Archive for November, 2006

Grand jury to study claims: It wants records from Oklahoma case

Posted in General | Tuesday, November 14th, 2006 | 6 Comments »

Ins-Folks,

This item, from the SunHerald’s Inimitable Anita Lee, appeared way back in September. But I’ve been meaning to get to it because a big ITP theme is that Katrina is the tip of a very large insurance iceberg, or should I say, insurance iceberg (people are starting to mock my use of bold face. Smart Alecks.).

The story says the federal grand jury in Jackson wants records from an Oklahoma case in which a civil jury last May found that State Farm “intentionally and with malice” breached its duties to policyholders following a 1999 tornado. The jury found (not “alleged,” folks), in part, that State Farm hired Houston-based Haag Engineering Inc.,“knowing the company was predisposed to produce damage assessments that would allow the insurer to minimize or deny policyholder claims,” Lee writes.

Haag, Lee adds, produced a contentious report after Katrina that concluded — implausibly, or really, not credibly — that Katrina’s storm surge preceded the wind, shifting liability from State Farm. I-Fans, no one believes that. State Farm says it is cooperating with the grand jury and performing its own investigation of Haag. Lee tells us that the Oklahoma records include testimony from State Farm Chairman and CEO Edward B. Rust Jr., the company’s vice chairman and vice president for claims.

Ok, I’ve been threatening this for a while, but I’m going to start sending these to insurers, regulators, tort lawyers and defense lawyers. Forgive me if I recycle some jokes. I won’t do it again. Also, let me know if I sound more serious, which I don’t want to do.

Ex-Chairman of Insurer May Bid for Tribune — Plus Interactive Bonus

Posted in General | Monday, November 13th, 2006 | No Comments »

I-Fans,
This got my week off on the wrong foot. The story says Hank Greenberg might try to buy the LAT or even Dow Jones, publisher of my old joint. Certainly, he has the dough: his A.I.G . stake is worth $20 billion, that’s with a “b,” son. DJ’s market cap is around $3 billion.
I’m a mere student of, and not an expert on, Maurice R. Greenberg. However, I am an expert on newspapers, and if you don’t think so, tough. From my limited knowledge, the culture Greenberg created at A.I.G. was so antithetical to the values of a newspaper as to make even the thought of this deal preposterous. A.I.G. was the opposite of transparency, a black hole of secrecy, a model of opacity, the ultimate black box, a riddle wrapped in an enigma surrounded by mystery, so much so that even its (very happy) investors accepted it as a something of a faith stock, that is, one they didn’t fully understand. While covering Greenberg-nemesis Spitzer for the world’s best newspaper, filling in as I was for the Matchless Masters, I stumbled upon a organizational chart of the company, which I still own. It practically covers a wall, so filled it is with affiliates, units, captive companies, subsidiaries, parent companies, orphans, obscurely named things (New Hampsire Steam Boiler Indemnity Thus and So; I wish I had it here) as to resemble a Jackson Pollock a’ hangin’ in the MOMA. (A.I.G. is not, however, to be confused with Enron. There’s a real business there, and how.)
Greenberg did not invent, but may have perfected, the claims cat-and-mouse game in which policyholders, including such helpless patsies as United Technologies Corp., are led stumbling for years through Labyrinthine legal corridors that only the most-dogged and well-healed can find their way through. I wrote it about for my favorite paper here: http://portfolio.deanstarkman.com/docs/wp/wcc_aigclaims.pdf . Here’s a snippet about the UTC case.
“In a decision upholding the award, U.S. District Judge Janet Bond Arterton wrote that the AIG unit had “shunted” UTC’s claims into ‘limbo,’ a ‘netherworld

of non-processing,’ and simply didn’t respond for years, asking for more and more information while it “investigated” the claim.

When UTC finally sued for an answer, the claim was denied.”


What does one case mean? I’ll get back to you on that.

