Jim Brown

Thursday, January 6th, 2011
Baton Rouge, Louisiana

A HAPPY NEW YEAR FOR INSURANCE RATES ALONG THE GULF COAST? NOT REALLY!

So happy New Year! And by the way, get ready for higher property insurance rates along the Gulf Coast, particularly in Louisiana. One would think that if anything, homeowner’s rates would be going down. After all, there has been virtually no hurricane activity in the Gulf for the past four years. And with the national economic slump, home prices have dropped which should translate into lower insurance rates. Not so say the experts. Here are a few reasons why many states, particularly my home state of Louisiana, will see higher rates in the coming year.

Huge claims for the BP Gulf Oil spill will definitely boost insurance rates for the oil industry. No one at this stage can even guess what the final insurance costs will be from both the damage and years of ligation from the Gulf spill. Most of the larger oil companies are self insured, which means they will have to divert funds from operating costs into designated reserve funds. Independent companies, that produce both oil and gas, will see their insurance costs go up. Higher insurance costs mean cut backs, possible layoffs, and higher prices for both oil and gas. And those insurance companies that have taken a big hit over the Gulf spill will have no choice but to raise rates for all lines of insurance, including homeowners.

Citizens Property Insurance Company in Louisiana continues to run amok, and be a factor in higher insurance rates. Louisiana taxpayers are on the hook for well over a billion dollars because of the state created company’s mismanagement. The company is now bragging that it has reduced the number of policies it is selling. But this becomes a catch 22. As Citizens looses customers, the overall risk increases. A new study by the Insurance Information Institute pointed out the Louisiana state run plan still maintains a “precarious financial condition.” Simple translation — it’s broke, and will be for years. Last month the company asked the Louisiana Insurance Department for an increase that in some south Louisiana parishes will top 24%.

Yes, the number of Citizens policies is dropping, but often in a troubling way. Just last Sunday, The Times Picayune reported that when property owners make claims against Citizens, the company drops the homeowner for future insurance. Wasn’t Citizens created to be the state’s property insurer of last resort? Apparently not. Make a claim against Citizens, and boom…you lose your insurance coverage.

And to rub the salt into homeowners’ wounds even more, Louisiana is holding back some $350 million in rebates that are due homeowners from the Citizens debacle. Now remember that this rebate is owed to all homeowners who buy insurance from any company, not just Citizens. It would be a simple matter for the Insurance Department to send information as to who is entitled to such a rebate to the Department of Revenue, and the state tax collector could then give a tax credit to all homeowners entitled to the rebate. But they way the system works now, few homeowners even know about the rebate, so these hundreds of millions of dollars will go back to the state general fund. Apparently our politicians know quite well what they are doing.

Much of the blame for rising rates can well be directed at state insurance regulators. Too many insurance companies try to game the system. Florida newspapers are full of recent stories revealing how a number of insurance companies tell Florida regulators they are losing money and need higher rate increases. Yet these same companies, who are publically traded, have made filings with the Securities and Exchange Commission stating that they are making a tidy profit. A number of these same companies that are hoodwinking Florida regulators are operating in Louisiana, pulling quite a bait and switch.

Here’ how they do it. Many companies operating in both Florida and Louisiana create sister companies set up to provide management services, claims adjusting, and other jobs. The same owners are often involved and operate with no employees of their own. It gets a bit complicated here, but companies often pay affiliates based on a percentage of premium, so any rate increase to the insurance company is also an increase in what the affiliates get paid. Expenses are deducted, the company says it’s not making money, and gets a rate increase even though the wholly owned affiliate is making a big profit. Guess who gets stuck with paying higher rates?

And who is checking to be sure that an insurance company is not overcharging? State regulators are supposed to aggressively audit companies on a regular basis. Unfortunately for the small business owner and homeowner, few states aggressively investigate charging practices of national companies that operate in their home state.

Liberty Mutual, which operates in Louisiana, agreed to pay a multimillion-dollar settlement in several states after they were accused of bid rigging and paying kick backs to insurance agents who steered customers to the company. Customers were cheated out of a chance to get the lowest price. Other major companies including Zurich Financial, AG, Ace, CNA, and Pennsylvania Manufacturers all agreed to pay New York $120 million for overcharging customers. These same companies operate in Louisiana and the Gulf Coast, but no similar investigations are taking place in this part of the country. So are you being overcharged?

