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sop

Roger Wicker's Maiden Senate Speech

The Sun Herald has consistently reported he would make Hurricane Katrina recovery the major part of his speech and they were true to their words. Perhaps Congressman Taylor now has a true champion for the multi peril concept in the Senate. Without further analysis here is the insurance exerpt of Senator Wicker's maiden Senate speech:

Much has been done, but there is much left to do.

Chairman Donald Powell, the Federal Coordinator for the Office of Gulf Coast rebuilding, acknowledged these challenges last week when he announced he was stepping down. He said it would be "some time before the area recovered."

I say this to my colleagues in the United States Senate: Katrina is not over. There are tall hurdles still to overcome. There is more the United States Congress must do.

The most urgent issue facing the Mississippi Gulf Coast is insurance. If you can't insure it, you can't build it or finance it. The rising cost of insurance cripples the efforts of small businesses, increases the cost of home-ownership, and drives rental rates beyond affordability.

This is not just an issue for Mississippi. From Bar Harbor, Maine to Brownsville, Texas, millions of Americans live near the coastline, in the path of a future hurricane. For many years, insurance companies have refused to offer insurance protection for water damage caused by hurricanes; this led to the creation of the National Flood Insurance Program. After Katrina, the most important question for a homeowner or a small businessman was "wind or water?"

Wind versus water. That is the debate which still occurs today in courtrooms on the Mississippi Gulf Coast between insurance companies and storm victims.

This debate is what necessitated the multi-billion dollar supplemental appropriations package this body approved after Katrina, and unless Congress changes the law, the wind versus water debate will result in a multi-billion dollar supplemental appropriations package after the next big hurricane - wherever it may land.

Even worse, since Katrina, it is also common practice for insurance companies to not offer wind insurance at a rate that is even close to affordable. This is driving more and more homeowners and business owners into a state-sponsored wind pool, which acts as an insurer of last resort. But this is not a reasonable long-term solution, because too much risk is being placed in a too small of a pool.

The best solution available is to allow homeowners to purchase wind and flood insurance coverage in the same policy.

This will not only help the storm victims so they can know their hurricane damage will be covered; it also will protect the United States taxpayer. The American people are the most generous in the world, and their elected representatives will continue to respond to natural disasters, whether it is a hurricane on the East Coast or an earthquake in California, with supplemental disaster appropriations packages. But the size of these packages will be smaller if more people have insurance.

As a member of the House, I voted for Congressman Gene Taylor's multi-peril insurance legislation when it passed last September. I am committed to achieving the same success here in the Senate.

Gene Taylor Issues + Answers Lecture

Gene Taylor's issue + answers lecture at USM Gulf Park was a well attended event. Besides Congressman Taylor, Senatorial hopeful Ronnie Musgrove, State Senator David Baria and Insurance Commissioner Mike Chaney were in attendance. While I organize my thoughts and before I give my personal impressions, I'll post the Sun Herald story along with the actions of our fellow blogger and friend Steve, aka Topbanana, who shouted down an insurance agent that heckled Congressman Taylor. The agent in question was forcibly removed from the premises by campus security while Steve received a round of applause from the crowd for shutting the guy up.

This news story contains a factual inaccuracy, HR 3121 does not repeal the McCarran Ferguson anti trust exemption. sop

Taylor asks residents to act

Wants support for multi-peril coverage

By MICHAEL A. BELL

Continuing his fierce pursuit of federal multi-peril insurance, U.S. Rep. Gene Taylor on Friday urged South Mississippians to flood senators with e-mails, letters and phone calls in support of a bill that would allow property owners to purchase both wind and flood insurance under one policy.

"We're all in this together," he told hundreds at the University of Southern Mississippi's Gulf Coast Campus.

Taylor's lecture, "The Insurance Crisis: A Case for Multi-Peril Coverage," was part of the Issues + Answers series sponsored by the school and the Sun Herald.

The U.S. House has approved multi-peril insurance. But the legislation faces heavy opposition in the Senate.

"We need our senators to champion this issue," said Taylor, who's trying to convince senators to support the addition of wind coverage to the National Flood Insurance Program.

Taylor argued insurance agents who probed the post-Katrina wreckage blamed the damage on wind. "I think the taxpayers got hosed on that," he said. "Insurance is killing us."

He said the private insurance industry made nearly $50 billion the year Katrina hit, then nearly $70 billion in 2006.

But people stuck in FEMA trailers - "42,000 little cubicles of love," he quipped - continue to grapple with recovery.

"A lot of people are hesitant to rebuild," he said. "And that's not a good thing for our country."

He argued his bill would provide peace of mind to residents that they won't have to prove wind or water caused property damage.

"You don't have that lingering feeling that 'maybe I ought to stay behind with a video camera and have some evidence'," he said.

He added his bill would no longer exempt the insurance industry from anti-trust laws.

Former Gov. Ronnie Musgrove and current Insurance Commissioner Mike Chaney attended Taylor's presentation.

Taylor's 60-minute speech was followed by a standing ovation and a Q&A session.

One woman asked how much Taylor's policy would cost if it were approved by the Senate.

"The answer is, 'We don't know,'" Taylor said, adding the coverage would be optional. "But it's got to pay for itself."

Kenneth Trawick, 76, of Gulfport called the insurance industry a "runaway group of thieves" and thanked the congressman.

Breaking: Scruggs Contempt Case in Alabama Dismissed

David Rossmiller has broke this story on his blog. Thanks to Bellesouth for the pdf of the order and heads up.

sop

Update:

I have read the order for dismissal and await a lawyer's analysis but to me it boils down to what was very apparent from reading Judge Acker's original order; the law enforcement exception contained therein is absolute and was met as demonstrated by the facts of the case. Also Judge Vinson found Judge Acker's order was poorly written:

There is some ambiguity in the wording of the order because if the first paragraph was complied with (and the documents were given to counsel for Renfroe), then as Judge Acker himself acknowledged at the March 2007 contempt hearing [see Doc. 130 at 187-88], the second paragraph would be superfluous (i.e., the Rigsbys could not further disclose, use or is appropriate materials no longer in their possession). The special prosecutors attempt to resolve this ambiguity by arguing that the second paragraph meant only that the Rigsbys “could cooperate with law enforcement by discussing with law enforcement what they knew about the documents.” See Doc. 11 at 5. This contention overlooks the nature of the object of the injunction. The second paragraph by its own terms applied to “any material described” in the first paragraph, which plainly consisted of the tangible documents themselves. Any attempt to limit the second paragraph to “mental impressions” or “recollections” must fail.....

And finally the heart of the matter:

However, the fact remains that Scruggs did not violate the clear and express terms of the injunction. Again, as then-Judge (now Justice) Stephen Breyer has observed, courts must read injunctions "to mean rather precisely what they say."

The injunction specifically and precisely said the documents could be given "to law enforcement officials at their request." Regardless of the subjective intent that Hood may have had when he requested the documents, the undisputed fact is that he did make such a request. The objective language of the injunction expressly authorized the law enforcement exception, and it must be recognized here. Criminal contempt under such circumstances cannot be supported under the law.

While Judge Vinson did cast a wary eye on the arrangement between Mr Scruggs and Mr Hood the bottom line was that issue was ancillary to the points of law. I wonder if Marsha Thompson at WLBT will now rehash the Rigsby sister's sex lives in an attempt to save face.

