The Mississippi “R” Factor Part 1

We have more insurance news out most of it involving the State of Mississippi. As I noted yesterday the contrast between Commissioner McCarty and the Republican Party in Florida and Commissioner Chaney and the Republican leadership in Mississippi is striking and very unfavorable to our leadership here. Today we are greeted with this news story in the Sun Herald on the Mississippi Windstorm Underwriting Association: Continue reading “The Mississippi “R” Factor Part 1″

Nationwide on Your Side? Nope

Any company that would screw an old lady certainly has no problems messin’ with younger folks. Keep that chair pulled up as these videos illustrate why folks like Senator Chris Dodd and Richard Shelby live by “Show me the Money”. If you is common folk and got no money then you don’t count like their friends in big insurance.

Nationwide: Not on Your Side?

Pardners when this Cowboy says big insurance will go to great lengths to screw the elderly for a buck he means it! Pull up a chair and listen to this poor ole woman’s nightmare dealing with her own insurance company Nationwide Insurance. I hope insurance industry waterboys like Senators Chris Dodd and Richard Shelby are proud of themselves and their service to big insurance. Bless their hearts their mommas must not have taught them right from wrong when they was growin’ up.

Insurance Complexities: The Myth of State Farm’s Financial Insolvency and Conflicts of Interests.

I occasionally run across “fans” of Nassim Taleb, a philosopher/visionary who is changing the way people view world events. His black swan concept, which is the name sake for his latest book, is understood and often repeated as the totality of his theory when in reality it is just a small part of his body of work. Russell and I share an interest in Taleb’s work, an interest that derives from actually reading his two books rather than simply embracing the pop culture lite version repeated in the popular media.

This subject of insurance is akin to understanding Taleb and his theories; one can get a slight flavor for the concepts of subjects like wind claims dumping from the media but the nuance and complexities of the subject escape the vast majority of the popular reporting just as Taleb’s theories are revealed completely only by reading his books. Taleb’s Black Swan is an important concept but his central thesis is far more involved. Taleb’s website, named for his first book gives a better clue the larger theory he espouses.

Such is the case with the recently issued GAO report and the concepts surrounding the Continue reading “Insurance Complexities: The Myth of State Farm’s Financial Insolvency and Conflicts of Interests.”

Landrieu Legislation to Extract FEMA’s Head Out of Their Ass…..

Bill creates insurance oversight

Plan audits firms in flood program

Tuesday, February 05, 2008
By Rebecca Mowbray

On the heels of a federal report that found “an inherent conflict of interest” in having private insurance companies determine how much the government should pay on flood claims, Sen. Mary Landrieu, D-La., plans to introduce legislation creating an ombudsman to strengthen financial oversight of the National Flood Insurance Program. Continue reading “Landrieu Legislation to Extract FEMA’s Head Out of Their Ass…..”

Another Type of Insurance Problem

One insurance suit settled, one begun

The Desmoines Register
February 7, 2008


Another Des Moines area insurance company has run afoul of Minnesota’s attorney general over the sale of equity-indexed annuities, and now Iowa regulators say they’ll look to see whether any similar action is warranted here.Minnesota Attorney General Lori Swanson on Thursday accused AmerUs Group and American Investors, both business units of what is now Aviva USA, of misrepresenting terms of annuities that it sells to senior citizens. She sued them in Minnesota state court for allegedly failing to disclose key terms and conditions of equity-indexed annuities that they market.

This type of thing has been going on for some time. The 2001 downturn brought a rash of problems with oversold variable annuities (whose accumulations were tied to stock market performance). Annuities are essentially reverse life insurance once the payout stage is reached. They have their good points, but their fees are often very high.

Florida Insurance Hearings: Not Every Company is Losing Money

We noted in our continuing coverage of the Florida Senate Hearings concerning their property insurance mess that Allstate used unapproved short term weather models to make actuary decisions on the purchase of reinsurance. Those poor business decisions have caused losses for Allstate’s Florida operating company, losses they now wish to dump on Florida consumers.

Allstate has since been joined by Nationwide and Farm Bureau in admitting the use of unapproved short term models to drive reinsurance purchase decisions. Farm Bureau also admitted losses deriving from that fact.

In a refreshing change, we have a story from the Miami Herald that Florida based American Strategic Insurance testified Tuesday they used approved long term models and have profited from the better decisions that resulted from that fact.

American Strategic, a St. Petersburg company that managed to cut rates an average 11.5 percent due to the money it saved by buying a portion of its reinsurance from the Florida Hurricane Catastrophe Fund.

The company also lowered rates another 9.5 percent later in the year, mostly because it paid a lower cost for additional reinsurance bought in the private market and had fewer claims and better cost controls.

”Generally speaking, apples to apples, reinsurance costs were coming down for everyone in 2007,” said CEO John Auer, who expects to see another drop this year.

