating with risk managers, agents, adjusters and the home office people with several major insurers who invariably find that we agree far more than we disagree despite the rhetoric. One thing I learned early on is that few within the industry have any sort of respect for the average state insurance commissioner. No one respects the proverbial waterboy in the business world and since it is the business world from where I hail, many people who have taken the time to contact us off blog have found that in many ways we’re one of the team, which is also what makes Slabbed so dangerous to insurers like State Farm.

So much has changed since we began Slabbed as the American public has now tangibly suffered the consequences of blind worship of the free market gods as our financial system was imploded by same, lead off the cliff by a global insurance company with an anti trust exemption in AIG. The price of regulatory capture, a topic I’ve written about more times than I can count is now on display across the Northern Gulf of Mexico in BP’s Oil spill disaster. Luminaries such as Alan Greenspan have seen their legacies literally go up in smoke while corrupt pols like Senator Chris Dodd leave DC with their tails between their legs. Economics, at least the theories to which I generally adhere, do not know political boundary.

I say all of this because to my knowledge we were the first blog to highlight Paige St John’s story for the Herald Tribune which announced that State Farm was leaving the NFIP WYO program. In the insurance world, when the nation’s largest P&C carrier pulls out of a gravy train federal program such is huge news. Or so I thought.

Besides us and few other blogs and newspapers only one trade journal picked up the story. I thought it was odd and I still think it strange. I skipped covering the Insurance Journal’s coverage I just linked because it represents more trade group bullshit. That said I think people like Sam Friedman know the score and have chosen to remain silent once again letting the worst of the insurance industry speak for all. Fortunately for the insurance consuming public there are people in the industry who aren’t keeping quiet any more and they are talking to us. This is what one person who works for a global insurer that works with independent agents told me via email.  This information, coupled with a tidbit of information I purposely left out of my posts on this topic may explain why State Farm left the WYO program:

I worked in (location redacted by Sop) all week and the SF Flood situation is a big deal because they are so huge in the market.

Apparently SF did not use a third party vendor as most carriers do and they took their WYO “in house”. It is common knowledge that SF Flood policies were usually not rated properly. The agents I work with were frustrated as they know all Flood should have the same rate regardless of the carrier. The feelings here is the NFIP may have audited their book and found the issues. This along with the Katrina issues may have caused them to make this decision. The “help” they received in this decision is unknown. However, knowing how lucrative the WYO program is for carriers I do not think this was a decision made solely by SF.

Keep in mind these are just my thoughts.

My reply:

I left that part out of the post but I’ll confirm that FEMA finally is insisting on oversight. According to my DC sources prior to this time, when FEMA would say open your books on the admin fees the insurers would balk and threaten to leave WYO. FEMA would back down. FEMA is not backing down this time.

We’ve documented how State Farm and several other insurers fleeced the NFIP by dumping their wind claim obligations on the National Flood Insurance Program.  Now we’re finding State Farm may have used the program to gain a competitive advantage.

Keep the emails coming folks and our thanks to all in the insurance industry that have taken the time to engage us.  We have not heard the last of this, not by a long shot.

sop