This issue has been resolved and not the way the self proclaimed cyber experts predicted. At the risk of appearing snotty such things happen to the closed and weak minds.

Our best wishes and regards go out to the Rigsby sisters for their strength in the face of this assault on their characters and reputations.

sop

Breaking: Federal Jury Finds 5 Former Insurance Executives Guilty in Financial Manipulation Scheme

Not much time for analysis but here is the news story. sop

HARTFORD, Conn. (AP) -- Five former insurance company executives were found guilty Monday of a scheme to manipulate the financial statements of the world's largest insurance company.

The verdict came following a monthlong trial in federal court.

The defendants, four former executives of General Re Corp. and a former executive of insurance industry leader American International Group Inc., sat stone-faced as the verdict was read.

They were accused of inflating AIG's reserves through reinsurance deals by $500 million in 2000 and 2001 to artificially boost its stock price.

Reinsurance policies are backups purchased by insurance companies to completely or partly insure the risk they have assumed for their customers.

The defendants were former General Re CEO Ronald Ferguson; former General Re Senior Vice President Christopher P. Garand; former General Re Chief Financial Officer Elizabeth Monrad; and Robert Graham, a General Re senior vice president and assistant general counsel from about 1986 through October 2005.

Also charged was Christian Milton, AIG's vice president of reinsurance from about April 1982 until March 2005.

Ferguson, Monrad, Milton and Graham each face up to 230 years in prison and a fine of up to $46 million. Garand faces up to 160 years in prison and a fine of up to $29.5 million.

"This is a very sad day, not only for Ron Ferguson, but for our criminal justice system," Clifford Schoenberg, Ferguson's personal attorney, said in a statement distributed at U.S. District Court in Hartford. "I and the rest of Ron's legal team will not rest until we see him -- and justice -- vindicated."

Yo Allstate: Florida Isn't Amused OIR Moves to Ban Allstate

Earlier this week there was some improtant developments involving Florida's battle with Allstate. As we have repeatedly noted in our continuing coverage of Allstate there is a pattern of behavior exhibited by this insurance giant of ignoring lawful subpoenas and court orders. Worse according to the Florida Office of Insurance Regulation complaint:

Encompass Floridian Insurance Company’s chief executive officer knowingly made and filed a false certification.....

This charge involves a certification on the rate filing that the CEO of the operating company has reviewed the entire application. When sworn under oath the CEO of Allstate's Florida subsidiary admitted he signed the document only reviwing the execuitive summary and thus was unable to answer detailed questions by the Florida Senate committee.

To put this into context this was the type of defense by ignorance used by Ken Lay at Enron (the three wise monkeys). It resulted in CEO's and CFO's being required by Sarbanes-Oxley to affirmatively certify their companies financial information submitted to the Securities and Exchange Commission. Here is a link to Thomas Wilson certifing the last quarterly corporate financial statement and in the process doing what the CEO of his Florida subsidiary did not do, reading and certifing that an important document is accurate and complete. I now wonder if those internal controls Mr. Wilson swore were working on October 30, 2007 really are in light of the FLOIR Complaint. After all a good system of internal controls include those which insure compliance with applicable laws and regulations.

In any event here is the press release from Commissioner McCarty's office for our readers to consider. Events in Florida are heating up and as pointed out elsewhere by Mr CLS could directly tie into the shareholder derivative suit styled Fojas v. Ackerman.

Florida Insurance Commissioner Kevin McCarty today announced that the Office of Insurance Regulation (Office) has filed an administrative complaint on a non-emergency basis seeking to suspend the certificates of authority of the Allstate Companies (Allstate) to write new insurance policies in Florida.

The complaint is based in part on Allstate's failure to provide witnesses and documents as subpoenaed by the Office; falsely labeling subpoenaed documents as trade secret and falsely certifying its rate filings.

"Seeking to suspend a company's license is not something we take lightly," said General Counsel Steve Parton. "However, in light of their defiance of the Florida Insurance Code, we think it is necessary to make the point that actions such as we have seen by Allstate will not be tolerated."

Allstate was to have provided all appropriate company documents related to the Office's investigation at or before the Jan. 15 hearing. Instead, in late November, Allstate filed 51 pages of objections to the subpoenas. Allstate has been delivering documents to the Office since the Jan. 15 hearing, but has not delivered all documents requested by the subpoenas and is maintaining claims of privilege to some of the documents.

The Office has been asking for documents about Allstate's reinsurance program, its relationships with risk modeling companies, insurance rating organizations and insurance trade associations. The subpoenas also required appropriate witnesses to appear at the January hearing to be able to discuss issues that were subjects of the subpoenas.

The complaint also alleges that Allstate has violated Florida law by not properly certifying its rate filings as required by House Bill 1A, which passed in January 2007.

Filing the complaint is required under Florida law as part of the process that began when Commissioner McCarty issued the Immediate Final Order (IFO) Jan. 17, suspending Allstate from writing any new business in Florida. Allstate is expected to request an administrative hearing on the Office’s complaint. If requested, a hearing would be held at the Division of Administrative Hearings (DOAH).

An administrative law judge will hear the evidence and then make findings of fact. Commissioner McCarty could then issue a Final Order, which may include a suspension of Allstate's certificates of authority. Allstate could then appeal to the First District Court of Appeal.

The DOAH hearing is separate from the ongoing matter that Allstate initiated in the First District Court of Appeal (DCA) by filing its Jan. 17 notice of appeal of the commissioner’s IFO. That matter is still proceeding in the DCA.

The Allstate suspension was the first time the Office had suspended a company for failure to "freely" provide documents as required by Florida law.

The Order would apply to all Allstate companies on which the subpoenas were served:

Allstate
Floridian Insurance Co.
Allstate Indemnity Co.
Allstate Property &
Casualty Insurance Co.
Allstate Insurance Co.
Allstate Floridian
Indemnity Co.
Allstate Fire and Casualty Insurance Co.
Encompass
Insurance Co. of America
Encompass Indemnity Co.
Encompass Floridian
Insurance Co.
Encompass Floridian Indemnity Co. A copy of the subpoena is available
to review.

sop

Florida Again Dominates the Insurance Battle

There were two big announcements out of Florida this week, one involving Allstate and one involving State Farm. I'll tackle State Farm first since it is more complex and the most disingenuous.

Some background is in order for State Farm. When Florida created a state market for cheaper reinsurance it also mandated premium reductions for those who took advantage of the program. Two major insurers filed for rate increases after buying the state reinsurance, Allstate and State Farm. When Insurance Commissioner McCarty ordered rate hearings for the increases (rate hearings in Florida involve public sworn testimony including revealing the basis for the rate increases) State Farm backed down and instead reduced their homeowner premiums in accordance with the law. As is their custom in states where they do not get their way including here in Mississippi when we dared to litigate against them they announced they will no longer write new homeowner policies in Florida. I like Beatrice Garcia's reports on insurance news from Florida so today I've linked the Miami Herald story on this development.

In a move certain to deepen Florida's insurance crisis, State Farm Florida plans to stop writing new homeowners policies throughout the state starting Saturday.

The state's largest private insurer of homes also won't offer new renters or commercial policies in order to reduce its exposure to hurricane risk in Florida.