Unlike many insurers, American Strategic said it is writing new homeowners policies, even some on the coast. The company has 260,000 policies, making it the third-largest insurer behind state-run Citizens and State Farm.

Sen. J.D. Alexander, R-Winter Haven, questioned American Strategic’s heavy use of reinsurance to cover potential losses. He asked if it would be in financial trouble if its reinsurers, especially the state catastrophe fund, couldn’t make good on their

Auer said the company, started 10 years ago, has already lived through highs and lows in the reinsurance market, noting that reinsurers are pleased with American Strategic’s management. And A.M. Best raised American Strategic’s rating to A-minus from B++ last December.

As I opined on the Allstate Yahoo Finance Message Board, the testimony of Allstate, Hartford, Farm Bureau and Nationwide Insurance reminded me of the confessions of an accomplished three card monte dealer. They expect their customers to foot their mistakes; both the mistaken decision to purchase more reinsurance and the decision to buy expensive reinsurance at all for that matter, rather than the cheaper variety offered by the State of Florida. Is insurance the only line of business that doesn’t have to pay for their business mistakes? In the small business world where I come from there is no government backstop save bankruptcy so the concept of profit entitlement is foreign to me.

In any other line of business the shareholders, not the public would be eating these business mistakes. So while we congratulate American Strategic and their owners for their ability to profit while their competitors languish we also hope free market principles apply equally to those who make bad business decisions.

Simply put there is a point where the insurance industry needs to take ownership of their mistakes. The mess in Florida illustrates exactly why so few present day insurers would survive in a truly competitive marketplace without that anti-trust exemption they currently enjoy. Our position is that the free marketplace should reign supreme where ever possible and the culture of big insurance profit entitlement should end.

Finally the events in Florida now have me wondering if our state regulators here in Mississippi have been hoodwinked by similar tactics. Our wind pool premiums are in the stratosphere, largely due to the astronomical cost of reinsurance. Given what we have learned through the application of Sunshine to the insurance industry by the Sunshine State, I challenge Mr. Chaney to hold rate hearings for any increases in property insurance, not just those he arbitrarily deems too high. We have quickly arrived at the point where he should put the interests of the citizens of this state ahead of the profit interests of these out of state insurance companies.


Florida Gets a Big Fat F

Florida gets an ‘F’ for insurance system
from the South Florida Business Journal
February 6, 2008

Florida has one of the least-effective property and casualty insurance systems in the country, a new study that gave Florida and four other states an “F” grade said.

The joint project of the Heartland Institute and the Competitive Enterprise Institute rated all 50 states on nine criteria, including how prominent the states’ roles are in the auto and home insurance markets, and the concentration of insurance companies writing policies in a particular state. California, Massachusetts, North Carolina and Texas joined Florida in getting an F. Connecticut, Idaho, Illinois, Utah and Vermont got A grades.

Florida scored at or above average in seven of the nine categories. But Florida had the worst rating in the residual homeowners category, which measures how much of the market is served by government-provided insurance. Jacksonville-based Citizens Property Insurance Corp., the state-run insurer of last resort, is No. 1 in statewide market share.

Florida also scored poorly in the regulatory environment category for having an outsized influence in the setting of rates.

I would love to see the formula. Florida is above average in 7 of 9 categories. But because the State Government holds a lot of the policies, they get an F. Apparently the fact that many insurers have not been interested in insuring Florida home owners does not matter. Amazing.

Texas, North Carolina, and California all have to deal with big natural disaster issues so I am assuming some form of state self insurance makes them a failure as well. Massachusetts probably banned personal property when Romney was governor in an effort to avoid paying out any insurance to anyone ever.

Bad Faith Insurance Bible: Screw the Common Man

This Cowboy has told ayone who would listen how big insurance companies intentionally screw their customers to save a buck to pay for some obscene executive bonus. Ole Michael Sasso over Tampa Tribune way tells the story of Allstate and what they is hidin’ from them insurance boys in Florida. Pull up a chair and learn more:

Secretive Allstate File Could Show ‘Bad Faith’

By MICHAEL SASSO, The Tampa Tribune

TAMPA – Behind the fight between Florida’s insurance commissioner and Allstate Insurance Co. is a mystery that could have come from a John Grisham novel.

Secret Allstate documents – known as the McKinsey documents – allegedly show how the insurance giant intentionally has made low-ball claims offers to its customers for years, netting Allstate billions of dollars in the process.

But the McKinsey documents have never seen the light of day.

Trial lawyers who have sued Allstate in recent years have eagerly sought them, and Allstate reluctantly has turned them over to lawyers under subpoena. However, each time a judge has prohibited lawyers from distributing them to the media and the public under a protective order.

Florida now is demanding the documents from Allstate and other insurers in a broad-based investigation of the companies’ business practices, including alleged collusion with other insurers and their claims handling procedures. The issue came to a head last week, when Insurance Commissioner Kevin McCarty suspended Allstate’s right to issue new insurance policies in Florida. A judge later lifted McCarty’s suspension.