I don’t know whether the culture pertains under the new regime, though I do know the secrecy stuff has eased considerably. I’ll leave it there, but if you like newspapers, and I do, even the idea of this deal is unreal.
Ahem. Today, I’m violating my one-item rule! (a two-fer!) only because the whole point of ITP was to broaden the discourse about insurance, while involving my pals in the industry itself, people who forgot more about insurance than I will ever know, thereby exposing my crackpot ideas about transparency to the harsh but cleansing fire of enlightened opposition, or whatever they might have said back in the Age of Reason. To that end, I’m delighted to present an anonmyous response to last week’s “black box” item from someone I know but you don’t, whom I’ll call A Person Familiar With the Matter, as they do at my old joint, the one still owned by Dow Jones. I paste excepts and my responses below and the Person Familiar’s full note under “comments” at insurancetransparencyproject.com.
A couple things: Unlike me, these folks do not have all day to thumbsuck about insurance. They are busy. So we welcome all manner of discussion, hurried, grammatical, not. Doesn’t matter. It’s great. Also, I will usually post a reply, not to engage in obnoxious last-wordism, but to use the comments as jumping off points for further reflection.
Now remember, I-SuperFriends, our industry pals are allies in the battle for greater for transparency and efficiency, even if they all don’t know it yet, and must be coaxed onto the field with the knowledge that, here at the ITP, we play fair. If I lose these guys (and I’m not giving much away when I say they’re guys, insurance being the way it is) I will feel like the ITP is not working. So, there will be no gouging, biting, mocking, knees below the belt. No filibusters, moving picks or pine tar 12 inches or higher up the barrel of the bat.The referee is impartial. The timer guy will not hold the clock to help the home team. Click here for ITP Rules of Order. Click here for Rules of Order Podcast. Click here to order the bound set. Click here, as always, for streaming video (must be over 45).
With that, Person Familiar says in part:Which insurer is likelier to pay a claim? Which insurers are good and which are bad? The better question is this: Which insurers act responsibly? Responsible insurers promptly pay covered claims, pay when it can’t be proven whether the loss was covered (a house is destroyed by wind but a storm surge erases the evidence), and don’t pay losses clearly not covered, lest they needlessly squander the solvency they need to pay covered losses and contribute to state-run guarantee funds that pay claims for less prudent insurers that fail.
Oh, Person Familiar, I thank thee for the thoughtful note and add that ITP agrees with all or most of these sentiments.

PF: “The better question is this: Which insurers act responsibly?”Dean: Agreed. The ITP further asks how do we tell one from the other, and can we work together to come up with metrics that are fair to all sides?

PF: “Insurance values are harder to track than investment values.”

Dean: The ITP agrees this is a problem, but hopes and believes it is not insurmountable if the industry’s brightest minds are set to the task.

PF: “Ultimately, with any non-life insurance product, it’s the insurance agents and brokers more than any other factor who make sure insurers that overcharge and under-deliver lose business to those who consistently deliver fair value at a fair rate.”

Dean: Alas, the ITP does not share this faith in intermediaries, priests, Cohenim and other clergy and wishes to banish them from the Temple of Insurance, or at least trim their numbers considerably. They are too numerous and expensive, I say, and befoul the Invisible Hand’s good workings. Let insurance buyers read directly of insurer performance in the vernacular (Reformation metaphor), and find their own path directly to their Writer. Verily, banish the agents, brokers and moneychangers, and let them scatter and scamper and scramble through hillock and wadi and down into Gat, just west of Hartford. By Odin’s Beard (Norse mythology), let them go the way of the unicorn, the faeirie and troll, the travel agent, the real estate broker and the “full-service” stockbroker from Merrill Lynch, like the one who charged me 185 Shekels to make a freakin’ stock trade. Into the lake of fire, senescense, cariosity and other thesaurus words etc. etc.

Point is, the ITP believes performance — however you want to measure it — should be visible to insurance consumers directly. They are perfectly capable for figuring out who is responsible, naughty, nice.

I could never be an underwriter. Why? Because I’m an OVERwriter! Thank you. I’m here all week.

Cracking the Industry’s Black Box

Posted in General | Friday, November 10th, 2006 | 2 Comments »

InsNuts,

In the spirit of shabbes, I’m going to ignore this week’s A.I.G. third-quarter earnings(1), which, believe me, isn’t easy, because, so big they were, Grasshopper, they block out the sun . 

