He puzzled and puzzled till his puzzler was sore. Then the Grinch thought of something he hadn’t before! Maybe everyday doesn’t have to be Christmas for insurers who want higher rates for the shore. Maybe Christmas…perhaps…means zones are no more!
They’re finding out now that no Christmas is coming! They’re just waking up, I know just what they’ll do. Their mouths will hang open a minute or two, then the Whos down in Whoville will all cry, “Boo Hoo.”
“We won’t take zone filings for the time being. I think the larger carriers have abused that privilege. We’re trying to bring some reasonableness to how they handle their rates.”
The announcement came in the Sun Herald without ribbons! It came without tags! It came without packages, boxes, or bags!
Chaney said he does not believe statewide rate increases would mean people in North Mississippi are subsidizing Coast rates. He said insurance companies also want to charge higher rates in earthquake-prone areas.
Chaney believes some insurance companies are trying to price themselves out of the catastrophe market, something no one wants to see because coastal risk would then be concentrated in the state-run wind pool. He also said insurance company filings attribute a larger portion of Coastal risk than warranted to South Mississippi.
But this… this sound coming from insurers wasn’t sad. Why… this sound sounded glad. Every Who down in the Northbrook and Bloomington of Whoville, the tall and the small, was singing, without any presents at all! He hadn’t stopped Christmas from coming, it came! Somehow or other, it came just the same.
Mississippi Insurance Commissioner Mike Chaney has transferred $19 million provided by the state to the wind pool for reinsurance — coverage the pool buys to help pay for catastrophic losses from hurricanes. The wind pool last year spent a total of $67 million on reinsurance, which provided $600 million in coverage.
The wind pool covers about 42,000 policyholders. Chaney hopes $20 million left of the state money provided after Katrina, coupled with reduced costs for reinsurance, will be enough to help cover reinsurance costs for 2011 and 2012.
Is Chaney the Grinch who stole the insurance industry’s Christmas or not?
Good find on the article about NC. It is a real mess and the politicians and regulators are not leveling with the citizens about the possible consequences.
The root problem is 19 or 20 entire counties are covered by the pool and the rates are way underpriced. The pool has become a market of preference and not of last resort. The situation is so bad that inland Homeowner availability is being impacted. Farmers has already left as indicated. I understand another major carrier is considering some drastic actions.
I just hope there is not a major hurricane that hits NC. It will really be a bad scenario.
These zone rate increases are the exact reason folks in Baldwin County Alabama pay more for X-Wind HO than someone in Birmingham. These policies are not priced to the risk – they can’t be and the ppl in Birmingham are the ones not paying enough.
I suspect the same is true of a State Farm X Wind policy in Harrison County versus Hinds, especially after the next 19.5% rateup. I suspect Chaney knows this which would explain his new stance. The people on the coast are being raped on rates while the average ignorant blowhard in N Miss is convinced they are subsidizing us when the oppose is true. In fact to go bit further I want no part of their New Madrid fault earthquake risk as it does not match the risk I bear living in hurricane country.
Of course how you look at “the problem” depends on how it is framed. There is no other financial market in this country that is allowed to be fragmented along state lines which in turn does not allow for the true spreading of risk. Insurers take advantage of the market fragmentation. In small right tail Cat markets like the Mississippi coast the market mainpulation manifests itself in extreme ways as it does in Alabama. In places like North Carolina where there is enough coastal area such that those parts of the state are able to exercise political will to level the playing field. Since insurers don’t benefit by cherrypicking they threaten to leave.
As Florida has shown in standing tall in the face of insurer threats along with the assumption of some risk is a winning proposition and Florida sports some of the region’s lowest homeowner rates to prove it. Florida, coastal Alabama, Louisiana and Texas are where my risk brothers and sisters reside. That pesky anit trust exemption insurers have prevent such a market from forming.
All that said I think Chaney played the only card he had under the current market manipulated setup and I agree with his stance. His office remains feckless however.
Merry Christmas to all.
sop
The use of territorial rating is a valid rate setting process. Done properly each territory should stand on its lown loss experience which should eliminate one group of policyholdrs subsidizing other groups. The loss experience for a territory should be the basis for the base rates for that territory. Usually in most states a territory could consist of several contiguous counties with similar loss exposure. One key to this is having a territory with enough exposures and premium to validate the results. I have also seen cases where a city is large enough to have separate territories wihin a city or county. It should all be based upon valid premium and loss experience.
Merry Christmas to all!
I agree 100% that the pricing for each territory should reflect the actual cost of doing business in that particular territory. The problem is, how do you determine the right price (defined as enough to pay expected claims, purchase reinsurance, pay for the physical process of issuing & servicing policies AND provide a reasonable profit for the insurance company)? Years ago, insurance companies were allowed to pool their experience. That gave credibiilty to the numbers and they were able to predict, with reasonable certainty, the cost of doing business just about anywhere & for just about any sub-set of risks. Now, however, that sharing of information is prohibited (for fear of collusion in the rate setting process). So, only the very largest companies (like State Farm & Nationwide )have any real idea of what the “right” rate actually is….and we won’t let THEM have it….unless they charge the same rate across the entire state. So, Corinth… Southhaven…. Meridian…. Vicksburg…. time to ante up. Oh, I forgot….you already did. That’s where that $19 million came from! (The Mississippi Economy Growth & Recovery Act was established for the specific purpose of funding reinsurance for the windpool by applying a 5% surcharge to every non-admitted insurance policy issued in the state, regardless of where the risk is located.)
Lynda when you consider the coast (as defined by Hattiesburg and all points south) supplies 40% of the State’s budget per Mr Chaney the least the inlanders can do is give us some of our money back although I agree with you philosophically that taxpayers should not be supporting either insurers or individual policyholders.
As far as loss exposures and claims experience goes isn’t it time individual insurers learned to stand on their own and not depend on an anti trust exemption as the basis for the business model. It is so anti competitive and frankly is not the American way.
All that said I’ve enjoyed working with your company on behalf of my commercial clients more than most I’ve interfaced with and that is a credit to the job you guys do.
Happy New Year to all.
sop
You are so right that there is a difficulty in determining potential coastal costs as models continue to change and the cost of future reinsurance is volatile. However, territories with valid premum can be prices for the non-hurricane loss events. Even in the mid-south historical data can used to price for spring storms. NE MS and NW AL will have experience for more hail/tornado activity.
To require a statewide base rate is not the way to go. There are differences in exposures like theft and vandalism. Also, certain locations within states have a tendency to have more liability claims and varying those base premiums is actuarily sound.