Insurance Transparency Project

I-Friends,

It pains me to see smart, well-intentioned public officials, some of whom I have met, scrambling to solve a “crisis” that is utterly artificial and should not be. It hurts even worse to see that all the “reforms” now on the table involve some sort of taxpayer bailout for an industry that posted record net income last year — Katrina year — until this year’s new record.

Insureds, the insurance industry needs taxpayer support like my favorite Hungarian billionaire, George Soros, needs a block of free government cheese. The State of Louisiana supporting insurers is like me giving Soros a grant. What the hell would he do with it?

And remember, Sens. Julie Quinn and James David Cain, two Republicans leading efforts to alleviate the crisis, are hardly industry hacks — quite the opposite. Quinn led the fight in earlier sessions against an absurdity known as the “anti-concurrent causation clause.”(1) Cain was the more “populist,” unsuccessful candidate in the recent special election for insurance commissioner. They, along with Gov. Blanco, are just trying to figure out a way to get insurance coverage in a state-based system in which states need insurers much more than insurers need any particular state, and that goes double for small states like Louisiana and Mississippi.

Here are the reforms as outlined in this AP story:
1. A taxpayer-supported “Cat Fund” that would help insurers with their reinsurance bills.
2. Using $162 million from the general fund to pay down the $1billion in bonds that the state-owned insurer, Louisiana Citizens, had to run up because the private sector had retreated from the gulf, keeping all the good “risks” inland.
3. Cash for homeowners left stranded by problems at Citizens, which was then administered by an A.I.G. unit.

In these blurbs, Quinn and Cain are criticizing Blanco for not leaving enough time before a special session beginning today, Dec. 8, to set up this cat fund. Blanco argues that the “rudiments” of the fund can be set up during the session. We join the debate already in progress:

“But several lawmakers said the 10-day session is too short to handle the complexities of the other items on Blanco’s agenda, including the idea of creating of a state-run “catastrophe fund'’ that would make it easier for insurance firms to do business in Louisiana.

Sen. Julie Quinn, a member of the Senate Insurance Committee, complained that lawmakers hadn’t had enough time to research such a plan, adding that she only found out this week that creation of such a fund would be included in the session. Sen. James David Cain, chairman of the Senate’s insurance panel, said the governor’s staff did not discuss insurance issues with him before Blanco released her agenda last weekend.

“We’re in the complete dark,'’ said Quinn, R-Metairie.”

The AP story goes on, and makes a huge — mistaken — assumption:

A catastrophe fund, or “cat fund,'’ would address the rising cost of reinsurance, a major reason that homeowners’ insurance rates are rising. Insurance companies take out reinsurance policies to cover themselves in case a major disaster forces them to pay out thousands of claims. The firms say their reinsurance rates have skyrocketed since hurricanes Katrina and Rita, an indication that issuing new homeowners policies in Louisiana might not be worth the risk anymore.

Florida created a state-run catastrophe fund in 1993 after Hurricane Andrew. That state’s cat fund has sold billions of dollars in bonds to create a pool to pay claims filed by insurance companies after a hurricane, to offset the money the companies must pay out in customer claims.

Hey, Swiss Re, Munich Re, Reinsurance Association of America: It’s your fault. The AP says so. Anyone care to explain why it’s not? Feel free to email me anonymously, and I will post it. Don’t worry. I’m very careful with my sources.

I’ll leave it there except to note, as I have before, chopping up markets 50 different ways is inefficient and leads to pockets of disaster that need not be. We have a big, rich national market with plenty of capacity to handle Katrina, Wilma, Dennis, Rita and all their windy relatives. Allstate, super-exposed to the gulf and not-reinsured, just did fine last year.

“Little hope” for reform? In the long run, that’s fine with me. But Louisiana is living in the here and now.
That’s my view. I’d love to hear the merits of a state-based insurance system, and I’m seriously open to counter-argument.

(1)Policy language that, under some interpretations, excluded wind damage if water damage also occurred, even if water damage occurred long after the wind.
click here to read the story

http://www.insurancejournal.com/news/southcentral/2006/12/08/74821.htm
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