No, today I present just a couple quick thoughts on measuring insurer performance – the industry’s black box and what we’re all about here at ITP.
 
When you buy, say, a mutual fund, you can pretty easily tell how much it costs and how it performed in the past, right?  The NAV for, say, the Adrienne Nanotech-Hair-Product Growth-Plus-Income Fund II is, to pick a number, $17.50 – it says so right in the newspaper. It returned 43%, 26% and 19% annualized over the past one, three and five-year periods, or something, right? Based on that, Morningstar gives it four stars (Nice job, Adrienne!).
 
But, with insurance, you can’t tell, really, whether State Farm, Allstate or Chubb was the better performer, that is to say, the likelier to pay a claim. And where do you go, for that matter, to compare prices?  Hint: not in the newspaper.
 
Two things, I-Fans, and then I’ll let you go start the cholent(2).
 
1. You can get part of the way to performance by culling available data, but getting your hands on such data is not cheap and you gotta be an expert (like me!) to figure it out.
 
2. Important additional disclosure is needed to figure out who pays more. You’d need to know not just what insurers paid as a result of, say, Katrina, but what they paid in relation to what policyholders demanded. I’d call it the “payout ratio.” Or least, how much they paid per policy.

I’ll leave it there, except to say that only when insurance buyers have enough information to reward good actors (huzzah!) and punish the bad (boo! You suck!) will the Invisible Hand be able to work its magic – drive out the inefficient, end bad behavior and set proper, visible prices you can compare.
 

A hearty Notes! welcome to London Calling. 

(1) EXCEPT to note that they posted net income of $1.75 billion in last year’s horrible, awful, worst-ever, so-very catastrophic Katrina quarter (the third), after, that is, recording $1.57 in Katrina/Rita “losses” (misnomer here).  I hear a voice saying:  “But A.I.G. is huge, global and writes insurance across many ‘lines,’ from life in Korea to kidnapping coverage in South America. Katrina was just a small part of A.I.G.’s business.”  In other words, I say, they spread the risk, which is what’s supposed to happen. No calamity here at all. This third quarter, by the way, net more than doubledto $4.22 billion, on rising rates and investment returns. Point(s) is (are): a. Katrina was clearly not catastrophic for a well-run insurer (though it was for policyholders and Uncle Sam) and b. this year’s net, given the no-hurricane season, would “only” have gone up 140%, but were pushed even higher because of price hikes, which  were clearly needless from a solvency point of view, and investment gains. (Comments, including anonymous ones, are always welcome!)

(2) No one knows what that is.  

 See warranty for details.  Not sold in any store. Click here for Podcast and here for streaming video (must be over 45).  NOT affiliated with N.A.I.C., S.I.P.C., P.E.T.A. or N.A.M.B.L.A.

Health Insurers Stung by Election Results

Posted in General | Thursday, November 9th, 2006 | No Comments »

InsFans,

I’ll keep this one short. This from the always-excellent SmartMoney — the world’s greatest personal finance magazine (no need to read Money, Kiplinger’s or really anything else) — about a big, post-election sell-off among publicly traded health insurers:

‘”Every company, from giants such as WellPoint Inc. (WLP) and UnitedHealth Group Inc. (UNH) down to smaller firms such as Molina Health Care Inc. (MOH) , were stung. Investors feared that renewed empowerment among Democratic lawmakers would spell an end to steadily rising profits for the group that has continued throughout the Bush years.

Analysts began to caution that the salad days for the industry, which doubled profits while most of the rest of corporate America lost money during the first years of this decade, may be nearing an end.”

The point here: And, again, it’s certainly not anti-profit. But this blog and the ITP and its entire staff (from the “principal” to the folks in marketing, accounts-payable, account(s)-receivable, HR, circulation, accounting, treasury, maintenance, IT, the mascot [”Big Insurance,” the War Eagle], the coffee vendor, the masseur (Kyle, love you!), as well as its affiliates, units, joint-venture partners, shareholders, board members — hell, the whole ITP family) started with the idea that Katrina and homeowners’ insurance is connected to medical malpractice insurance (important for doctors) is connected to commercial insurance and worker’s comp (important to businesses) is connected to flood insurance (important to taxpayers) is connected to terror insurance (important to taxpayers) is connected to health insurance (important to humans, at least in their corporeal state).