AIG is the largest insurance entity operating in Louisiana, for example, and yet it has never been audited by Louisiana state regulators. Taxpayers had to bail out AIG to the tune of $180 billion, putting many Louisiana policyholders at risk. Insurance is regulated at the state level, so if your home state does not join in an effort to audit national companies, then the policy is that you are on your own.

So what is Louisiana doing about continually rising rates? It will spend one million dollars in the coming months to study health insurance premiums. But Louisiana regulators have no control over health rates. Medical insurance rates are not subject to approval by the state department of Insurance. So Louisiana has the highest property insurance rates in the country, the highest auto rates in the country, yet one million dollars will be spent to study health rates over which the state has absolutely no control. Is there any wonder why insurance premiums keep going up?

*****

“It’s not hurricanes that are causing high insurance rates, but bad public policy.” -Policy Analyst Michelle Minton

Peace and Justice

Jim Brown

Jim Brown’s syndicated column appears each week in numerous newspapers and websites throughout the South. You can read all his past columns and see continuing updates at www.jimbrownusa.com. You can also hear Jim’s nationally syndicated radio show each Sunday morning from 9 am till 11:00 am, central time, on the Genesis Radio Network, with a live stream at http://www.jimbrownusa.com. The show is televised at http://www.justin.tv/jimbrownusa.

6 thoughts on “Jim Brown”

  1. Mr. Brown is a very smart man. However, I take issue with his position that Homeowner insurance rates should be lower due to the reduction in market values of homes.

    Mr. Brown understands that insured value is based upon replacement and repair costs, not market value. Anybody who has experienced a hurricane knows that costs of materials and labor increase quickly and significantly after a catstrophe. If carriers insured for just market value in a down housing market the screams would be awfully loud about inadequate insurance in case of a catastrophe.

  2. Sup, the catch there is actually getting the carrier to pay replacement cost policy limits.

    IMHO Jim Brown nails it. Our elected leadership in both Mississippi and Louisiana have failed their peeps on this issue. The lack of a free market due to the anti trust exemption guarantees ordinary folks get shafted with artificially high premiums funded from Tax Havens like Bermuda.

    And the answer does not lie in more governemnt give aways to big business, in this case multi national insurers.

    sop

  3. Sop, I must disagree with you. I believe that people outside the industry read entirely too much into the limited exemption. I think to do away with would once again cause unintended consequences that much legislation causes.

    In my over 45 years in the business I have never seen any activity that could be considered any kind of collusion within the industry. A primary reason for the exemption is to allow smaller carriers to combine results in order to develop market rates and policy forms. This is managed primarily by the Insurance Services Office (ISO). This, in fact, encourages addtional competition as it allows smaller carriers to move into markets they would otherwise stay out of. The larger carriers develop their own rates and forms and are very proprietary concerning that information.

    The unintended consequence would remove these smaller carriers from the marketplace and subsequently provide more leverage for the larger carriers. Some coastal states, primarily SC and lately to a smaller extent AL, are seeing new carriers moving into markets which is an ultimate benefit to consumers.

    1. The anti trust exemption:

      Artificially fragments the marketplace.
      Prevents risks from being spread.
      Results in a patchwork regaulatory framework which clearly does not work or the taxpayers would not be on the hook for billions with AIG.

      All of these conditions result in higher premiums. And before you say it smaller carriers all go to Bermuda and reinsure their risks so loss info sharing is irrevalent.

      sop

  4. How about paying for non-existent coverage. Maybe one day we’ll get an Insurance Commissioner who truly tries to protect the consumer and not the carriers. The “named storm deductibles” (approved under Jim Brown, by the way) are a complete and utter fraud. You can see several of my previous comments on this issue. I have yet to have anyone from the LDI or the insurance industry explain to me how the implementation of these named storm deductibles (originally called “hurricane deductibles”) furthers the interests of the consumer, or

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