State Farm's current policyholders won't be affected by the move. The company will continue to renew the one million homeowners and renters policies it has in Florida.

The insurer also will continue to write new auto insurance in Florida, a far more lucrative line of insurance than property coverage. It insures more than two million vehicles.

State Farm will cease writing new homeowners policies just days before lawmakers return to Tallahassee to wrestle once again with proposals to make insurance coverage more affordable and available.

However unlike Mississippi which kowtows before these large insurance companies Florida's Office of Insurance Regulation has some arrows left in it's quiver. Contrast the Florida approach as outlined yesterday and my comment to yesterday's post of Mississippi's of letting insurers dump off coast consumers in the state wind pool:

Ed Domansky, an OIR spokesman, said that as a courtesy State Farm Florida told regulators of its plan to stop writing new homeowners policies. While OIR regulates insurance company activities in Florida, it has no authority to block State Farm's move.

Domansky said Insurance Commissioner Kevin McCarty was disappointed by State Farm's decision.

Both McCarty and OIR General Counsel Steve Parton will see if State Farm will be in compliance with a new law that requires companies to sell homeowners coverage in Florida if they sell other lines here and sell homeowners insurance elsewhere in the country.

Sen. Steve Geller, a Democrat from Cooper City, said he believes State Farm will stay within the bounds of the new law because the company will be renewing existing property insurance policies.

State Farm is trying to curtail its risk if a massive storm hits, particularly in densely populated areas such as South Florida and the Tampa-St. Petersburg area. But Geller wonders if State Farm's action could also be driven by another motive.

State Farm and Allstate are aggressive backers of a bill introduced in the Florida House of Representatives last week that would create a statewide windstorm program to write hurricane coverage throughout the state, not just along the coast.

Under that proposal, insurers could decide to write policies without hurricane coverage or still sell traditional multi-peril policies. These policies wouldn't be subject to surcharges to make up any deficits in the state-run Citizens Property Insurance, the state's largest insurer of homes and condos.

State Farm's new move ''could be a threat to get more favorable consideration'' of this bill, Geller said.

The bill faces resistance. Sen. Bill Posey, R-Rockledge and chairman of the Senate Banking and Insurance Committee, sees the bill as an "insurance industry relief bill. That's why it's a non-starter with me."

Isn't it strange that the insurance company PR departments and trade groups denounce the NFIP as a taxpayer subsidy (it is and was intended as one when it was enacted in 1969) yet expect the taxpayers to bail them out every time they hit a bump in the road? Senator Posey has it exactly right in my opinion and I hope the Florida legislature does not let these insurance companies offload their least desired risk exposures on the taxpayers while continuing to profit handsomely from other lines of business.

sop

Breaking: Allstate Fined $250,000, Ordered to Reinstate Policies

Thanks to Mr CLS for the heads up to this Times Picayune story.

BATON ROUGE -- Insurance Commissioner Jim Donelon fined Allstate $250,000 Wednesday and ordered the state's second-largest insurer to reinstate the wind and hail coverage of several hundred customers whose policies were dropped in disregard of a key consumer-protection law.

It is the only fine that Louisiana has levied against a homeowners insurance company since Hurricane Katrina, and the fine is the maximum penalty allowed by state law.

"I'm doing that because of the continuing efforts of the company to circumvent the consumer
protections that have served us so well," Donelon said. "This statute is the law of Louisiana. It was the law of Louisiana when these policies were written, and it will be enforced."

Donelon said he has tangled with Allstate three times in the past year and a half over the company's efforts to circumvent a Louisiana consumer-protection law that makes it difficult for insurers to drop policyholders after three years, and he said he is tired of it.

In July 2006, Allstate announced plans to drop 30,000 customers in south Louisiana in a way that Donelon said would violate the three-year law, and it took five months of negotiations to get the company to take a different tack. In spring 2007, Allstate conducted cursory drive-by inspections of homes and tried to cancel hundreds of homes that it deemed "abandoned" that were actually under repair or occupied before the state Insurance Department intervened.

And most recently Allstate has been reclassifying some longtime customers as new ones so their wind and hail coverage could be dropped. Donelon said the ongoing problems with Allstate's practices led him to conclude that the company was flouting the law and needed to be penalized.

Allstate admits no wrongdoing. The suburban Chicago company said it disagrees with the Louisiana Insurance Department on its interpretation of insurance laws.

But Allstate, the sponsor of the Sugar Bowl, said in the consent agreement and stipulation signed Tuesday that it decided to settle the matter "in recognition of the catastrophic events of 2005, the continuing concern for its customers and as a gesture of goodwill."

In a news release Wednesday, Allstate said it agreed to pay the money "to avoid expenses associated with a hearing."

But Donelon said the $250,000 is indeed a fine. "In my view, absolutely," he said. "No one else has gotten close to the need for punitive action."

Cursory inspections done

Though the fine was triggered by Allstate's recent efforts to drop the wind and hail coverage of longtime customers who should be protected by state law, the fine technically was levied on the company as a result of a flawed property-inspection process that was supposed to determine whether homes were occupied or being rebuilt.

Last year Allstate dropped 4,772 customers after conducting drive-by inspections of 40,500 homes in the New Orleans area that averaged about a minute a home. Allstate said it dropped the policies because the inspections revealed that the homes were unoccupied or not being repaired. Within a few weeks, 588 people filed written complaints with the Insurance Department saying they were in fact living in the home or rebuilding.

The department ordered that Allstate temporarily reinstate all policies and redo the inspections, with documentation. How many of the 4,772 customers ultimately qualified to keep their reinstated insurance coverage is unknown, but 552 of the 588 people who complained were found to have been improperly terminated and were reinstated.

When the department forged an agreement with Allstate on the issue in March, Donelon reserved the right to impose sanctions. As the department began investigating a new round of complaints that began just a month later with Gretna homeowner Michael Scioneaux, Donelon decided he needed to do so.

Dropped after 31 years

Scioneaux had been insured by Allstate for 31 years at the same home and never made a claim outside of Hurricane Katrina, but he got a letter in April saying his wind and hail coverage would be dropped because he had been with the company for less than three years.

The letter made no sense because Louisiana has a law that says once a customer has been with an insurance company for three years, it's very difficult to drop them. Customers can be dropped only if they stop paying their bills, make excessive claims for non-"act of God" events such as hurricanes or tornadoes, commit fraud, or unless the company can prove to the Insurance Department that it risks going bankrupt if it keeps them.

But several years earlier, Scioneaux had taken advantage of a good-credit discount that Allstate offered. Unknown to Scioneaux, Allstate rewrote his policy from letterhead that said "Allstate Insurance Co." to stationery that said "Allstate Indemnity Co." to process the discount.

In the April 2007 letter, Allstate now said the May 2004 change meant that Scioneaux was a new customer whose wind and hail coverage would be dropped in June. Scioneaux said he was not informed of any such risks when he accepted the discount offer and that the shift amounted to a bait-and-switch for the company's benefit. Allstate has been under a corporate mandate to reduce its exposure in coastal areas.

Scioneaux was overjoyed at the news that his policy would be reinstated. "I just heard I won. I'm in a state of shock," he said Wednesday.

