Jan. 19: From Robert E. Nora, Oak Park, Ill.
Dean,
I’ve been reading your blog since mid-November, 2006. I’ve enjoyed it and generally agree with it. I’d enjoy reading your previous work on medical malpractice insurance issues.
Here’s my suggestion: the Gulf Coast States Interstate Insurance Compact.
You identify three basic problems: the inadequacy and foolhardiness of arbitrarily creating state markets; the inadequacy of state regulation; and, a lack of transparency or, put another way, an asymmetry of information which prevents consumers from making proper choices and regulators from properly regulating. Forgive me for oversimplifying your work. An interstate compact should address each of these problems.
A single interstate insurance market comprised of consumers in the states of Florida, Alabama, Mississippi, Louisiana and Texas would be big enough to attract many insurers. Moreover, it would create a huge risk pool, big enough in all but the worst years.
In my mind, much of the inadequacy of state regulation results from the fact that Louisiana needs Allstate and Mississippi needs State Farm more than Allstate or State Farm needs Louisiana or Mississippi. You have made this point explicitly on more than one occasion. By enlarging the market, the relative power of the regulator can be enhanced if insurers are required to offer coverage throughout the region (not only in every state of the market, but also throughout the states in the market). Moreover, regulatory power would be increased if “cherry picking” were prohibited,
The new system could contain many of the reforms being made in Tallahassee, such as insurer report cards, proper reporting, et al., that could address the asymmetry of information.
Additional benefits: first, while state regulators will need to be coordinated, no new federal bureaucracy is created. Secondly, policies and coverages could be uniformly regulated throughout the region, a boon to insurers, courts and insureds, while hopefully cutting back on litigation. Perhaps, homeowners and commercial policies could stop arguing over wind damage versus water damage versus flooding damage, and other useless distinctions that seek to escape risk rather than cover it. I note, in passing, that the Interstate Insurance Product Regulation Compact is being created to speed approval of life insurance, annuity, and disability income lines and that the NAIC is hoping to create a similar compact to speed approval of property and casualty policies. Unfortunately, only Texas of the Gulf Coast states has joined the Interstate Insurance Product Regulation Compact. Thirdly, the interstate compact should have greater ability to procure reinsurance at affordable prices than individual states, if governmental insurance pools are still necessary during a transition.
I know very little about insurance and just a little bit about insurance coverage law, but this sounds like a good idea to me. At least, it’s innovative and avoids a federal solution imposed from Washington and further state subsidies of insurance companies.
My regards to War Eagle.
ITP replies:
You’re note’s good. I really like the comparison to the interstate compact on life insurers. It seems like Naic is trying to avoid extinction by trying to cobble together a national market and graft it onto a state-based system. What a mess.l
The gulf state compact is a great idea, but I’m wondering why, in theory, you’d want to stop there. Might as well create a national market while you’re at it. I’m no expert but everyone says insurance is about spreading risk in large numbers. More is always better, unless there’s some really bad pool, I suppose.
But hurricane have hit hard up in Rhode Island, so why not add the Eastern Seaboard to the pool?
War Eagle appreciates the good wishes and sends his best to the grandchildren.
D
Nora replies:
Dean,
Your point on a national compact is irrefutable, but I’m afraid it is politically impossible right now. First, I’m not sure people in Wyoming are ready to help insure those living on the Gulf Coast from hurricanes. Secondly, he insurance companies have too much clout — can you imagine the TV advertising from the Clinton health-care plan being brought to bear on this issue. I think it would be easier to sell if initially limited to the Gulf Coast states since consumers, regulators and politicians there are all confronted with such a terrible mess. Moreover, I think bears greater agreement among consumers, regulators and politicians in the Gulf Coast region about the nature of the problem than across the country in general.
Furthermore, since any insurance compact will probably require congressional approval, pursuant to the Constitution, article 1, section 10 (since such a compact would affect interstate commerce, even if Congress has decided not to regulate pursuant to the McCarron Ferguson Act), I couldn’t see Congress refusing to approve a compact where the congressmen and senators from those states were overwhelmingly or unanimously in favor of the compact.
The combination of a larger market and a state-centered solution not involving federal regulation has a better chance of being approved by forces opposed to federal solutions for local or regional problems.
Finally, if the compact were too big, too soon, it might not spur competition amongst insurers incapable of competing at a national rather than a regional level.
If the system works, it can be enlarged after the next bad Atlantic hurricane season.
Jan. 18, 2007:
From New Orleans:
I’m still enjoying your emails. I’ve been noticing on the New York Times website, in the blogs they offer as part of Times Select, that they’ve added Lisa Margonelli, who writes about oil. Why not one about insurance?
Dec. 26, 2006:
(Excerpt of email conversation from anonymous in Mississippi; I don’t know what article she’s referreing to:)
“I couldn’t finish the whole article, because I just don’t believe it addresses the biggest problem of
all..the majority of insurance companies are ” Rip Offs!”
We need all out REFORM!
Here’s an example…my home and 10 others surrounding it had zero surge or ‘flood’ in our houses. I am in the middle of 11 structures still standing. The others only had wind
borne roof damage..Now unless Moses came and parted the bay in front our home…how could water have taken down a house that was on the highest point and no one else, even lower houses had any surge water?
My company also denied friends of mine who have had the same company for 36 years and all they wanted was $3000 for a new roof. When my friend called to see why an adjustor wouldn’t come out they told her
that she didn’t read the policy changes, because August 1st prior to Katrina They had Deleted ‘roofs’ from wind damage!
This same company wouldn’t give wind coverage to a tree that blew a another policy holder’ s house…WITHOUT MAKING THEM PAY DOUBLE THE DEDUCTIBLE!
(And this was in Nashville )
NOW if wind doesn’t cover roofs, and it doesn’t cover trees…can anyone tell me what wind does cover?
The language in the policies should be precise. One shouldn’t have to hire a law firm to read what your coverage is.
If we had an ‘ALL PERILS” policy…there would be no questions asked!
I tell people where ever I go that the tragedy of KATRINA is NOT what happened, but what hasn’t happened!
The media does not focus on middle class, working people who were responsible and paid out the ‘wha zoo’ for a bunch of worthless papers!
I also blame the majority of mortgage companies who haven’t lifted a finger to assist people in fighting one of the most powerful entities in this country!. Their the ones who require the insurance, and they are powerful enough to help ‘their’ customers
by coming down on these ruthless, scam artists who ought to be thrown in jail for swindling the majority of us!
Everyone needs to call all congressmen and senators and tell them ‘we’ve had enough”!
Call Nancy Pelosi. She saw with her own eyes what’s happened to us and I believe she truly cares!
When i am out of litigation, I plan to take this cause on the road!
Americans had better wake up because a disaster could happen any time, any where…and it won’t be the disaster that puts you and your family in a hole, but rather the almighty, insurance companies!
PS There should be a roster of those companies” made public” who paid without a hitch and another list that shows who didn’t pay!
And we ALL know why that list has not been put together, don’t we?
Why everyone in this country would run out and cancel the bastards that didn’t pay and run into the arms of those who did!
And why does no one ‘beat the drum” REGARDING how the insurance companies got together, I believe it was in Baton Rouge, AND ” ALL l agreed to say in one fell swoop …’IT WAS FLOOD!”
Why should the taxpayers have to pay for all of us when the majority of us HAD insurance!?