Louisiana Citizens raises premiums
Gene Taylor's House Member Office (D-MS-04) posted a Blog Post on June 24, 2008 | 4:18 pm - Permalink - Comments (View)
Citizens raises policy premiums; Statewide average boosted 18 percent
Rebecca Mowbray
Times-Picayune
24 June 2008
Homeowners insurance rates at Louisiana Citizens Property Insurance Corp. will increase by a statewide average of 18 percent in October as premiums at the state-sponsored insurer catch up with the dramatic run-up in prices from private companies after Hurricane Katrina.
The rate increase is the first to take into account the changes in the private market since the storm. Barring another hurricane sending shocks through the insurance market this season, customers are unlikely to see further increases at Louisiana's third-largest residential insurer.
"This is probably it," said John Wortman, chief executive of Citizens. "I think we're probably reaching the peak of rates now."
Assuming they are approved by the Louisiana Department of Insurance, the rate increases will start taking effect Oct. 1 as policies renew each month.
The rate increase will not make a meaningful difference in the special assessments paid by all owners of insured property throughout the state to pay back the nearly $1 billion in bonds issued to pay Citizens' claims after Hurricane Katrina. The annual assessment, which was 5 percent this year, is expected to be slightly less than 5 percent next year.
In some parts of the New Orleans metropolitan area, the actual Citizens rate changes will be much higher.
--- Some increases higher ---
The biggest jumps will be in Jefferson Parish, the state's second most populous parish, where homeowners insurance rates will rise by an average of 35 percent.
Rates for dwelling/fire policies, essentially a bare-bones residential policy with depreciated value coverage that does not include liability or displaced living expenses, will rise by 26 percent in Jefferson.
In St. Tammany Parish, homeowners insurance rates will rise by an average of 15 percent, less than the statewide average. Dwelling/ fire policies will go up by 26 percent, the same as in Jefferson Parish.
But rates are not expected to change in Orleans Parish. The reason, Wortman said, is that rates were already high before the storm, so private insurers didn't raise rates as dramatically after the hurricane.
In setting rates, Citizens calculates what it needs to be actuarially sound, then calculates what private insurers are charging in each parish and adds 10 percent, then charges customers the higher of the two.
The 10 percent mark-up on Citizens' policies is designed to make sure coverage from the state-sponsored insurer of last resort is more expensive than at private companies to discourage people from buying policies with the state plan.
Rate changes would have been even higher, but last year the legislature passed a law removing the 10 percent markup in hurricane- affected parishes where the private market is deemed non- competitive.
--- Reacting to the market ---
But one problem with the plan to make Citizens unattractive to potential customers is that rates always lag the private market since they, by definition, react to what private companies are doing. And Citizens was so busy after the storm that it was slow in calculating rate changes.
Citizens did raise homeowners insurance rates last year in the first rate change after the storm, but the increase was only a statewide average of 7 percent because it was calculated on data from before many insurance companies had boosted their prices. This year's rate increase is the first one that reflects the market post- Katrina, Wortman said.
Prices for Citizens commercial policies and wind-only policies are not expected to increase this year after taking big jumps last year, Wortman said.
The rate increase is set to begin Oct. 1, because that's the date that 26,885 Citizens policies are being transferred to private companies. Those policies will be rewritten on private company stationery as they renew for the next 12 months starting in October as part of a "takeout" program created by the state.
That leaves about 133,000 households that could be affected by the rate changes.
"The bad news is that the marketplace has gone up really high. The good news is that the takeout is going to help," Wortman said.
--- Clearing out policies ---
Insurance Commissioner Jim Donelon predicted that the Citizens rate changes will push another group of people out of Citizens.
Citizens customers will be highly motivated to check out the private company options that should start to become available in the coming months, he said, and the companies that won incentive grants from the state need to pick up additional customers in the hurricane- affected parishes to fulfill their commitments to the state.
"I think this will result in another huge exodus of policies from Citizens this fall, assuming we have a successful hurricane season," Donelon said, meaning no hurricanes. "These companies still need more policies than they got in the first round."
Assuming Gov. Bobby Jindal signs a bill that would finance another round of incentive grants for companies to take policies out of Citizens, Donelon and Wortman said they would like to institute another round of takeouts in the fall to spare as many people as possible from the Citizens rate increases.
Rebecca Mowbray
Times-Picayune
24 June 2008
Homeowners insurance rates at Louisiana Citizens Property Insurance Corp. will increase by a statewide average of 18 percent in October as premiums at the state-sponsored insurer catch up with the dramatic run-up in prices from private companies after Hurricane Katrina.
The rate increase is the first to take into account the changes in the private market since the storm. Barring another hurricane sending shocks through the insurance market this season, customers are unlikely to see further increases at Louisiana's third-largest residential insurer.