Since the summer, Scioneaux has been forced to buy his wind and hail coverage from Louisiana Citizens Property Insurance Corp. But because he was angry that Allstate cut the most important part of his policy, he moved to Louisiana Farm Bureau Mutual Insurance Co. for his fire, theft and liability coverage as payback, and cut Allstate out of the deal so it would be unable to earn easy premiums.

Even though Scioneaux says he has no love for Allstate, he said he plans to return to the company because it's a better deal than a split policy. "I'm really not in a position that I can pick and choose. I need to take the best coverage and the best price to protect me and my family and our biggest investment: our house," said Scioneaux, who is also personnel director for Jefferson Parish.

For now, Scioneaux plans to celebrate. His Allstate agent, a friend who also lost his wind and hail coverage, called and invited him out to dinner Friday night. Scioneaux also will be having a celebration lunch with two other dissatisfied Allstate customers whom he met during the course of complaining to the Insurance Department.

"We're comrades in a cause," he said. "I never thought I would feel so happy about being able to go back to a company where I'm going to have to pay an expensive policy."

Unknown number affected

About 21 people in Scioneaux's situation have complained to the Insurance Department, but it is not known how many customers of Allstate or Encompass, the brand of Allstate insurance sold by independent agents, were affected. Allstate's news release says "a few hundred" are in the group.

According to the terms of the agreement, Allstate must give the Insurance Department a list of people like Scioneaux who were dropped within seven days and send customers an offer to come back within 30 days. That offer will include wind and hail coverage, but it will carry a 5 percent storm deductible, as all Allstate policies have done since June. The company must "take all reasonable and necessary efforts to contact each customer directly," and within 90 days, it must give the Insurance Department a list of how many of those people opted to come back.

Not everybody was impressed with the settlement.

Bob Hunter, director of insurance for the Consumer Federation of America, said a $250,000 fine for a company that earned $4.6 billion in net income last year is negligible. "The fine, for Allstate, is chump change. It's a cost of doing business," he said.

Hunter, who is originally from New Orleans and who served as insurance commissioner in Texas in the early 1990s, said Louisiana needs to make sure Allstate doesn't pass on the cost of its fine to customers because the state doesn't have a law barring companies from throwing the cost of fines into rate filings.

Xavier University v. Travelers / Chehardy v. Allstate

"The wise man listens to meaning; the fool only gets the noise."
Poet C. P. Cavafy

"Favor distilled thinking, by which I mean the thinking based on information that is around us that is stripped of meaningless but diverting clutter. For the difference between noise and information has an analog: that between journalism and history."
Nassim Nicholas Taleb in Fooled by Randomness

For whatever reason I was reminded of those quotes yesterday while reading the Jim Hood commentary in yesterday's Clarion Ledger, the Folo Blog and David Rossmiller's blog. Those that have actually read Taleb's books understand he harbors a general disdain for "journalists" though the main object of his sarcastic wit in "Fooled" is George Will who is a commentator, rather than a journalist. All in the blogosphere are guilty of being Talebesque noise makers including your authors here at the Insurance Issues Forum. The trick is distilling the commentary, which task all three sources of noise I listed above failed miserably yesterday in my opinion.

So while much of the local blogosphere goes off chasing the Jim Hood br'er rabbit, some fresh off their unsuccessful chase of Billy McCoy, we will stick to our knitting of providing analysis of the insurance news which impacts so many coastal residents across this nation.

I saw this news item in today's Sun Herald and thought it most worthy of mention, mainly because we will surprise some of our readers with our take. It deals with two court cases on appeal out of the New Orleans area related to Katrina and the Supreme Court shooting down the appeals of Xavier University.

The Supreme Court refused Tuesday to offer help to Hurricane Katrina victims who want their insurance companies to pay for flood damage to their homes and businesses.

The justices rejected appeals from Xavier University and 68 other individuals and businesses seeking to allow their lawsuits against the insurers to go forward.

Xavier asked the court to step in after the 5th U.S. Circuit Court of Appeals ruled the policies did not cover damage from floods, even those that resulted from man-made failures such as the collapsed levees in New Orleans.

Other cases working their way through state courts have so far reached differing conclusions. A Louisiana appeals court has said language excluding water damage from some insurance policies was ambiguous. The Louisiana Supreme Court will hear arguments in that case Feb. 26.

Xavier and the other plaintiffs had asked the federal court to allow the state Supreme Court to rule on their suits as well. The 5th Circuit refused and the U.S. high court upheld that ruling Tuesday.

While we are certainly sympathetic to the arguments of the dubious effect the Chamber of Commerce has exacted on our judiciary we agree with the Supreme Court's ruling. The Flood Exclusion found in all private insurance policies is not ambiguous and these suits succeeded only in muddying the waters for all insurance litigation, much of which are far better grounded in insurance law. These Louisiana cases are not wind versus water; rather all the parties seem to agree flooding was the cause of damage. In our minds the obligations of insurers stop when excluded events are the clear cause of damage as is the case in these suits.

Finally we welcome Bellesouth, a real life example of the firehouse syndrome at work in the blogosphere. To their credit the Clarion Ledger has not banned Belle simply because she has a differing viewpoint though I am fairly certain Sid Salter would love to strangle her. Belle is new to the blogosphere and comes equipped with some strong opinions. We hope she will find the environment here conducive to learning the ropes and finer points of effective blogging.

sop

Gene Taylor to Speak on Insurance Reform

There has been an advertisement run in the print editions of the Sun Herald on Gene Taylor conducting an Issues + Answers lecture sponsored by the University of Southern Mississippi Gulf Park Campus on Friday, February 29, 2008 at the Advanced Education Center auditorium.

Thanks to one of our readers, I was emailed a link to the University press release and I am happy to pass it along to all so interested. Considering the other recipients listed in the address header I am honored Ida thought enough of this blog to pass me the good word.

I will be in attendance and hope we pack the house on the 29th.

sop

The Mississippi "R" Factor Part 2

I've noticed that when solutions to this insurance mess are offered it is one political party that is doing the offering. Outside of a few Democrats like US Senator Christopher Dodd the Republican party is the overwhelming choice for discriminating big business and insurance political donors.

Such must certainly be the case here in Mississippi as we found this Clarion-Ledger story concerning Phil Bryant's State Senate Insurance Committee most disturbing. Lt. Governor's Bryant stated campaign goal of continuing the coastal rebuilding efforts certainly are taking a back seat to his service to monied insurance interests.

No Katrina-related insurance legislation will be taken up by the Senate Insurance Committee this year, chairman Sen. Eugene Clarke said Thursday.

Clarke, R-Hollandale, said he needed a year to get acclimated to leading the committee before passing any bills.

"I feel for people on the Gulf Coast, but we've got totally new leadership in both chambers," he said.

Clarke's decision has soured some Gulf Coast senators, though, who say nothing has been down two and a half years after Hurricane Katrina flattened the southern part of the state.

Sen. David Baria introduced seven pieces of insurance reform legislation this session, but he said Clarke told him Thursday they would all die in committee.

"It's upsetting because this is the primary reason I decided to run for the Legislature - to do something about insurance," said Baria, a freshman lawmaker who defeated Republican incumbent Sen. Scottie Cuevas in the November election.

"While I understand (Clarke) is new... we can't wait any longer to do something about this issue."