A very smart person, let’s call him First Insurance Guy, says health insurance is considered a world unto itself and separate from property/casualty (most other insurance except life, which is another story) and is almost a form of financing (since everyone eventually files a health claim, while relatively few file homeowners’ claims. Hmm. I wonder why Allstate’s doing so well?).

I believe him. And this actually supports him, because p/c is (by law) not a federal issue and shares of regular insurance companies shrugged off the elections.

On the other hand, something tells me that health insurance, which, according to Krugman (sorry, Ohio Muse!), spends 20% of its (trillions in) premiums on things other than paying claims, could benefit from a dose of transparency, too.

Next: Insurance among the nations of the former Habsburg Empire.

http://www.smartmoney.com/bn/ON/index.cfm?story=ON-20061108-001028-1315

Election Special — Tough Night for Insurers

Posted in General | Wednesday, November 8th, 2006 | 5 Comments »

I-Fans,

From the One Track Mind Department: Three reasons why insurers should not like yesterday’s outcome, in ascending order of importance:

1. The eighth-biggest federal campaign contributors, insurers have been betting on Republicans by a 3-to-1 margin since 1996 (see link below to the excellent Center for Responsive Politics site), probably because of 1994’s HillaryCare and the Republicans’ backing “tote refoam.” Health insurers also seemed to like a 2003 Medicare reform bill (anybody else miss that one?) that is a step toward privatization. I don’t know if that one was good or bad, but I can guess.

2. Gene Taylor.

The Redford look-alike and Democrat who compared insurers to “child molesters” will move up and will try, with Trent Lott, to remove the industry’s anti-trust exemption. (As an aside, Taylor also said in a press release that he had an idea to “kick” the “butt” of Michael Brown . Check out this cool exchange in an AP story. It has nothing really to do with insurance:

“For that little twerp to claim I didn’t recognize death and suffering - he can just bite me, for all I care,'’ Brown told Playboy.

Taylor, one of the few Democrats to sit on the Republican-dominated House inquiry, returned fire Thursday.

“Brown should consider himself a lucky man,'’ he said in a statement. “Had I known before the hearing that he was up in Baton Rouge ordering steaks on his government credit card at the same time the people of South Mississippi were resorting to police-sanctioned looting to feed themselves, I would have done more than just verbally kick his butt.'’

I take Taylor, the former Coast Guard officer, over the Arabian horse guy in that one. I also like that he put it in writing.)

3. Trent Lott. With Santorum out, Lott is fixin’ to move up to a minority leadership position. And that feller, who harred Dickie Scruggs to pursue his wind claim against State Foaham (help me here, Southerners!), is ohn a mishun. (Cue “Jaws” theme.)

http://www.crp.org/industries/indus.asp?Ind=F09

http://www.guardian.co.uk/uslatest/story/0,,-5978681,00.html
Private note to Michelle: Hi!

“Decoding Warren” Edition: Profits Soar at Buffett’s Berkshire Hathaway, GEICO

Posted in General | Tuesday, November 7th, 2006 | 2 Comments »

I-Fans,

When I first started this thing, I assumed I wouldn’t find something interesting every day about flippin’ insurance. As it turns out, and seriously, I think I could do this all day.

I mean, hypothetically, for pete’s sake. I’m not going to actually do it. So surly!

Today’s item could be called “Decoding Warren,” or maybe, “You Gotta Be Freakin’ Kidding Me.”

Ok, here’s the earnings nut graf:

“The Omaha-based company, with holdings that include the GEICO insurance company, has posted strong results throughout the first nine months of the year with net earnings of $7.43 billion (euro5.82 billion), or $4,821 (euro3,778) per share. During the first three quarters of 2005, the company earned $3.4 billion, or $2,207 per share.”