"This is probably it," said John Wortman, chief executive of Citizens. "I think we're probably reaching the peak of rates now."
Assuming they are approved by the Louisiana Department of Insurance, the rate increases will start taking effect Oct. 1 as policies renew each month.
The rate increase will not make a meaningful difference in the special assessments paid by all owners of insured property throughout the state to pay back the nearly $1 billion in bonds issued to pay Citizens' claims after Hurricane Katrina. The annual assessment, which was 5 percent this year, is expected to be slightly less than 5 percent next year.
In some parts of the New Orleans metropolitan area, the actual Citizens rate changes will be much higher.
--- Some increases higher ---
The biggest jumps will be in Jefferson Parish, the state's second most populous parish, where homeowners insurance rates will rise by an average of 35 percent.
Rates for dwelling/fire policies, essentially a bare-bones residential policy with depreciated value coverage that does not include liability or displaced living expenses, will rise by 26 percent in Jefferson.
In St. Tammany Parish, homeowners insurance rates will rise by an average of 15 percent, less than the statewide average. Dwelling/ fire policies will go up by 26 percent, the same as in Jefferson Parish.
But rates are not expected to change in Orleans Parish. The reason, Wortman said, is that rates were already high before the storm, so private insurers didn't raise rates as dramatically after the hurricane.
In setting rates, Citizens calculates what it needs to be actuarially sound, then calculates what private insurers are charging in each parish and adds 10 percent, then charges customers the higher of the two.
The 10 percent mark-up on Citizens' policies is designed to make sure coverage from the state-sponsored insurer of last resort is more expensive than at private companies to discourage people from buying policies with the state plan.
Rate changes would have been even higher, but last year the legislature passed a law removing the 10 percent markup in hurricane- affected parishes where the private market is deemed non- competitive.
--- Reacting to the market ---
But one problem with the plan to make Citizens unattractive to potential customers is that rates always lag the private market since they, by definition, react to what private companies are doing. And Citizens was so busy after the storm that it was slow in calculating rate changes.
Citizens did raise homeowners insurance rates last year in the first rate change after the storm, but the increase was only a statewide average of 7 percent because it was calculated on data from before many insurance companies had boosted their prices. This year's rate increase is the first one that reflects the market post- Katrina, Wortman said.
Prices for Citizens commercial policies and wind-only policies are not expected to increase this year after taking big jumps last year, Wortman said.
The rate increase is set to begin Oct. 1, because that's the date that 26,885 Citizens policies are being transferred to private companies. Those policies will be rewritten on private company stationery as they renew for the next 12 months starting in October as part of a "takeout" program created by the state.
That leaves about 133,000 households that could be affected by the rate changes.
"The bad news is that the marketplace has gone up really high. The good news is that the takeout is going to help," Wortman said.
--- Clearing out policies ---
Insurance Commissioner Jim Donelon predicted that the Citizens rate changes will push another group of people out of Citizens.
Citizens customers will be highly motivated to check out the private company options that should start to become available in the coming months, he said, and the companies that won incentive grants from the state need to pick up additional customers in the hurricane- affected parishes to fulfill their commitments to the state.
"I think this will result in another huge exodus of policies from Citizens this fall, assuming we have a successful hurricane season," Donelon said, meaning no hurricanes. "These companies still need more policies than they got in the first round."
Assuming Gov. Bobby Jindal signs a bill that would finance another round of incentive grants for companies to take policies out of Citizens, Donelon and Wortman said they would like to institute another round of takeouts in the fall to spare as many people as possible from the Citizens rate increases.
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Texas Wind Pool Update
Gene Taylor's House Member Office (D-MS-04) posted a Blog Post on June 24, 2008 | 3:41 pm - Permalink - Comments (View)
Major storm on coast could have big financial impact statewide
David Shieh
16 June 2008
Austin American-Statesman
16 June 2008
Austin American-Statesman
As fallout from Hurricane Katrina triggers major shifts in Texas' insurance landscape, residents across the state - including Central Texans - may find themselves saddled with tax increases and higher insurance premiums if a catastrophic storm hits.
With private insurers drastically cutting back on hurricane coverage along the Gulf Coast, coastal residents are flocking to the Texas Windstorm Insurance Association - more commonly known as the state windpool - in record numbers. As a public-private partnership that provides "last resort" coverage to coastal residents, the windpool has long relied on state money as a backstop for policy payouts. But not until now - with the windpool's liabilities nearly triple what they were when Katrina hit three years ago - has the state stood to lose so much from the arrangement.
The problem has gained attention at the Capitol. With potential losses in the billions of dollars from the state's general revenue fund, legislators worry that a major hurricane would force them to cut services or raise taxes. At the same time, consumers across the state would be hit with skyrocketing premiums by insurers scrambling to cover their losses.