The two pieces of legislation the Bay St. Louis Democrat said he was most interested in seeing get to the floor included:

A bill to codify a premium payer's Bill of Rights and attach it to policies, as well as include plain-language exclusions and eliminate concurrent cost exclusions. He filed two versions of the bill and one would prohibit insurance companies from contributing to anyone running for commissioner of the Department of Insurance.

A bill that would offer apply a premium reduction in the private sector to those who build a "fortified" home - similar to regulations under the so-called Windpool.

Clarke said he was going to spend the "off season" studying up on the legislation.

"We want to take care of consumers," he said.

No offense to Senator Clark but if actually thinks anyone believes that load of dung he shoveled then I have some waterfront in the New Mexico I'd like to sell him.

The comments to the Clarion Ledger story tell that tale of Senator's Clark's continued study of an issue that is now almost 30 months old.

No offense to Sen. Clarke, but perhaps the Senate leadership should have asked him if he felt comfortable chairing a committee related to insurance issues BEFORE appointing him to chair the Senate Insurance Committee. I bet the beleagured folks on the Coast would have appreciated that. Why is it that after almost every article I read about our Legislature I find myself having to take deep breaths and rub my temples? I would hate to assume that he was placed there because he would be willing to block anything the insurance companies didn't want becoming law.

or this one

Thanks Mr. Clarke! The coast gets shafted because you need on the job training.

Senator Clarke is doing as he is told which is why I place the blame for this inaction on his boss Lt Governor Bryant. The Mississippi Democrat party appears in complete disarray so I doubt they capitalize on the insurance "R" factor to score political gain. I hope everyone that supported Mr. Bryant and Mr. Chaney last November and who now pay much higher insurance are taking notes.

sop

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:

Residential policyholders have been shocked by significantly higher premiums in their wind-pool renewal notices.

Wind-pool board members approved policy changes, effective Oct. 1, that mean higher rates for the majority of policyholders who stick with a 2 percent hurricane deductible. A Sun Herald reader alerted the newspaper to the policy changes Thursday.

Wind-pool board member David A. Treutel Jr., who is from the Coast, said the change was in error. The board, he said, was trying to give the best wind discount possible while keeping options simple. He said the error was brought to the board's attention in January and members voted unanimously to correct it. A correction should apply retroactively to rates charged since Oct. 1.

"The direction from the board was to fix it," Treutel said. "That wasn't intended."

As of now, policyholders who used to have $1,000 or $2,500 deductibles for unnamed storms will feel a pinch unless they raise their named-storm deductibles. Even then, their rates might still increase even though their out-of-pocket expenses will be higher after a catastrophe.

Such was the case for Rex Chastain's family. Chastain had hoped for some insurance relief in 2008, but instead finds his family "insurance poor."

Hurricane Katrina forced the Chastains, along with thousands of other South Mississippi residents, into the state wind pool, where residential rates jumped 90 percent in 2006. The wind pool is the insurer of last resort for 36,000 South Mississippians, who must carry a separate private policy to cover fire, theft and liability.

The Chastains' total homeowner insurance bill jumped 147 percent. (Emphasis mine)

Homeowners insurance has been that dirty little secret buried in the howling wind insurance storm. Coastal consumers are routinely finding their wind excluded homeowners policy costs as much today as their wind included homeowners policies before Katrina. I have not heard of increased fire, theft or liability risk here on the coast since the storm. Curious.

We were also greeted with this story on David Baria and his attempts to pass some common sense legislation in the Mississippi Senate dealing with insurance.

Sen. David Baria has filed seven Hurricane Katrina-related insurance-reform bills, but on Tuesday legislators will finalize the list of measures that stay alive, and his are in danger of dying without a vote.

The first-term legislator, a Democrat from Bay St. Louis, attended the Senate insurance Committee meeting Thursday briefly to see if any of his bills were up for discussion, but was surprised when he found they were not.

Baria has filed a "Policyholder's Bill of Rights." The measure would put the burden of proof on the insurance companies when there is a dispute over whether a claim is covered in a policy. The House Insurance Committee approved a version of the bill Wednesday, allowing it to move forward.

Baria said it's surprising two of his Senate bills, which he considers minimal changes, haven't made it out of committee. Senate Bill 2432 would make it mandatory for insurers to attach a list of a policyholders' rights to each homeowner's policy. Senate Bill 2165 would help homeowners who use stronger construction methods get discounts on the rates they pay.

"To me, both of those bills should be no-brainers," Baria said.

Indeed we agree with Senator Baria on SB 2432 and SB 2165; these laws should be a no brainer. Insurance impacts everyone in the state but it has impacted coastal residents in an outsized way, which in turn has greatly elevated the level of awareness these issues here. The real problem in my opinion lies with Lieutenant Governor Phil Bryant and his choices for the insurance committee, which he evidently stacked with pro insurance legislators.

Of the Senate Insurance Committee's 13 members, only three are from South Mississippi - Watson, Billy Hewes, R-Gulfport, and Debbie Dawkins, D-Pass Christian. Eugene S. Clarke, R-Hollandale, chairs the committee, which is made up of eight Republicans and five Democrats.

Most of the Legislature's post-Katrina insurance reforms aimed at coverage offered through the private sector have failed. The Legislature last year approved a bailout for the state wind pool, which is the insurance of last resort for those who can't get private wind coverage.

This is R factor is at work. How quickly Mississippi Republicans have forgotten the people who elected them to office.

sop

Insurance News Today

There are two news stories in today's Sun Herald that are well worth pointing out. The first deals with the House Insurance Committee's passage of a Policyholder's Bill of Rights, prompted by the treatment of consumers here on the coast after Hurricane Katrina.

Long Beach resident Kevin Buckel lost his house on Russell Avenue to Katrina, but was originally paid only $1,000 by Nationwide, but the company later settled a lawsuit with him. Buckel told the committee that putting the burden of proof on the insurance company is the most important part of the Policyholder's Bill of Rights.

"When you are denied a claim, the insurance companies would be more likely to settle with homeowners if they can't prove their case in court," Buckel said.

I have not read the bill but I take Mr Chaney's reservations concerning it to mean it must favor consumers over insurers.

The second story should come as no surprise that private insurers will continue to increase the pressure by economic strangulation of the coast enabled by former insurance agent turned inusrance commissioner Mike Chaney. I find the contrasts between Mr Chaney and Mr McCarty in Florida most telling as I do the timid reactions of Mississippi politicians in general to this issue in huge contrast to those in Florida.

Mississippi Insurance Commissioner Mike Chaney said some major insurance carriers have indicated they may no longer renew wind coverage for customers in South Mississippi.

"If they quit writing wind for existing customers, that's really going to put more pressure on the economy," said Chaney, who added that he is working to keep private carriers in the six southernmost counties and bring in new business.

He hopes enforcement of enhanced building codes, coupled with other measures his office is pursuing, will improve the market.

Is it me or were the new buillding codes passed after the storm in late 2005 or early 2006? Perhaps it's time Mr Chaney quit hoping and instead champion the people who elected him to office. Frankly I would personally never sign up with a private insurer for wind coverage, as it is a waste of money buying a policy that does not pay on wind damaged coastal properties. Like my home before the storm my rebuild will be in the wind pool which did pay on their policies as a rule.

sop

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 inherent conflicts of interest possessed by the Write-Your-Own insurer and the possible impacts of that conflict manifested in concepts like wind claims dumping following a multi peril flood event such as a Hurricane. David Rossmiller penned a particularly insightful piece on the GAO report tackling the conflicts of interest conclusions of the GAO head on.

