Who's To Blame for Rising Insurance Rates?

Thursday, January 19th, 2012
Baton Rouge, Louisiana

FEDS AND STATE REGULATION CAUSE HIGH INSURANCE RATES!

A headline in several regional newspapers caught my eye. “Homeowners Insurance Rate Increases Have Slowed,” said one front page banner. I guess that’s supposed to be good news. But in my home state of Louisiana, rates have skyrocketed since 2005 -- by an astounding 40%. No other state in the country has experienced such dramatic increases. And we continue to read that it’s all the fault of Katrina. There have been no major weather related losses in a number of years, but the rates continue to go up. There must be something rotten in Denmark. Hmmm – make that Louisiana.

Bob Hunter, director of insurance at the Consumer Federation of America, pulls no punches in laying the blame right at the feet of insurance regulators. He points out that insurance companies are using a number of tricks to eliminate their risk while the homeowner takes it on the chin with rates that continue to climb, hand over fist. “It simply requires regulation,” says Hunter. “Why haven’t rates gone down? Are they (insurance companies) gouging?” Ya’ think?

A significant factor in rates staying high is the continuing problems of AIG. This mammoth insurance conglomerate, that has a huge presence in Louisiana, was the first major insurance company to be bailed out as the recent Wall Street crisis evolved. Congress authorized an injection of more than $130 billion in taxpayer funds to AIG and its numerous subsidiaries. Not only were billions injected to pay off debts, the federal treasury plowed some $40 million of taxpayer dollars to take a partial stake in the ownership of AIG. As of today, the government owns 77% of AIG. So how’s your investment doing? The Wall Street Journal reported last week that AIG shares have declined 50% in this year alone.

Here’s why major international insurance groups like AIG are important to small states like Louisiana. T It’s not the population that matters. It’s where the risks are located. And there are a number of major companies operating in Louisiana that have significant exposure for insurance purposes. Just imagine the cost of insuring the offshore oil industry operating along Louisiana’s coastline. How about the nation’s largest chemical industry located up and down the Mississippi River? And there are major risks to insure in the first, third, and fifth largest ports in this country all located in Louisiana. In short, Louisiana is in the top five of states that have the highest industrial insurance risks. That means Louisiana is a major customer for many insurance companies both nationally and worldwide. Other large industrial states throughout the country share similar major industrial risks and need large national and international insurance companies to offer needed insurance protection, but none of them have had the excessive increases in insurance rates that Louisiana has.

There have been numerous press reports of widespread misspending at AIG using taxpayer funding. One investigation outlines a plush retreat by AIG executives at the St. Regis resort in California, including golf, massages, manicures, pedicures -- the works. These folks sure know how to show their gratitude. You can imagine the criticism the company received for this junket. But after getting roasted for the taxpayer – funded week-long retreat, far from learning a lesson, these same top executives keep thumbing their noses at taxpayers and continue to spend your money for their personal pleasure.

The question many people are asking is who is supposed to be watching out for these shenanigans? Who regulates companies like AIG? And why have these companies been allowed to get away with such outrageous and irresponsible behavior? But wait! In states all over the country, this is the era of little or no regulation. Keep government off the backs of the private sector. Don’t bog down insurance companies with all these regulations. You can trust them with your money…right? Let the free market reign.

And Louisiana, has been in the forefront of this laissez-faire approach to insurance regulation. In most states, companies selling automobile and property insurance have to apply for approval of any rate increase to the insurance department in any state where they want to sell insurance. Not in Louisiana. The Insurance Rating Commission, once a stronghold of watchdogs for taxpayers, was abolished a few years back, leaving insurance companies free to raise their rates on a regular basis.
In virtually every other state, there is a consumer protection office, often located under the office of the Governor or the Attorney General. The mandate of consumer protection office is to independently check and audit regulated companies to be sure that they are following the law. This mandate applies not only to insurance companies, but also to utility companies that have a monopoly operating in certain areas of the state. But in Louisiana, there are no independent checks and balances. And the loser, of course, is the policy holder, the ratepayer, the consumer.

Although the company has a major presence in Louisiana, insurance officials have chosen not to audit AIG’s activities. In years past, no insurance group was immune from being audited, particularly as financial problems began to occur. In 1993, Louisiana joined Texas in doing the first major audit of Lloyd’s of London, the world’s largest insurance company. But since the deregulation mode has obtained a firm grip on Louisiana, major companies like AIG have become free from state oversight.

New York state officials have undertaken what the Governor of New York says will be a “major investigation” of AIG mismanagement and abuses. Former Attorney General and present Governor Andrew Cuomo said in announcing his financial review of the company, “AIG’s belief is that they can have the party, and the taxpayers will have a hangover.”
The concern for Louisiana policy holders should be: why does it take an official in another state to initiate an investigation of potential mismanagement and misuse of funds that come out of the Bayou State? In Louisiana, there is no pre-approval limitation of increasing your insurance rates that are now the highest in the nation. So there is no more Insurance Rating Commission. And Louisiana law specifically prohibits giving its citizens separate insurance consumer protection by the Attorney General or any other official office.

So the bottom line is: thanks to the legislature, the Louisiana insurance policy holder has less protection than policy holders in just about any other state in America. And while the AIG shenanigans continue to be ignored in Louisiana, the politicians in Washington keep telling us that companies like AIG, for the good of the country, have to be saved no matter what, regardless of the huge burden on the taxpayers. The way the politicians see it, these companies are too big to fail. And the fleecing of you and me, the taxpayers? Well, that’s just collateral damage.

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“A government, for protecting business only, is but a carcass, and soon falls by its own corruption and decay.”
Amos Bronson Alcott
Peace and Justice.

Jim Brown

Jim Brown’s syndicated column appears each week in numerous newspapers and websites throughout the South. You can read all his past columns and see continuing updates at www.jimbrownusa.com. You can also hear Jim’s nationally syndicated radio show each Sunday morning from 9 am till 11:00 am, central time, on the Genesis Radio Network, with a live stream at http://www.jimbrownusa.com.