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.

*******
“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.

Huge Insurance Problems in Louisiana!

Thursday, December 22nd, 2011
Baton Rouge, Louisiana

LOUISIANA PROPERTY OWNERS FACE
ANOTHER STATE CREATED FINANCIAL DISASTER!

Merry Christmas Louisiana. Here’s your present from the public officials you sent to the state capitol. A big boost in your property insurance premiums! All from the same folks who have been sticking you with higher rates for years because of their poor oversight and downright incompetence. So get out your checkbook and enjoy your holidays. More increases are on the way.

Just two weeks ago, State Farm policy holders were blindsided with a whopping rate increase of as much as 14% in some parts of the state. Many customers are wondering why there was such a rate increase was implemented. The economy has stagnated, there is little inflation, and prices across the board are down. Insurance rates are dropping in many other states, but Louisiana continues to have the highest premium costs in the nation. There have been no recent serious weather related damages throughout the state. So how can an insurance company justify a rate increase during this troubling economic climate? Simply put, they did it because they can.

In the majority of states throughout the U.S., insurance companies have to file a request to raise rates before the insurance department. Actuaries and other insurance officials scrutinize these requests to be sure the rate request is justified. But not in Louisiana!

The insurance industry did some heavy lobbying a few years back and poured hundreds of thousands of dollars into the coffers of willing legislators and insurance regulators. And Voila! No more prior approval to raise rates required. Such “sweetheart deals” do not exist in Texas, Mississippi, Arkansas and in virtually no other state throughout the south. And guess what? Property insurance rates are much lower outside Louisiana.

So that was the bad news two weeks ago. But now, if you own a home, here’s your New Year’s present. Every property owner in the state is about to be stuck with yet another assessment on their property because of the incompetence and outright fraud on the part of those who both formed and have run the state created Citizens Property Insurance Company.

Just last week, the Louisiana Supreme Court ruled that Citizens will be stuck with a judgment approaching $100 million for failing to pay claims to property owners following Hurricanes Katrina and Rita in a timely manner. Private sector companies followed the law and paid the money owed for damages appropriately. But the incompetence and tardiness of the public officials in charge rose to the level of mismanagement. The requirements that other companies complied with were ignored by Citizens.

Following the court’s ruling, Fred Herman, the New Orleans attorney for a large number of unpaid homeowners, blasted the public officials in charge by saying, “It demonstrates the utter and abject failure of Citizens to perform their statutory and contractual obligations to their insureds… Those are the types of things that people need to understand when they’re re-electing them.”

And the bad news for Louisiana homeowners could get much worse. There is a separate claim of incompetence against Citizens by 10,000 more homeowners that could cost property owners an additional $50 million. And this money, that could exceed $150 million, does not come out of the state treasury. It will come from an assessment on every Louisiana property owner, regardless of who his insurance company might be.

Citizens Insurance Company was a disaster waiting to happen from its very inception. Created by the Louisiana Legislature at the behest of the Insurance Department, Citizens had to be one of the most poorly constructed business operations ever conceived by a state legislature. The company was broke from day one, with no capital and no surplus available to get Citizens started on a sound financial footing. It became obvious early on that no one at Citizens had any idea of how to run an insurance company.

In addition, a mother’s mantra of any successful insurance company is that there must be adequate reinsurance. There must be a safety net in case a storm like Katrina comes along. The legislature and the insurance department failed to require that Citizens have sufficient reinsurance, and that single negligent decision stuck every policy holder in the state for a bill that will far exceed $1 billion. By virtually every standard that any private insurance company must measure up to, Citizens has failed miserably.

Citizens was a inauspicious cataclysm from day one. With these massive new assessments now being saddled on the backs of Louisiana property owners, the Citizens debacle continues to get even worse. The best solution would be to shut the company down completely. At a minimum, Citizens needs major restructuring with more requirements for both legislative and auditor oversight.

Unfortunately for those stuck with the bill, there seems to be little concern at the state capitol to straighten out this publically created disaster that continues to fester and grow.
*****
“It’s not hurricanes that are causing high insurance rates, but bad government policy,”
Policy analyst Michelle Minton

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.