“One, this "inherent conflict of interest" certainly exists, just as it exists whenever you file a first-party property claim. This is not very startling, because it has been said -- wait while my computer comes up with the final tally -- 3,456 kajillion times before in insurance literature. For many of you the following explanation will be something you know already, but many don't know it, so I am going to set it down in writing here. As you may or may not know, when someone makes a liability claim against you, say you ran into them with your car, your insurer owes you a fiduciary duty, assuming a duty to defend arises out of the allegations and the language of the insurance policy. A fiduciary duty is the highest duty imposed by law, and requires one to treat another's interests like one's own, resolving all conflicts of interest in favor or the insured. These type of liability claims are called third-party claims. In contrast, claims you file with your own insurer for damage to your house or other property are called first-party claims. An adversary relationship is assumed to exist between the insurer and insured from the time the claim is filed, and generally speaking, no fiduciary duty arises on the part of the insurer.”

Mr. Rossmiller gave his readers a great lesson in the law but also his post implied a great lesson in dealing with an insurer. When a consumer files a first party insurance claim and the adjuster is sent, the insurance company knows a great bit of information in advance of the first visit, including a good idea how the insurance company plans on adjusting the claim. The unsuspecting consumer, who was promised good hands treatment by a good neighbor, has no clue their friendly claims adjuster is actually an adversary, a wolf in sheep’s clothing.

As I pointed out in a post on the concepts of economic transparency and insurance in December this condition is known as Information Asymmetry, “A situation in which one party in a transaction has more or superior information compared to another. This often happens in transactions where the seller knows more than the buyer, although the reverse can happen as well. Potentially, this could be a harmful situation because one party can take advantage of the other party’s lack of knowledge.”

There are public policy implications in these conflicts of interests, both those noted by the GAO and those that are an accepted part of insurance law as explained by Mr Rossmiller. These public policy battles are being played out real time in places like Olympia Washington and Washington DC by people, including politicians who have the ability to see past the law to a greater collective good.

Is State Farm Overextended?

I have read remarks like this one several times in the blogosphere and am again reminded of Taleb and his theories:

(My independent insurance agent) “talked me out of using State Farm (who had the lowest quote), because he said that the opinion of a lot of insurance brokers was that State Farm had overextended itself, and might not be able to pay all of their claims in a widespread disaster. He directed me to a company that was about 20 per cent Higher than State Farm.”

The luck involved with that scenario is stunning. Though I don’t think it is possible to buy State Farm insurance from an independent insurance agent lets assume this statement is true. What were the motivations of that independent agent? To maximize their own commission a la commissioned retail stock brokers? Assuming this poster had combination wind-water damage and their WYO insurer paid them under both wind and flood there is also a large element of luck that the damage was distinguishable as appears the case with McIntosh.

As a group we do not recognize the influence of pure chance at work in our daily lives as we are far more suited to pat ourselves on the back and stroke our egos than see true reality. A central part of Taleb’s observations that deal with how we humans make sense of events was best summed up by Taleb himself when he wrote:

“It is high time to recognize that we humans are far better at doing than understanding, and better at tinkering than inventing. But we don't know it. We truly live under the illusion of order believing that planning and forecasting are possible…..

(we) are too bathed in enlightenment-style (notion of) cause-and-effect and cannot accept that skills and payoffs may have nothing to do with one another.”

So while we try to make sense of how State Farm adjusted their multi peril claims here after Katrina in terms of misguided notions like “they had to commit fraud or they would have gone bankrupt”, it would help to arm ourselves with some facts including basic financial facts such as after paying almost $4 billion dollars in claims, State Farm’s Property and Casualty Subsidiary still had over $3.5 billion dollars of “unassigned surplus” while posting over $2 billion dollars of profits in the two years ended December 31, 2006. That’s right, State Farm actually made money despite paying those Katrina related claims.

For those interested in State Farm’s financial condition the last audit of their P&C subsidiary can be found here.

Next up: Differing views on the problems with NFIP and some suggested solutions.

sop

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
policies.

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.

sop

The Allstate Battle in Florida: An Update

The Florida District Court of Appeals last week kept a temporary stay in place against the suspension of Allstate from Florida by the Florida Office of Insurance Regulation. The ruling is a double edged sword in that the expedited appeals process puts pressure on Allstate to produce records on its business practices; records it has been unwilling to produce in the past. According to Kevin McCarty, Commissioner of the Florida Office of Insurance Regulation Allstate has become more diligent in producing the subpoenaed records:

All the documents requested in our October subpoenas were due at the Jan. 15 hearing, but I am encouraged that as a result of my suspension order Allstate within a week produced about 25,000 pages of documents.

"I remain ever committed to Florida consumers to get to the bottom of this issue and to ensure that Allstate is held accountable to the law."

The timetable for the expedited court appeal points to a resolution in early March, 2008. A copy of the court order that contains the milestones can be found here.

sop

Breaking News: Hood Fires Back

Jim Hood has made the news today with his Friday court filings in response to State Farm trying to prevent a new grand jury from looking into alleged wrong doings on their part in how Katria claims were adjusted here on the coast. I write this post with a heavy heart as we have just learned of Jody Compretta's untimely passing in a parade accident last night in New Orleans. Our thoughts and prayers are with JP and his family.

The AP story:

A lawsuit filed by State Farm Fire and Casualty Co. that accuses Attorney General Jim Hood of using the threat of criminal charges to force settlements in civil lawsuits is based on "lies, speculation, and innuendo," Hood said in court papers.

State Farm sued Hood in September, claiming he violated his part of a January 2007 settlement in which the attorney general's office agreed to end its criminal investigation over the company's handling of Hurricane Katrina claims. A judge ordered Hood to temporarily shut down the probe.

The accusations in court documents have intensified over the past week as both sides prepare for a hearing on Wednesday.

"Before allowing State Farm to use this court as a three ring circus to parade its inflammatory evidentiary rhetoric of innuendo, guilt by association, and smears, there should be some factual basis alleged to support a conclusion of retaliation and/or harassment," Hood said in papers filed Friday in U.S. District Court in Jackson.

Jonathan Freed, a State Farm spokesman told The Associated Press on Friday, that the insurer is ready to "proceed with our case and we're looking forward to airing these issues in court."

Hood asked the court to dissolve the restraining order and allow him to resume his investigation. Hood's 19-page filing came just days after State Farm used some of the strongest language yet in accusing the second-term attorney general of wrongdoing.

The company claimed Hood and wealthy plaintiffs attorney Richard "Dickie" Scruggs, who is facing corruption and contempt charges in other cases, participated in an "extortion conspiracy" by trying to force the company to settle civil litigation with private attorneys.

The court battle heated up when State Farm began urging a judge to allow the company to question Scruggs under oath. Hood has called Scruggs his "confidential informant" and has said Scruggs provided allegedly incriminating information about State Farm."

General Hood is clearly concerned that his co-conspirator will either tell the truth or invoke the Fifth Amendment on specific questions related to their extortion conspiracy," State Farm said in a motion filed Wednesday.

