Donelon Calls on Allstate CEO to Discuss Company’s Plan to Shed Louisiana Coverage
Insured Ones,
I’m going to manfully ignore the insane report that Hank Greenberg and an unnamed billionaire want to buy the New York Times Co. An exclusive by my pal Charlie Gasparino is here: http://poynter.org/forum/view_post.asp?id=12073. If you can’t start your day without my opinion, go to the site, click “about” and search under “Greenberg.”
I’m also going to delay delving into the nuances of the Duval vs. Senter decisions in the Eastern District of Louisiana and the Southern District of Mississippi. Suffice it to say, there are differences in those wind-water cases. I’m also not sure we want to be wandering around in those weeds.
Today, I reach back to Louisiana DOI press releases over the summer to explain why states attempting to assert appropriate authority over insurers have no chance. At the time of the above, Commissioner James J. Donelon had already announced probes into claims-handling practices of two insurers, including, I happen to know, Allstate.
But note that his real — and understandable — concern wasn’t whether Allstate was paying claims on policies it had sold. It was whether Allstate would agree to sell new ones, whether they were paying on the old ones or not. I mean, let’s say for the sake of argument that the DOI found Allstate behaved improperly or even just performed poorly. Why would you allow them them back, let alone beg/demand they come back?
Because, I-SuperFriends, Louisiana needs Allstate much more than Allstate needs Louisiana. I don’t know how much Louisiana homeowners’ premiums represent of Allstate’s $27 billion in ‘05 total property/liability premiums and $35.4 billion in ‘05 revenues, but I am here to tell you, it is a very small number. On the other hand, Allstate, State Farm and Nationwide dominate the homeowners’ market there, which, I am sure you can understand, is a mixed blessing, at best, these days.
And as boring as we all know insurance to be, nothing happens without it. No mortgages, no refinancings, no oil rigs, no casinos, no commercial fishing, no eeekcunuhmik devehluppmint, as Rep. Gene Taylor, D-Miss., might say, and no Katrina recovery. You just need it.
So note the drumbeat of DOI press releases and tell me what’s on Commissioner Donelon’s mind.
First, the market-conduct probe.
May 17: “Consumer Complaints Lead to Probe of Hurricane Claims Handling Practices of Two Insurers“
Then, Donelon announces that Allstate has demanded it be allowed to drop wind coverage in 18 coastal parishes or it would “leave the state.” Donelon says he’ll sue if they do that. That’s here:
July 21: Donelon Proposes to Invoke Regulatory Action in Allstate Matter
Then the commissioner publicly asks for talks with Allstate CEO Edward Liddy by name. If you read it, you’ll see he calls him “the Northbrook, Illinois-based Liddy.” Right, fighting words. That’s here:
July 26: Commissioner Donelon calls on Allstate CEO to discuss company’s plan to shed Louisiana coverage
Then, he gets a meeting, but with Allstate’s president and COO, Thomas Wilson.
July 27: Donelon, Allstate president to meet Monday
Then, phew, Allstate agrees to reconsider (not change) its position.
July 31: Statement from Donelon following his meeting with Allstate President
So the Louisiana insurance commissioner, who is hardly, and he would agree, a fire-breathing populist, had to threaten to sue and issue a press release to get a meeting with Allstate brass. And though Wilson is a very important guy there, symbolically, it’s not great that Liddy couldn’t make it.
How’s that Katrina market-conduct exam going, I wonder?
And here is question that is mostly rhetorical, but I’d like to hear opposing views: In the Allstate-Louisiana relationship, who holds the whip?
http://www.ldi.state.la.us/public_affairs/Press_Releases/2006_Press_Releases/Probe%20of%20handling%20claim%20practices%205-17-06.htm
http://www.ldi.state.la.us/public_affairs/Press_Releases/2006_Press_Releases/Donelon%20calls%20on%20Allstate%20CEO%207-26-06.htm
http://www.ldi.state.la.us/public_affairs/Press_Releases/2006_Press_Releases/Donelon%20and%20Allstate%20president%20to%20meet%207-27-06.htm
http://www.ldi.state.la.us/public_affairs/Press_Releases/2006_Press_Releases/Donelon%20calls%20on%20Allstate%20CEO%207-26-06.htm
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November 30th, 2006 at 8:28 am
I know this post is about Louisiana but Mississippi is in the same economic dilema. Only State Farm is writing new policies in Mississippi and those policies do not have wind-coverage. Insurance companies pull this crap everytime there’s some disaster. Be it Florida getting hit by hurricanes seemingly every other week or the good folks in Texas and Oklahoma having hail storms or tornados.
I know a company that is now paying three times the premium and the coverage is less than half the amount as before. It’s sobering when you realize that if another hurricane were to hit, this business would probably not be able to recover. Flood insurance by the NFIP has a cap of $500,000 for the building and another $500,000 for the contents.
Whne the assets stored in the building are 6 times that amount, you begin to see the problem.
It’s almost impossible to get a blanket coverage for any type of flood damage from an underwriter now.
But from Florida to Texas, the insurance companies seem bound and determined to throw the economy of those states into a whirlpool by their, to me, underhanded techniques. Next up, the Eastern seaboard and California. I mean, insurance can’t be expected to offer coverage where there’s a threat of a disaster?
November 30th, 2006 at 8:35 am
Seawitch, You’re good. The site wouldn’t be the same without you.
November 30th, 2006 at 2:42 pm
Good one from Person Familiar:
“Anonymously…
Allstate holds the whip. When a big insurer is willing to give up all its business in a state, the state has zero leverage, with rare exception. You’ll have to fact-check this, but I’m pretty sure Massachusetts, for example, may be (or was) the only state where you can’t just up and leave, at least as an auto insurer, without paying a prohibitive exit fee. The Hanover Group, for example, wanted out of Massachusetts but decided against it because it was cheaper to stay and lose money while gradually reducing its market share at an insurance-department-controlled rate than to put the book into immediate run-off (non-renew all policies and write no new business).
It was a watershed moment when State Farm and others decided it wasn’t worth losing money on auto insurance in New Jersey in order to preserve its other lines of business in that state. When a big insurer like State Farm quits a market, policyholders lose big, because fewer players means fewer choices, which means less capacity and competition and of course higher rates. The wave of insurer departures (and threatened departures) led directly to sweeping auto insurance reform in New Jersey, because auto insurance buyers also vote. Voters ultimately get it when elected insurance commissioners and politically appointed insurance commissioners foster dysfunctional insurance markets that cause rates to rise. Today, New Jersey now has lots of new entrants — including incredibly profitable GEICO and Progressive, both of whom wanted nothing to do with New Jersey auto under the old regulations.
Insurers learned a lot from that experience and successfully used the exact same tactic in Texas when Erin Bronkavich in 2001 or so started a wave of suits to force insurers to pay for mold-infestation damages under homeowners policies. The Texas insurance department piled on, declaring war on the home insurers essentially by refusing to let them severely limit coverage for mold damage in new and renewal policies, so the insurers left or threatened to leave, just as they had in New Jersey. Texas homeowners, who also vote, soon discovered they couldn’t renew their policies, even at higher rates to cover the forced mold coverage, and demanded that the regulators reverse course, which they did.
This mold issue in Texas, by the way, is a classic example of something I mentioned in an earlier response: the discovery of a previously unidentified risk not explicitly covered, excluded, or priced in an existing policy and that insurers ended up having to cover. Of course, today, most if not all homeowners policies specifically address the extent to which mold damage will be covered.”