Insurance Transparency Project

Insureds,

I know I’ve covered St. Paul Travelers Cos.’ decision to pull out of the coastal Louisiana commerical market — and there’s a lot else going on — but I offer these remarks from the President Bush’s recovery chief, Donald Powell, as a means of broadening the discourse about insurance, a big theme here at ITP Global. In this case, “broadening the discourse” really means “cutting the monkeyshine.”
“In a speech Wednesday, President Bush’s recovery czar Donald Powell said he spoke at length with executives from St. Paul Travelers, an insurance carrier poised to cancel New Orleans area coverage, but Powell persisted in his opposition to federal intervention in what he called a “state” and “free-market” issue.“

I-Friends, I’m don’t know exactly where insurance stands on the free-market spectrum, but I suspect it is one of the least free markets in the U.S. economy. As noted yesterday, the government intervenes all over the place, often — in fact, usually — to take risk off the hands of insurers (see: Louisiana Citizens, National Flood Insurance Program, TRIA, California Earthquake Authority, Pennsylvania “Mcare” Fund, etc. etc.) and in some cases to pay directly what insurers should be paying (”The Road Home” program of the Louisiana Recovery Authority will pay up to $150,000 to individuals, including amounts not received from insurers, among other things).

But it gets worse. I will have an item soon on insurance-industry taxation (you’ll want to gather the kids together for that one), but suffice it to say that insurers pay substantially less — and I mean much less — in federal taxes on a percentage basis than the rest of the S&P 500, that is, the rest of the economy. And, as I’ve noted, insurers are exempt from aspects of U.S. anti-trust laws, laws that the rest of the economy, except Major League Baseball, must obey.

And with all respect to Mr. Powell, what other industry by federal law (see: McCarran-Feguson Act of 1945) requires its free markets to be divided into 50 separate sub-free-markets, sealing off profits in 49 markets so they cannot, by law, be used to offset risks and losses in Louisiana? The question is rhetorical, but I’ll answer it anyway: No other industry.

So insurance isn’t a “state” and “free market” issue. Its being a state issue makes it an artificial, chopped up and highly protected market.

Ok, a little nachtmusik please as we lower the tattered Insurer Free Market Banner, and somebody put on “Clamp Down” as the rippling ITP War Eagle Battle Flag rises over the reinforced levees.

Oh, and I-Fans, we’re not done. As Jack Nicholson might say to Tom Cruise, “The free market? You can’t handle the free market.”

ITP is all about the market, Mr. Powell, a market of free-flowing information — and I mean flowing both ways, to sellers and buyers. The irreplaceable Amy Bach of United Policyholders sent me a funny blurb about the annual Christmas party by Allstate’s “data-mining” programmers in Northern Ireland.

“A Night at the Northbrook Oscars“

I told her I couldn’t make it because I’d be at the State Farm data-mining party in Machu Pichu.

The point is that, to insurers, policyholders are as naked as jaybirds, naked-er, in fact. I don’t know what those miners are doing over there in Northern Ireland, but I’m thinking they are going over policyholders’ personal financial and credit data like an MRI. Whereas, insurance buyers can’t learn the first thing about insurers, namely: Who pays?

Expose Insurer-Payout Ratios(c)(1), prices and the like to the market, and watch insurance buyers very quickly figure out where to place their business. If they can figure out mortgage refinancing within a quarter of a point, they can figure out insurance, no sweat.

Then, I suggest, you will see the market work it’s magic: bad behavior will be punished, good behavior rewarded, inefficiencies squeezed out. And yes, you will see insurer P/E ratios fall, stock prices sag and many many insurance brokers, agents and other intermediaries out of jobs, joining travel agents, linotype operators and newspaper reporters on capitalism’s scrap heap.

How am I so sure? I’m not. But I want to hear other ideas, because the current insurance discussion is going in circles.

(1) That’s ITP’s idea. Don’t steal it.

For the strong, I’m going append a few more quotes from the story, which, to my ear, seem pitiful but illustrate how distorted the insurance discourse has become.

“As thousands of homeowners and businesses face dramatic rate hikes and cancellations, Powell expressed a vague optimism the situation would be resolved. “I’m convinced that a solution is forthcoming; I’m not sure what that is,” Powell told a Bureau of Governmental Research luncheon at the Sheraton Hotel.”

ITP comment: “Oy”.

Powell said he talked for 45 minutes Tuesday with Jay Fishman, chief executive officer and president of Minnesota-based St. Paul Travelers, the largest commercial insurer in Louisiana. While the company reported last week that it is not confident in the levee system, Powell said in an interview that Fishman told him levees are not the central issue, that Travelers’ plans reflect a risk assessment.

“He’s a standup guy,” Powell said of Fishman. “I asked him to think about ways that they could enter this market.”

ITP comment: (Sigh)

“While there has been discussion of using federally backed catastrophic insurance or tax incentives for insurance companies, Powell said at this point he doesn’t favor the idea of stronger federal intervention.

“I think our role is simply to identify that it is an issue,” he said. “Historically, it’s always been a state issue, it’s always been the marketplace.”

ITP comment: (head shaking sadly)

“Publicly, Powell has repeatedly expressed sympathy for policy-holders but maintained there’s little he can do because insurance is regulated at the state level.”

ITP comment: “ITP must go lie down.”


http://www.nola.com/search/index.ssf?/base/news-4/1165474878197240.xml?NSBR&coll=1

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