Speaking on behalf of a blog that cut its teeth on the very issues of offshore reinsurance and insurance finance we could not be more proud to not only have been a cumulative part of the conversation but also able to call Paige St John a true friend to the Slabbed Nation in every sense of the word. Now we know why everyone was interested in our post on Paige’s work, which otherwise flew under the radar but has also influenced an entire community of professional journalists. The long and short of it folks is that insurance finance and following the money to Bermuda is no longer the journalistic back water former National Underwriter Editor in Chief Sam Friedman once knew. For our part we’ve been featuring Paige and her work since the earliest days of Slabbed.
Paige is part of a select group of reporters that have been wise enough to use this blog and the expertise of an entire community of knowledgable insiders like Mr CLS on Yahoo Allstate to advance society’s knowledge for a greater good. I speak for all of us in this community of bloggers in saying CONGRATULATIONS PAIGE ~ YOU GO GIRL!!
Here is an excerpt from the Sarasota Herald Tribune:
Herald-Tribune reporter Paige St. John won the Pulitzer Prize for investigative journalism for her series on Florida’s insurance industry.
The prize announced Monday is considered the highest mark of excellence in U.S. journalism.
In a two-year investigation, St. John examined the arcane property insurance system and created a unique database that assessed insurer reliability.
“While hurricanes may have gotten more dangerous, the reason we are paying more is we have a whole new system driving the insurance market,” said Chris Davis, St. John’s editor on the series and the newspaper’s assistant managing editor metro. “Insurance industry funding has become much more speculative in past decades — you have this whole house of cards, where no one knows exactly who owns what piece of the pie when a disaster happens.”
It is the Herald-Tribune’s first Pulitzer, but the third time in four years it has had a finalist for the prize.
Insurance reporting and blogging isn’t easy folks:
St. John faced major roadblocks to getting the story. Reinsurance companies refused interview requests. State regulators forbade staff employees from speaking and initially denied, then delayed requests for public records crucial to creating the newspaper’s first-of-its kind analysis of what really had happened to the Florida insurance market.
St. John cultivated anonymous sources deep within the industry, persisted in her demands for public records, and traveled to Bermuda and Monte Carlo, both beehives for offshore financial dealings.
She found that hundreds of thousands of Floridians are insured by carriers so financially weak that they could barely cover a house fire, let alone a hurricane.
Billions of dollars have been shipped offshore to unregulated financial markets that manipulate Florida’s property insurance crisis for their own gain.
This is a very happy day for the Slabbed Nation.
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Congratulations to Paige St. John. It is just too bad that policymakers refuse to question the insurance or reinsurance industries.
Over the past four years, we tried to get the Washington Post, New York Times, LA Times, and every other national media organization to look under this rock, and they all drank the insurance industry’s Kool Aid and blamed everything on the victims.
The Washington Post only wanted to write about formaldehyde in FEMA trailers or similar story that scapegoated the government without ever challenging any major coporation or industry.
Becky Mowbray at the Times Picayune did a great job digging into the backrook dealings between the National Flood Insurance Program administrators and the insurance companies that allowed them to cheat homeowners after Katrina.
Anita Lee at the Sun Herald did a great job of covering the Katrina insurance disputes in Mississippi and revealing the widespread adjustment fraud of assigning losses to flooding without legitimate investigations to distinguish between the wind and flood damage.
But Paige St. John and the Herald Tribune were the only ones willing to investigate the reinsurance story and took the time and effort to dig out the financial details that any legitimate regulation of insurance would require to be transparent. It is just criminal that we cannot find out how much insurers expect to pay (Probable Maximum Loss) and then compare that to their rates to see whether the premiums really are based on risk as they claim.
This is my favorite from Paige’s series:
Property insurers sending billions overseas
http://www.heraldtribune.com/article/20101025/ARTICLE/310259999/0/TOPIC0305&tc=ix?p=all&tc=pgall
Small excerpt:
Two-thirds of property insurance premiums now leave Florida as unregulated payments to largely offshore reinsurers — companies that sell hurricane protection to insurers and that operate without rate control or consumer oversight.
… In the past four years, Florida-based home insurers paid out $15 billion for private reinsurance.
There has been no storm to trigger payments. Most of the money is gone, pocketed by a reinsurance industry that plays by Wall Street rules, able to rack up profits no regulated insurance company would be allowed to keep.
Without a major storm before next June, Florida’s lost capital will near $19 billion.
Had it remained in Florida, that money could have doubled the size of the state’s publicly run catastrophe fund and lowered premiums 20 percent. It could have paid for another round of hurricanes like the eight that struck in 2004 and 2005.
Instead, homeowners’ insurance premiums reached record levels in 2006 and 2007, exacerbating widespread policy cancellations. The lost capital also weakened insurance company finances, drained surplus for future storms, and pushed carriers over the edge, giving Florida the highest insurance failure rate in the nation.
She’s damn good and this award is well deserved. She makes the complex issue of reinsurance much easier to understand than the industry wants it to be.
At the risk of overkill, I’ll bang the Named Storm Deductible gong again. If someone like Paige, Becky Mowbray or Anita Lee really tried to dig deep (starting about 13 years ago), the nefarious and fraudulent history behind the Named Storm Deductibles could make for great reading.
Another must-read article in Paige St. John’s series:
How State Farm cashed in on a crisis
http://www.heraldtribune.com/article/20101205/ARTICLE/12051021/0/TOPIC0305&tc=ix
When State Farm stepped up its march out of Florida, it loudly and publicly claimed hurricanes were pushing it toward financial disaster.
But State Farm never really left Florida.
A Herald-Tribune investigation finds Florida’s largest insurer has instead found an easier way to profit from homeowners desperate for coverage. And the desperation State Farm helped create allows it to command some of the highest rates in the world.
The conduit for this back-door insurance is DaVinci Reinsurance Ltd., an offshore company with no physical office or employees of its own that sells policies to insurers to cover their storm losses.
The virtual corporation was launched in 2001 by State Farm and a Bermuda reinsurer with which it has close ties.
State Farm provided $200 million in seed capital. Its partner, RenaissanceRe Holdings Ltd., took on management and the recruitment of other investors.
While it has little physical presence, DaVinci is now one of the state’s most important hurricane reinsurers. Contracts show DaVinci provided coverage last year to more than 50 Florida insurance carriers representing the owners of 3.7 million homes.
Through DaVinci, State Farm quietly continues to collect money from thousands of former customers who were told their homes were too risky to insure.
Collectively, these customers have paid hundreds of millions of dollars to State Farm’s offshore reinsurance venture. Without a hurricane, the $300 million in Florida premium paid to DaVinci from 2006 through 2009 has been largely profit. Florida’s payments for 2010 are not yet available.
The advantages to State Farm are clear.
In Florida, the insurance rates State Farm can charge are regulated by the government. Profits are controlled and taxed. The potential loss from a major hurricane is measured in billions of dollars.
DaVinci’s premiums, on the other hand, are as high as the market will bear. Based in Bermuda, it avoids U.S. taxes and faces no limit on profits. If a hurricane strikes, State Farm would lose no more than its investment in DaVinci — $350 million at the end of last year.
Link to the full series by Paige St. John:
http://cf.htcreative.com/insurance2/insuranceriskhome.html