Now, here comes the Oy Vey part. It kills me. I added footnotes.

“Clearly, these are highly satisfactory(1) three-month and nine-month earnings for Berkshire,'’ the company said in its release. “Just as clearly, our insurance business has benefited in a major way from the absence of catastrophe losses(2). This is due not to managerial brilliance but rather to good luck(1)(2). Last year, conversely, we got clobbered(3) by a spate of hurricanes, more of which we will surely see in the future.'’(4)

The worst of all possible three quarters you earn only $3.4 billion, or $2,207 a share? No wonder he’s taking his lunch in a paper bag! (Or was that Walton?)

I mean, I think I-Fans by now can decode this by themselves. But I’ll do this once more, and then you’re on your own.

(1) “I’m modest.”
(2) “Insurance is still risky. Ya never know! Must keep rates high or raise them again.”
(3) “Remember? That was TERRIBLE! All that wind and water! People lost their homes! Some people lost everything! And we only made two grand a share!”
(4) “You never know when we might get clobbered again; Must keep rates high or raise them again. Don’t bother the insurance commissioner up in Jackson or Baton Rouge. He’s busy with a lotta stuff, like making sure we don’t leave your state.” (More on this last bit later.)

Sometimes I think all insurance companies are Jewish: “Foist Egypt. Den Joymany. Now Looeeseeyanair. Haven’t ve suffaired enough?”

Now listen up, My Covered Perils: Most of you know me or at least have met me. If you think I’m anti-profit, you’re out of your overly insured minds.

But insurance is about spreading risk, right? That means geographically but also over time, too. I mean, you can’t just, uh, I dunno, break even in your worst-ever three-quarters? I mean, when do we get to the risk part? Or is that only for the government and policyholders?

Second point: Speaking of transparency, what did Berkshire actually suffer in Katrina losses anyway?
And, third: The language is the thing. The discourse about insurance has to change, or at least broaden. I mentioned already that NYU Sociologist Steven Lukes calls the fight over Katrina’s aftermath “a struggle of competing rhetorics.”

But, frankly, with insurance, it’s not much of a struggle. It like the ‘85 Bears against whomever. The public needs to put on some pads and get in the game. And, no, I’m not apologizing for the sports metaphor. Now, get out there!

http://www.insurancejournal.com/news/national/2006/11/06/73940.htm

Private note to First Insurance Guy: Thanks for offering to keep me real. It’s about getting it right.
To Second Insurance Guy: You rule (as does FIG).
To Debonaire Wall Streeter: I’m thinking of moving the annual party to Last Exit. Thoughts?

One Hand Clapping

Posted in General | Monday, November 6th, 2006 | No Comments »

I-Fans and Anti-Concurrent Causation Dorks,
Listen, the Bears’ loss has me a little down (sigh), so I’m going to get right to it. I’m pasting a blurb under this headline — Low Insurance Rates Point to Decline in Risks — by my old friends at the WSJ this morning. It’s behind a firewall so I can’t link the whole piece.

The piece is fine, but ultimately (ah, me) disappointing. It talks about stable or falling insurance rates in most lines (”kinds”) of insurance — e.g. worker’s comp, non-Gulf homeowners, autos and other forms of insurance outside of health. What has me a little bummed, besides the Bears, is that otherwise well-done piece leaves out an important reason for why insurance prices rise and fall. Here’s the relevent paragraph:

“It isn’t clear if the lower costes will persist. Insurance costs run in cycles. When catastrophes like Hurricane Katrina or 9/11 produce big losses, investors anticipate big increases in insurance premiums and flood the market with capital. That creates a glut, which intensifies competition and eventually drives prices back down. Another terrorist strike or major weather-related disaster could send rates higher again.”

As my pal the Louisiana Lawyer Supreme would say, that’s true as far as it goes. Insurance prices run in cycles, all right, but they’re at least as closely tied to investment cycles as anything else. This is not something that my pals in the industry run away from. When bond rates and stock market returns soar – as they did in the go-go 1990s — prices drop as new capital floods insurers compete to bring cash in the door. There’s even a name for it: “cash-flow underwiting,” though it’s true that the name is derogatory and a synonym for short-term thinking. When returns crash (see: post-2000 “tech bubble” and rock-bottom prime rate), ullavasholem, as my dad would say (1), prices climb as capital retreats. Now that returns are strong, whaddayknow?, prices be fallin’, mon.

