Fellow Perils,

The above-titled book by Jacob Hacker, a Yale political scientist, shows that the frames of the debate are beginning to widen very nicely indeed. As we pull the camera back from Katrina, from the Gulf, from homeowners’ insurance and from property-casualty insurance entirely, we see something larger happening in the insurance industry and, as Hacker argues, in society.

Here’s a thought from an online debate between Hacker and other big brains at the American Prospect.

“We all know instinctively that health insurance, pensions, jobs, and family finances have become less secure. But often we look at these issues in isolation, failing to see the big picture: a massive transfer of economic risk from the broad structures of insurance, both corporate and governmental, onto the fragile balance sheets of American families.”

He goes on to make the invaluable point that financial security and risk-taking aren’t at odds — indeed quite the contrary is true.

But keep the risk-shift idea in mind when reading this big Mowbray scoop from Saturday’s Times-Pic:

Commercial insurer to pull out of area

St. Paul Travelers Cos., the biggest commercial underwriter in the market, stunned — and I mean stunned — political and business leaders by deciding to pull out of much of the commercial market (that is, to cancel policies when they expire) in New Orleans and its environs. Mowbray dug it out from area brokers.

And I know many of you Bayou Bengals aren’t fans of Insurance Commissioner Jim Donelon, but he sounds like he was hit by a two-by-four. Note the double “stunned” here:

“Donelon, who was tipped off about Travelers’ plans Wednesday night by the Business Council of New Orleans and the River Region, said he was stunned by the news. When he met with Travelers on Thursday, he was equally stunned by the stated reason for the company’s retrenchment.

‘They cited the state of the rebuilding of our levee system as the primary reason for their decision,’ Donelon said.”

Read the full story for an account on why Travelers, which doesn’t cover floods, cited anti-flooding infrastructure as a big reason for leaving. But besides high prices and less coverage, and less recovery, the departure means the state-owned insurer, Louisiana Citizens, takes on even more of the worst risks.

“Citizens traditionally has not done much commercial insurance business. In anticipation of doing more, Citizens plans to raise its coverage limits from $2 million per business building to $5 million per building. It also is seeking permission from the Louisiana Insurance Rating Commission this month to raise rates by a statewide average of 129.6 percent. While that rate increase may seem astronomical, it’s not as high as prices that many business are reporting from private carriers. Donelon said this week that he is concerned the state could end up taking on too much commercial insurance liability with inadequate premiums if it’s priced wrong.”

Ok. Hacker says risk is shifting onto American families. I would have no trouble finding families in Slidell, Gretna, Bay St. Louis, Gulfport and Biloxi who would agree with him. And while I haven’t seen their passports, I believe they are American. Risk is certainly being off-loaded from insurance companies, which is their job, in a way, and it’s landing on both residential and commercial policyholders and the government, both the federal flood program and state-owned insurers.

And let me make two final points about St. Paul Travelers (ticker: STA).

1. It posted net income of $1.62 billion in ‘05, the industry’s worst-ever year, including $162 million on the plus side, in the third quarter — Katrina time.

2. Its conduct after Katrina and Rita triggered so many complaints, the La. DOI — not exactly a tiger in this regard — took the rare step of hiring an outside contractors to perform a so-called “market-conduct” exam. (Allstate and Citizens, which was then administered by an A.I.G unit, are also under this microscope, Mowbray says). Those reports are due in February.

The point: If insurance is about sharing risk, I’m not sure we’re sharing very well.

What to do? Close ITP readers already know. But not to worry. There will be an optional review session before the annual party/final exam at the Last Exit.

http://www.prospect.org/web/page.ww?section=root&name=ViewWeb&articleId=12159

http://www.nola.com/news/t-p/frontpage/index.ssf?/base/news-7/1165042332198320.xml&coll=1