U.S. District Judge Michael P. Mills on Friday ordered Scruggs to submit to the questioning by 5 p.m. Monday. Scruggs will likely invoke his Fifth Amendment protection against self-incrimination when questioned because of the pending charges against him.

Scruggs, one of the most influential plaintiffs lawyers in the country, is facing federal charges that he conspired with several associates to bribe a judge in an unrelated dispute over $26.5 million in fees from a mass settlement of Katrina claims. He's facing contempt charges in Alabama for allegedly violating a federal judge's order by giving leaked Katrina assessment documents to Hood rather than returning them to the company from which they were taken.

Scruggs has denied wrongdoing in either case. Scruggs is not a party to the lawsuit State Farm filed against Hood, but the company claims he worked in collusion with Hood.

The January 2007 agreement that State Farm claims Hood violated by resuming a criminal investigation was part of a broader settlement that called for State Farm to reopen and possibly pay thousands of policyholder claims. However, a federal judge refused to sign off the terms of deal and State Farm later entered into another agreement with George Dale, who was then Mississippi's Insurance Commissioner.

In August 2007, State Farm received a new subpoena for records from a grand jury. Less than a month later, the company sued Hood in an effort to stop the grand jury's investigation.Hood claims he wasn't reopening the same investigation, rather he was probing new claims.Hood has argued that he never provided "blanket immunity" from future investigations.

Pee on My Leg and Say It's Raining Part 3: Marsha Thompson Joins Kevin Drawbaugh in the Drive by Reporting Craze

Since Lotus at Folo brought this report that aired on WLBT to my attention, I filed it away for further commentary, not only for its glaring factual inaccuracy (EA Renfroe is a claims adjusting firm not engineers), but also because of the sheer silliness of the logic used to frame the Rigsby sisters as document purloining perverts. I had to chuckle thinking of the State Farm commercial which no doubt aired at some point during the broadcast, informing us the good neighbor stands ready to sell us life and auto insurance; contracts that people such as Dr Leroy McFarland discovered post Katrina really were not worth the paper they were written on.

I filed Ms Thompson's revealing report away as I was vetting the first Reuters story on the GAO report past some ordinary people off the coast to gauge their reactions to it and the context which it was framed. This is the paragraph that repeatedly came up in the feedback I received.

Study after study has come back with the same results, showing there is no evidence insurance companies improperly attributed wind damage from Hurricane Katrina to water," said Justin Roth, senior federal affairs director at the National Association of Mutual Insurance Companies, an industry group.

"We fully expect this report to reach the same conclusion," Roth said

Mr Roth's artful wordsmithing must be appreciated in PR circles for its sheer intellectual dishonesty as is Mr Drawbaugh's apparent willingness to serve as a mouthpiece instead of his stated vocation of reporter in the finest traditions of misinformation that would make Dr. Goebbels proud.

So how could Mr Roth be so confident in his statement, issued one day before the GAO report was released? Easy, the Three Wise Monkeys work for FEMA, and Mr Roth knew FEMA did not collect wind damage payment data in flood claims thus they had no way of knowing if NFIP was improperly charged for wind damage. This is what the GAO had to say on that exact subject:

FEMA officials stated that they did not have the authority to collect wind damage claims data from insurers. But without the ability to examine claims adjustment information for both the wind and flood damages, NFIP cannot always determine the extent to which each peril contributed to total property damages and the accuracy of the claims paid for losses caused by flooding.

FEMA cannot be certain whether NFIP has paid only for damage caused by flooding when insurers with a financial interest in apportioning damages between wind and flooding are responsible for making such apportionments.

However, when the public adjusters in Louisiana peeked under the hood of flood claim adjusting in New Orleans, they found a far different story than was conveyed by Roth and Drawbaugh:

"....a group of former insurance adjusters, identified only as the Georgia company Branch Consultants LLC, say they have reinspected 150 properties with flood and wind damage. In all cases, private insurance companies overcharged the federal flood program for storm damage while they underestimated wind damage.

"Every single one of them," said Allan Kanner, a New Orleans attorney representing the insurance and construction experts as they pursue what they say is a violation of the False Claims Act on behalf of the federal government. "There's a pattern here."

In one striking example, the suit claims that a group of four-plex apartments in eastern New Orleans were compensated for flood damage with taxpayer money even though they experienced no flooding. Each building in same complex was paid only a pittance for severe wind damage on its regular property insurance policies."

WLBT Jackson Joins in the Drive By Reporting Craze

In their anchor captioned report "Sex, Lies and Theft" WLBT tries their hand at character assassination. The story teller, Marsha Thompson, dutifully informs her viewers of Kerri Rigsby's sex life and that the Rigby's were "Stealing documents without State Farm's knowledge or permission and then furnished copies to the Attorney general, US Attorney and Scruggs without permission."

Following Ms. Thompson's logic the Rigsby sisters, who publicly stated they believed they have witnessed crimes known in some legal circles as Racketeering, should have asked permission before calling the authorities. Following the Thompson logic means we should also obtain the permission of an armed robber before calling in a bank robbery. Thompson logic also evidently means the sex lives of witnesses to a crime are fair game too.

Is it any wonder around 26% of the public finds local TV news "believable" or that so few white collar crime witnesses are willing to come forward as whistleblowers. WLBT should hang their head in shame.

Fade out to the "Good neighbor" ad.....

sop

GAO National Flood Insurance Program Report: A View from Outside the Industry

Yesterday we pointed out several glaring omissions and factual inaccuracies in the Reuters drive by reporting on the General Accounting Office NFIP report. Today we see better coverage courtesy of Anita Lee at the Sun Herald. In addition to our analysis, Ms Lee points out some of the other conclusions reached by the GAO on the flaws inherent to the current program design:

The first flaw involves the three wise monkeys and the concept of see no evil, hear no evil and speak no evil. While that old proverb works well in our personal conduct it is an invitation to disaster when used to manage a federal program:

The flood-insurance program cannot accurately determine flood-claim payments on properties that were subject to both winds and flooding, because FEMA does not collect information on wind claims and does not require companies to explain how they distinguish between wind and flood losses.

The second flaw involves the security the program gives to it's participants, even if property owner contracts for wind and flood insurance there is no way to know if all the damage will be covered due to Catch-22 like scams such as the anti concurrent clause built into wind policies and other coverage differences between flood and wind policies:

Property owners with separate homeowner, wind and flood insurance policies cannot know prior to a storm whether all their damage from a hurricane will be covered because of differences in the policy limits. The NFIP cedes the damage determination to the insurance company.

The system as currently designed fosters legal disputes because of Catch-22 scams such as the Anti Concurrent clause.

Legal disputes between wind and flood coverage have increased because of insurance companies' anti-concurrent causation clauses that attempt to exclude coverage of wind damage if flooding contributed to the loss.

Most interesting is that FEMA seems to oppose the common sense recommendations, especially those that would require the bureaucratic FEMA monkeys to remove their blinders and examine how flood claims are adjusted and the damage is apportioned in multi peril events such as hurricanes by private insurers.