Allstate spokesman Mike Siemienas said the company intends to turn over the documents, but Florida might not find them all that revealing. The McKinsey documents at issue concern auto insurance – not the hot-button issue of homeowners insurance. Some of the strategies laid out in the documents were just ideas and never became Allstate policy, Siemienas said.

Still, Whitney Buchanan, an Albuquerque, N.M., trial lawyer who has seen the elusive documents, said that if Florida’s insurance commissioner receives them, they could go a long way to showing that Allstate has not been playing fair.

“These documents are devastating to them in bad faith litigation,” Buchanan said.

The McKinsey documents were drafted in the early 1990s, when Allstate hired the consulting firm McKinsey & Co. to review its business practices. Some of McKinsey’s ideas became company practice, said David Berardinelli, a Santa Fe, N.M., trial lawyer who has sued Allstate on occasion.

In the course of one 2001 lawsuit, a judge ordered Allstate to give Berardinelli the McKinsey documents for a short period. The documents bore a watermark that prevented them from being reproduced, but the lawyer took numerous pages of notes on what he saw. He later turned those notes into a book called “From Good Hands to Boxing Gloves,” which is marketed only to lawyers.

File Explains ‘Fast Track’ Strategy

One of Allstate’s strategies: a “fast-track” settlement offer. Berardinelli claims the documents reveal how Allstate would offer insurance claimants an extremely low offer during the first 90 days after an auto accident. During these initial 90 days people are the most in need of money and most likely to accept a low-ball offer, Berardinelli said. Allstate claims adjusters were expected to persuade a certain percentage of customers to accept these fast-track offers, Berardinelli said.

Overall, Allstate tried to standardize the claims process, by using computer models that offered low-ball estimates of the value of a person’s claim, Berardinelli said.

“They are charging people for coverage that they’re never going to get,” said Berardinelli, who has teamed up with Buchanan on occasion to sue Allstate. “That is fraud.”

Siemienas, the Allstate spokesman, said Allstate investigates the merits of each insurance claim and bases its payouts on its investigation. It has no such standardized approach to payouts, he said.

Word of the McKinsey documents’ existence spread among trial lawyers, and soon other lawyers began subpoenaing them from Allstate for their own insurance lawsuits.

Although some lawyers have received them, Allstate has gone to great lengths to prevent their dissemination to the public or the media. Four trial lawyers reached this week all said they are unable to give the documents to anyone else because of a protective order from the court.

Siemienas said Allstate seeks court orders because the documents contain trade secrets that could benefit Allstate’s competitors if they were released.

In an ongoing Missouri case, a judge has ordered Allstate to turn over the documents to an attorney without benefit of the court order. But Allstate has refused, causing the judge to fine the company $25,000 a day until the company turns over the McKinsey papers to the attorney.

Allstate’s fine in the Missouri case has grown to $2.4 million, according to new documents from the Florida Office of Insurance Regulation, which is watching the Missouri case. Rich Halberg, a spokesman for Allstate, acknowledged that there is a court order to produce the documents, but he said the judge hasn’t enforced it and that Allstate hasn’t incurred a fine.

What the documents mean – and how Florida’s insurance commissioner might use them – is debatable.

2nd File Deals With Homeowners Policies

The McKinsey documents that have raised such a fuss nationwide were developed for auto accident cases, Halberg said. They don’t relate to homeowners insurance, which has become such a major issue in Florida in recent years, he said. McKinsey & Co. created other documents for Allstate involving homeowners insurance, Halberg said, but they are not the documents that lawyers have targeted.

A spokesman for McKinsey, Mark Garrett, said in a telephone voice mail that McKinsey does not comment on matters relating to its clients.

Trial lawyers say the documents have become hot property in both auto and property insurance lawsuits.

William “Chip” Merlin, a Tampa trial lawyer, said he has subpoenaed the documents from Allstate on several occasions, and they have helped him secure settlements from the insurer on behalf of clients in auto and homeowners cases. The documents can show juries that a customer’s insurance claim wasn’t handled properly and that Allstate tried to keep unhappy customers from hiring attorneys, Merlin said.

Buchanan, the Albuquerque lawyer, said the documents helped him secure settlements from Allstate, too.

Still, Merlin said the documents alone aren’t enough to win a lawsuit against Allstate.

In Lexington, Ky., trial lawyer Dale Golden subpoenaed Allstate for the documents and filed a class-action lawsuit against the company on behalf of auto accident victims. Even though he had the supposedly damning documents, a judge declined to make the lawsuit a class action, meaning he could not represent a wide group of people. Golden also later lost the case when he brought it on behalf of a single client.

Golden said he is appealing. He said the length to which Allstate has gone to prevent public disclosure shows how damaging they are.

“What else is Allstate hiding?” Golden asked.