Insurance Transparency Project

Underreserv’ed Periles and Othere Adventurers Toss’d on the Stormie Tempests of Insurance,

Two thing are notable about this Insurance Journal story about the “multiple-perils” bill introduced Friday by Redfordesque former search-and-rescue commander Rep. Gene Taylor, D-Miss. The bill is on the key documents section.

One is that the Independent Insurance Agents and Brokers of America, known as the Big “I,” its members having borne the brunt of grief from its customers in the Gulf, offered some encouragement to the bill that would allow people everywhere to buy wind-plus-flood policies.

The reasoning behind the bill is plain: that kind of policy would eliminate the costly and irrelevant argument about whether damage was caused by rising water (”flood”) or falling water, sometimes called “rain.” (It would also leave for meteorologists and other philosophers the question of whether surge is a result of the displacement caused by the tropical depression that goes with every hurricane.)

The other point is a troubling — for insurers — line of argument offered by the Property Casualty Insurance Association of America, a key insurance trade group.

” ‘The chief problem presented by this legislation is that it will create artificial subsidies, essentially raising rates for consumers in inland parts of the country who are not subject to the same kind of wind-damage risks faced by consumers on the coasts,’ said Ben McKay, PCI’s senior vice president, federal government affairs. ‘Any efficiencies that might be gained by a multi-perils policy would come at a cost to many consumers. We believe that this is both unfair and unnecessary.’ ”

Post-doctoral fellows, visiting scholars and even adjunct professors and doctoral candidates at the ITP Institute for Advance Insurance Studies will realize that coastal dwellers are already subsidized by state wind pools — now overflowing their banks in the Gulf states — which spread the risk inland, either to taxpayers, ratepayers or insurers.

But what makes the PCIAA’s statement especially troubling is that it’s another sign that the industry is resorting to a buzz-words, not serious argument, to win short-term political fights.

I mean, insurance is about subsidies. People in Oklahoma subsidize the coast, at least until a tornado hits, then it’s the other way around, right? Healthy people subsidize the sick until they get healthy and the others get sick; not-injured workers subsidize injured ones; people not in wrecks subsidize those who are, etc. etc.

If people on the coast are paying an economic premium, how is that a subsidy? It’s insurance. The only difference the Taylor bill makes is to broaden the pool so that people in Rhode Island can subsidize the gulf until, you know, this happens.

To the Non-Profit Prophet and others concerned that taxpayers will end up actually subsidizing the multiple-perils policies, just as they do the flood policies. You are right. That’s why I wish there was more (or any) debate about creating a transparent national market.

My insurer pals often lament that the general public doesn’t understand their industry. This kind of thing doesn’t help. To me, it just adds to the confusion about what insurance is all about in order to play some kind of resentment card. It’s not even accurate.
And while ITP is blowing hard, to assert, as Mr. McKay does, that the current twine-and-Scotch-tape system provide consumers “effective and efficient protection from wind and water damage” simply isn’t credible given the facts in the Gulf.

And speaking of perils, the industry’s chief lobbyist, Marc Racicot, at the property-casualty forum at the Waldorf in January, was trying to warn insurers about the “precarious environment” the industry faces politically.

“I think we have reached a pivotal moment in the property/casualty industry in this country” that could result in “big changes in a system as old as the Civil War.”

This is a former governor and former chair of the RNC and President Bush’s 2004 campaign. The industry is paying him a lot of money. But you don’t need to be Marc Racicot to make a political forecast. Check your instruments: Barometer falling.