Jim Brown's Weekly Column: Risk Takers Stick it to the Taxpayers

Thursday, June 17th, 2010

Baton Rouge, Louisiana


And if thou stare long enough into an abyss, The abyss will also gaze into thee.”


Melville’s Moby Dick is a popular semblance right now for our unquenchable search for oil, and, like Captain Ahab, the consequences that often lead to self destruction. In days of old, whalers ventured further and further into unchartered waters to become excavators of oceanic whale oil that stroked the furnaces of the Industrial Revolution. The same unchartered path has been followed by oil companies pushing technology to new limits. But are they responsibility assessing the risk involved?

The BP gang has continually told us that such a spill never happened before, and therefore they had not anticipated such bleak scenario. That’s the same argument we heard during the financial meltdown from Ben Bernanke and Alan Greenspan when they argued that the housing market would not plummet because “it had never happened before.” But stuff happens. Part of the process is to assess the risk. Time and time again, both industry and government have minimized risk and, in a highly irresponsible way, just played the odds. And much too often, it has turned out to be a bad bet.

Lay the blame for BP’s irresponsible risk taking right at the feet of the United States Congress. Our representatives in Washington passed a little known 1990 law that capped an oil company’s liability, after cleanup costs, at $75 million. For now at least BP has agreed to waive the cap. But who knows for how long? BP stockholders, many of whom have retired on BP dividends, may well feel full justification to challenge disbursement of BP assets when the law says the company is not required to do so. Continue reading “Jim Brown's Weekly Column: Risk Takers Stick it to the Taxpayers”

Lafayette Advertiser took “Hard look at insurance” without hard look at facts – editorial is truly sad

On top of the misleading headline in the Shreveport Times, the Lafayette Advertiser has taken a “Hard look at insurance” without a hard look at facts.  Obviously, insurance legislation introduced in this session of the Louisiana Legislature is tort reform in disguise.

The upcoming Louisiana legislative session is a general-purpose one, not restricted to taxes and other fiscal matters. So, typically, the Legislature will take on every topic imaginable.

We’re glad one of those topics is insurance, the subject for an upcoming series of hearings by a joint legislative committee. Something is clearly wrong with our system, especially where homeowners insurance is concerned. The best look would come from the broadest field of view — the kind you get without ideological blinders.

From this lofty perch, the Advertiser’s Editorial (con)descends to reach a conclusion that defies both logic and fact – and, as if the combination of logically fallacies and an out-and-out lie were not sufficient cause for outrage, ending a sentence with a preposition is something up with which I will not put:

We hope the committee will look for solutions everywhere logic might lead, from more and more effective regulation — preferably in concert with other Gulf Coast states — to tort reform, which seems to have had a calming effect on rates in Mississippi ($802).

Without a stable, affordable homeowners insurance market, South Louisiana has no future worth hoping for.

SLABBED published Go figure! Mississippi has nation’s seventh-most-expensive homeowners insurance… on the 4th of January and the accompanying table showed the average premium in Continue reading “Lafayette Advertiser took “Hard look at insurance” without hard look at facts – editorial is truly sad”

…and the good news is premium growth slows – but Mississippi and Alabama still paying more for insurance

Post-Katrina homesite, Mobile Press Register

Jeff Amy covered both bases with similar stories in both the Pascagoula and Mobile editions of the Press RegisterAlabama homeowners, according to Army’s story, have gone from paying 10 percent less than the national average in 2002 to 10 percent more in 2007.

“Satisfied is probably not the right word, but we’re comfortable with where we are compared to the other coastal states,” said Alabama Insurance Commissioner Jim Ridling.

Of course he’s comfortable,  look at what happened to the homeowners next door in Mississippithe State went from paying 13 percent more than the national average in 2002 to paying 24 percent more in 2007.

Mississippi’s not so comfortable Insurance Commissioner Mike Chaney told Amy “Rates are going to continue to go up in Mississippi.”

Though the data isn’t in, Chaney said he thinks rates also rose in 2008 and 2009 because of increases granted in 2007 to Allstate and Nationwide. Continue reading “…and the good news is premium growth slows – but Mississippi and Alabama still paying more for insurance”

Go figure! Mississippi has nation’s seventh-most-expensive homeowners insurance and lowest median household income

Rebecca Mowbray reported Louisiana homeowners insurance is nation’s third-most-expensive, study says in Sunday’s Times Picayune.

Louisiana remains the third most expensive homeowners insurance market in the nation behind Florida and Texas, according to newly released data from the National Association of Insurance Commissioners.

Mississippi ranked seventh.  Expanding the NAIC data with median family income during the reporting period shows Mississippi and Louisiana in last and next-to-last place on a ranked listing of states when state median household income is considered.

Mowbray points out policyholders actually pay more because the numbers do not reflect the cost of flood insurance, which is sold as separate policy. Continue reading “Go figure! Mississippi has nation’s seventh-most-expensive homeowners insurance and lowest median household income”

Does NAIC have authority to revise reinsurance collateral requirements?

NAIC is the National Association of Insurance Commissioners – a membership-based organization.  It also has become a “regulator” of the insurance industry with ambition for expanding that role – as noted in the comments in the article that follows.

Final details remain to be put in place, but the nation’s insurance regulators, after nearly a decade of study, have adopted a “conceptual framework” to modify the 100 percent collateral requirements for foreign reinsurers.

After the action by the National Association of Insurance Commissioners, at its winter meeting here, one insurers’ trade group vowed to fight against implementation at state and federal levels.

“This proposal sets forth a conceptual framework only,” said a statement from New Jersey Banking and Insurance Commissioner Steven M. Goldman, chair of the NAIC Reinsurance Task Force, which drafted the proposal.

“Now, we must focus on developing the specifics of this new regulatory regime and taking the appropriate legislative steps to make the proposal a reality,” he said. Continue reading “Does NAIC have authority to revise reinsurance collateral requirements?”

The House is Burning Down and Methuselah is Bitching a Blue Streak

As predicted the debate on needed changes to the insurance regulatory model is now officially raging. On one side is our State Insurance Regulators crying foul on Federal oversight of insurers while on the other are those that point out the obvious: The old way of doing things just won’t do any longer. I’ll note the same group that is now pretending to look out for us consumers is also the ones with a revolving door problem. As a group and with little exception state insurance commissioners like our own Mike Chaney here in Mississippi are paper tigers who pretty much do just what the insurance industry tells them or they’ll leave.

Would the hodgepodge of state regulations have prevented subprime disaster? No, but it also didn’t prevent AIG from imploding either.  Jim Connolly at the National Underwriter has the story of secrecy, which is generally how our state insurance regulators prefer to conduct their business.  Putting this group of fossils out of business will be a good impact of the AIG disaster IMHO:

State insurance regulators have voted to keep confidential insurers’ pending applications for new products prior to their approval.

The action at a meeting of the National Association of Insurance Commissioners applies to product filings that are pending approval with the Interstate Insurance Product Regulation Commission.

Prior to the vote insurers warned that amending the current public access policy would make them less likely to use the commission. But a leading consumer advocate called that argument “a sham.” The Compact Commission is currently trying to increase the number of product filings so the commission will become profitable and self-sustaining. Continue reading “The House is Burning Down and Methuselah is Bitching a Blue Streak”