Given the insurance money that supports Senate politicians like "Renfroe" Richard Shelby and "Pac-Man" Christopher Dodd we certainly understand their insistence to sticking with the current "heads I win, tails you lose" setup for coastal residents whereby wind policies are essentially meaningless pieces of paper and taxpayers ultimately bear the burden for multi peril events like Hurricanes. However, from the appearance of Gene Taylor's remarks quoted in the Sun Herald, the Catch-22 days of ordinary citizens unable to rely on their wind policies while insurance companies laugh all the way to the bank appear numbered. Thanks to the internet the truth will win this debate. Today's Sun Herald story:

GAO points up conflict of interest

Insurers deciding in wind vs. water

By MARIA RECIO
SUN HERALD WASHINGTON BUREAU

The Government Accountability Office issued a report Wednesday on the National Flood Insurance Program that concluded insurers have "an inherent conflict of interest" in determining flood damage the federal program must pay, with the wind damage covered by private companies.

"I applaud the GAO for confirming that insurance companies have an inherent conflict of interest when they are allowed to determine whether to assign damages to their own wind-insurance policies or to the federal flood-insurance policy claims," said Rep. Gene Taylor, D-Bay St. Louis, who lost his home in Hurricane Katrina.

The GAO concluded the program needs greater transparency and oversight of wind- and flood-damage decisions. The agency is the congressional watchdog arm and frequently investigates at the request of members.

"The report reinforces my proposal," said Taylor, "to give homeowners the option to buy wind and flood coverage in the same policy." The House passed Taylor's provision in September but the bill is stalled in the Senate.

"I urge the Senate to pass this legislation in order to stabilize the insurance market in coastal states," Taylor said. "I strongly support GAO's recommendations that insurance companies be required to turn over their wind-claims files so that FEMA can verify that the companies applied the same standards to the flood insurance claims as to their own wind claims."

According to the GAO, FEMA opposes the recommendation, which prompted Taylor to say, "I am disappointed, but not surprised, that FEMA opposes that recommendation. FEMA needs to recognize that its oversight responsibility is to protect federal taxpayers, not insurance companies."

The GAO also concluded:

• The flood-insurance program cannot accurately determine flood-claim payments on properties that were subject to both winds and flooding, because FEMA does not collect information on wind claims and does not require companies to explain how they distinguish between wind and flood losses.

• Property owners with separate homeowner, wind and flood insurance policies cannot know prior to a storm whether all their damage from a hurricane will be covered because of differences in the policy limits. The NFIP cedes the damage determination to the insurance company.

• Legal disputes between wind and flood coverage have increased because of insurance companies' anti-concurrent causation clauses that attempt to exclude coverage of wind damage if flooding contributed to the loss

Pee on My Leg and Say It's Raining Part 2: Reuters Story Contains Glaring Omissions and Falsehoods

After I read yesterday's Reuters story on the fight to reform the flood program I thought it strange it contained this paragraph which I knew to be inaccurate:

The Senate bill would extend the NFIP for five years and improve flood maps used in the program. But a vote by the full Senate on the bill has been blocked by lawmakers from Louisiana who are concerned that it would boost insurance rates there.

Fast forward to today and this Reuters story which contains almost the exact same wording for the reason for the hold on the senate version of NFIP re authorization:

The NFIP's post-Katrina debt would be forgiven under a bill approved in October by the Senate Banking Committee. The Senate bill would extend the NFIP for five years. But a vote by the full Senate on it has been blocked by Louisiana lawmakers who are concerned it would boost insurance rates in their state.

The second story, concerning the release of the GAO report on the National Flood Insurance Program, boiled the report down the following:

The GAO, the investigative arm of Congress, said questions remain about the Federal Emergency Management Agency's handling of flood-damage claims processed by private insurers under the National Flood Insurance Program (NFIP).

The GAO urged Congress to empower the agency to examine both wind and water claims data related to hurricane damages. It also said state regulators need to strengthen licensing and training requirements for insurance adjusters.

Alabama Republican Rep. Spencer Bachus said the GAO report contains "sensible recommendations" and deserves further discussion in the House of Representatives Financial Services Committee, where he is the ranking Republican member.

However, while Rep. Bachus is the ranking Republican member of the committee Mr. Drawbaugh evidently did not see fit to report on the reactions of the Democrats running the House Financial Services Committee to the GAO report they ordered. Curious.

I also found it equally strange that Mr Drawbaugh as did not report on the "inherent conflict of interest" in the current system of private wind insurers adjusting flood claims or the problems associated with damage related to multi peril catastrophes like hurricanes contained in the GAO report:

Insurance coverage gaps and claims uncertainties can arise when coverage for hurricane damage is divided among multiple insurance policies. Coverage for hurricanes generally requires more than one policy because private homeowners policies generally exclude flood damage. But the extent of coverage under each policy depends on the cause of the damages, as determined through the claims adjustment process and the policy terms that cover a particular type of damage. This process is further complicated when the damaged property is subjected to a combination of high winds and flooding and evidence at the damage scene is limited. Other claims concerns can arise on such properties when the same insurer serves as both NFIP’s write-your-own (WYO) insurer and the property-casualty (wind) insurer. In such cases, the same company is responsible for determining damages and losses to itself and to NFIP, creating an inherent conflict of interest.

Though we are not so called "professional" news reporters at the Insurance Issues Forum, I was able to land a copy of Senator Vitter's letter to Senators Dodd and Shelby by contacting Gene Taylor's office and simply asking for it. Since Mr. Drawbaugh did not see fit to speak with either of Louisiana Senators or HR3121 sponsor Rep Gene Taylor I guess it is understandable, though somewhat unprofessional that he reported a false reason for the hold on the Senate re authorization of the National Flood Insurance Program. Concerns over "boosting insurance rates" was not the reason Senator Vitter had a problem with the Senate version of the bill, rather:

I believe any legislation reforming the flood insurance program must make an increase in the maximum coverage levels available to policyholders. As you know, your bill does not do this. The current coverage levels have not been increased since 1994. With inflation and increased home prices since that time, the current coverage levels are severely outdated. The bills passed by the U.S. House of Representatives last and this Congress increased the current maximum levels of $250,000 for residential properties and $500,000 for non-residential properties to $335,000 and $670,000 respectively. These reasonable adjustments in the coverage levels would bring more certainty and affordability to the insurance market.

Also, flood insurance reform legislation should allow policyholders new lines of optional coverage, including coverage for business interruption and full replacement costs of contents. Businesses in Louisiana continue to suffer as we recover from Hurricanes Katrina and Rita, and skyrocketing insurance costs and fewer providers offering coverage remain among the most significant barriers to full economic recovery. These new coverage options, which could be offered at market rates so as not to add any additional financial strain on the program, would go a long way in providing some stability and affordability to the insurance market.

Additionally, I believe Congress must address the overall insurance crisis along the Gulf Coast centered on the lack of coverage options and affordable rates for wind damage. Lack of available or affordable general liability coverage including wind coverage is now one of the single biggest obstacles to recovery. Rates have skyrocketed well beyond what seems necessary to cover the risk and are not abating. Either wind coverage should be added to the National Flood Insurance Program at market rates as the House-passed bill does, or we must take other action outside the flood insurance program to address the broader insurance crisis. This could include a catastrophic backstop, similar to what we have for terrorism risk insurance.

We stand ready to correct any factual inaccuracies we find in hard news reporting on this issue, which impacts so many along America's coastlines. Reuters owes us a correction.

sop