Dale: Insurance Bill of Rights on the way
InsNerds,
Just a brief note to contrast the solutions proposed by Commissioner Dale in this Anita Lee SunHerald story with what I see as a growing insurance sophistication among Gulf-area residents.
The above-mentioned story doesn’t mention what new the rights would entail, and I’m sure they couldn’t hurt, but, put it this way, The Insurance Transparency Project(r)(c)(TM)(XYZ) doesn’t see this solving Mississippi’s insurance crisis. I also draw I-Fans’ attention to this paragraph:
“Numerous measures are under consideration for the upcoming legislative session in January. Special taxes, such as a percentage of gambling revenue from the Coast, could be devoted to the pool for reinsurance, which would insure the pool against losses in future hurricanes.”
So money that would go for schools and whatnot would help out insurers with their reinsurance bills. Hmm. As I-Notes! noted already, Allstate’s earnings for the first three quarters of ‘06 alone ($3.7 billion) nearly eclipsed Mississippi’s annual tax revenues ($4 billion). And the industry’s 2005 and 2006 net income figures will be on the exam at the annual ITP party/final exam at the Last Exit on Atlantic Avenue.
As Borat might say, Please to view this chart: Allstate, the most-battered, exposed, least-reinsured insurer, has crushed the S&P 500 over the past five — hurricane-filled – years. It is not even close. I wish I could paste it, but I dunno how.
Commissioner Dale is a gentleman, a history buff, a former high school coach, a wonderful conversationalist and a very experienced regulator. I think he was Jefferson Davis’s insurance commissioner. But bills of rights and subsidies for insurers — from Mississippi? — are part of a very tired discourse that really needs to change.
ITP, however, is optimistic. Here’s a scrap from the Sun Herald’s “Sound Off” feature, where readers, uh, write things:
“All or nothing, State Farm
• Not just the six Coast counties. George Dale, if the six Coast counties are no longer covered by State Farm wind insurance, they should have to take the whole state or none at all. Why should they just get the gravy? Get out of Mississippi completely.”
Well, it’s a start. And consider this Op-Ed piece written by a neighbor in Ormond, Fla., that appeared in the Sun Herald.
“• No insurance company should be allowed to “cherry pick” lucrative markets (such as auto) or geographic areas. The actuaries can conjure up any doomsday scenario they want. The fact is that most full-line companies have effectively used reinsurance as a vehicle for virtually eliminating risk in the windstorm arena. They are trying to pass this on 100 percent to policyholders.
• We have tried “bribing” companies to stay. We need to work with other states and the U.S. Congress to prevent companies from pulling out of California due to earthquakes, the Midwest due to tornadoes and coastal areas due to hurricanes. Insurance is based on the “Law of Large Numbers.” A large property/casualty company operating in all 50 states effectively spreads the risk over a broad geographic area. The United States is unlike Europe and much of the world in that we regulate insurance companies on a state-by-state basis. In doing so, we play into their hands.”
I should just bold face the whole paragraph, but that defeats the purpose of bold face, just as artificially chopping up markets defeats the purpose of insurance.
And, here’s one I haven’t seen before.
“• Insurers who play ball and underwrite all areas should be given preferential treatment for state and municipal contracts.”
Ok, so it was written by a retired investment banker. But still, it just seems to ITP that regular people are beginning question why insurance looks the way it looks and whether the bureaucratic, legal and institutional structures (a little red meat for all you academics out there) that underpin this very important system — and remember, we’re not just talking about homeowners’ insurance — really can be justified. (ITP anthem swells; cut to shot of ITP War Eagle Battle Flag rippling over Bay St. Louis.)
December 20th, 2006 at 8:58 am
Another good one from a person familiar with the situation:
“On the op-ed by a neighbor in Ormond, Fla., in the Sun Herald, I couldn’t have said it better myself, though I’m sure you could have and will do so repeatedly. As for the use of a state’s good name to collect private-industry money to seed a reinsurance pool, how does that reduce an insurer’s reinsurance bill at the expense of public works, unless that money would have gone to support public works but for the pool’s creation? Also, the pool is to replace reinsurance capacity that disappeared, only a small portion of which has been replaced by the creation of special-purpose private reinsurance pools (popularly know as sidecars) set up by insurers/reinsurers and funded by yield-hungry hedge funds. These sidecars create capacity that traditional reinsurers have simply withdrawn, because they don’t want the risk at any price, leaving the insurer with four choices: 1) Go bare, risking insolvency in that state and rating-agency downgrades; 2) Try one of these new-fangled capital markets solutions (catastrophe bonds, sidecars); 3) Leave the market; 4) Repeal the McCarran-Ferguson Act and enact federal insurance-charter legislation.”
December 20th, 2006 at 9:03 am
Here’s a thought in reply from me:
I would love to draw in my reinsurance pals (I actually have one) for some kind of panel sometime. I assume money coming from Casino taxes would be doing something besides insurance. But the more I learn, the more I think that if insurance is a bad business for the government to be in, REinsurance is worse. More later. Good stuff. Thank you. Wouldn’t it be cool to do an ITP forum, like at the Last Exit, with drinks? I can dream….
December 20th, 2006 at 4:27 pm
Perhaps some of us do live in places where humans should cease to sprawl, but we need an orderly withdraw, not haphazard retreat and abandonment.
December 21st, 2006 at 11:51 am
Here’s an interesting bit on patents and medicine profits: http://www.acsblog.org/ip-and-tech-law-report-patent-law-stifles-drug-innovation.html
The thing to keep in mind is that it isn’t so much about regulation vs. non-regulation as it is what tangible benefits are fostered by the methods of profit the regulations make possible. ’Cause in the end profits are gonna be made, one way or another.