Again, this is not a looney conspiracy theory. It is widely accepted in the industry. Profits come from investment returns. Underwriting is supposed to be more or less a wash. It’s the investment climate as much as the climate climate or Khalid Sheik Mohammed having a bad turban day that dictates insurance prices.

What’s the point? The point is that if all you talk about is “losses” (see earlier Notes! for why this is a misnomer), you fall into the industry’s “Oy vey, ve gotta raisen der roits agin!”(2) schtick(3). If losses were that big a deal, Allstate wouldn’t have posted a $1.7 billion profit in 2005 — the worst of all possible years. It’s about who controls the discourse, I-fans.

And listen, this doesn’t even count whether those 9/11 and Katrina “losses” are actually paid. But I’ll get to that.

Those darned Bears have me blue.

Notes!(TM) Prize!(r)(c): I can’t think of one. Crap!

(1) “All of a sudden.”

(2) “Oh, woe! We must again raise rates.”

(3) Pattern of behavior.

Poor Turnout Marks Election in La. for Commissioner, Secretary of State

Posted in General | Friday, November 3rd, 2006 | 2 Comments »

InsFans,

Miss me? Listen, I know what it’s like to go without insurance news for a couple days. It’s brutal! The fact is, I have a medical excuse. I played basketball against my brother on Wednesday and spent the last two days having jumpshots surgically removed from my face, a procedure apparently not covered under Empire Blue Cross/Blue Shield’s hospitalization plan.

Today’s item is just a blurb about the low turnout in Louisiana for a recent special election for insurance commissioner (as well as secretary of state). In it, Jim Donelon, a Republican from suburban New Orleans, won a narrow victory over Sen. James David Caine, another Republican (forget it, Jake; it’s Louisiana), who chairs the state Senate Insurance Committee and was known as the “populist” in the race. I’ll decode that term later.

“Only about 708,000 of the state’s nearly 2.9 million registered voters, or 24.6 percent, turned out for the Sept. 30 elections, among the lowest turnouts for a statewide ballot in recent years, but better than initial estimates that only about 20 percent cast votes.

In the election, Jim Donelon, a Republican from Metairie, was chosen as the state’s latest insurance commissioner….” He won by all of 847 votes.

Now, fans, I don’t know who the better candidate was (OK, I can guess, but I’m not tellin’!). Donelon, the DOI’s first deputy commissioner, stepped in after Commissioner Robert Wooley resigned earlier this year. (More on that to come. I’ll also have a look at the fascinating recent history of La. insurance commissioners . But right now, I’m without a news database, which is like doing this with one hand tied behind my freakin’ back.)

Two points here: First, the low turnout illustrates what I’d call insurance’s Reverse Tragedy of the Common, or something. Basically, for most people, insurance doesn’t matter until it does, and then it really does, but only for a limited number of people, say earthquake victims in California, or tornado victims in Oklahoma . Also, its true costs to consumers and the economy are not readily visible (but, by Odin’s Beard, they shall be!)

Make that, three points: While Louisiana voters — even post-Katrina – apparently think the insurance commissioner’s race doesn’t matter, I can assure my fan(s) out there, insurers hold a different view.

More after this.

As a sweetner, I’m adding a Prize!(r)(TM) at the end of each Notes!(TM)(c). Thanks to the Non-Profit Prophet for the idea.

Prize!(r)(TM) for Nov. 3, 2006:

Proposition: New York is the world’s most over-rated food city. Discuss.

A hearty Notes! welcome to the Hartford Insurance Law Maven, the N.O. Reporting Star and my nephew, who, like his father, also kicks my ass in hoops. Step off, dude!
Private note to First Industry Guy, who didn’t ask for this. Seriously, just ask and I’ll take you off. http://www.insurancejournal.com/news/southcentral/2006/11/03/73883.htm

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