"You've got a house that's burning," said state Rep. John Smithee, R-Amarillo, who spearheaded failed legislation to reform the windpool's finances in 2005 and 2007. "Nobody's putting the fire out, and it's getting worse instead of better."
At the root of the problem is the growing number of Texans in hurricane-prone counties who have been abandoned by private insurers no longer willing to cover central components of hurricane coverage: wind and hail damage.
Allstate, for example, stopped writing new wind policies in 14 counties along the Gulf Coast in March 2006 and declined to renew the 69,000 wind policies already in place starting that November.
State Farm, which together with Allstate sells the lion's share of the state's homeowners insurance policies, has stopped writing new wind policies on houses within a mile of the coast in those counties if applicants do not already have an auto policy with the company.
The exodus of private insurers, who say they worry that gigantic losses in coastal areas would threaten their ability to insure other customers , has left many coastal residents with few options, said Otie Zapp, head of an insurance consumer advocacy group in Galveston.
Zapp, who worked as an insurance agent for more than 40 years , said windpool policies are less than ideal: The coverage isn't comprehensive, the paperwork is a "nightmare" and the policies are often more expensive than private ones. But Zapp said countless locals - or at least the ones who can still afford wind coverage - have gone to the windpool, which now insures more than half of wind policyholders in the coastal counties it covers, double the amount before Katrina.
"Nobody wants the windpool," Zapp said. " But people grit their teeth and pay the money."
With that shift has come an unprecedented amount of financial strain on the windpool that is threatening to spill over to the state.
Under its financing plan, if the windpool were besieged with claims after a major hurricane, about $2.3 billion would be paid for through funding sources with few consequences for the state, windpool General Manager Jim Oliver said. Those would include premiums collected from policyholders, reinsurance policies and money collected from all insurers licensed to write property insurance in Texas, which are required by state law to be members of the windpool.
Beyond that $2.3 billion, though, the state would start to take a hit. Member insurance companies would front the money, but they would then be given tax breaks, which could drain billions of dollars from the state's general revenue fund.
Because a storm of sufficient scale has not hit Texas during the windpool's existence, Oliver said, it has never had to dip into state money. For example, Hurricane Rita, which hit in 2005, cost the windpool about $160 million - far short of the $2.3 billion threshold for state involvement. Based on the windpool's models, though, a strong Category 3 storm hitting Galveston would cost the state's general revenue fund $1.3 billion. A Katrina-level storm, equivalent to a Category 4 hitting Galveston, would set back the state fund as much as $3.7 billion.
The money lost from such a storm would force the state to raise taxes unless financing was cut to services such as education or Medicaid, said University of Houston professor Seth Chandler, a specialist in insurance law.
Simultaneously, the state would have to spend hundreds of millions to billions of dollars on reconstruction, increasing expenses and potentially inflating taxes even further, he said.
For Texans across the state, the resulting tax increases would coincide with skyrocketing insurance premiums as insurance companies scrambled to front billions of dollars in policy payouts, Chandler said. Some smaller insurance companies might be unable to come up with the money and declare bankruptcy, Chandler said, but the industrywide collapse that some legislators have warned of would be unlikely.
The problems have been hotly debated in the Legislature, but bills proposed by Smithee in 2005 and 2007 that would have shifted the financial burden off the state did not pass.
State Sen. Mike Jackson, R-La Porte, who threatened to filibuster Smithee's bill in 2007, said that legislators agreed that the state windpool's financing plan needed to be changed but that disagreements over how much of the financial burden coastal residents should be responsible for ultimately derailed the bill.
Other states have not found perfect fixes, Chandler said. Louisiana's windpool, which like Florida's puts the monetary burden on policyholders rather than the state, was left with a $954 million deficit after Hurricane Katrina. The state announced that windpool policyholders could see surcharges of up to 20 percent - on top of regular premium increases - until the deficit is paid off. In Florida, all homeowners insurance policyholders are still paying surcharges of 4 percent to 5 percent for windpool losses from the 2004 and 2005 hurricane seasons.
Hurdles aside, it seems likely that the windpool's problems will be revisited in the next legislative session in January, especially as the Texas Department of Insurance, which oversees the windpool, comes under scheduled legislative review. A preliminary report from the Sunset Advisory Commission, which conducts the periodic reviews, recommended last month that the Insurance Department reduce its oversight of the windpool, giving the windpool freedom to raise premiums to offset its rising liabilities. But those recommendations have been criticized by legislators and nonprofit groups who say that rate increases high enough to cover the windpool's liabilities would be unfair to consumers.
Meanwhile, in Galveston, where more than 20 percent of residents live below the poverty line , residents are scrambling for solutions. Though some people have complained that the state is simply subsidizing insurance for millionaires who decide to build second homes in hurricane-prone areas such as Galveston, Zapp can easily tick off the stories of locals who lead much less extravagant lives - the high school classmate who couldn't afford to insure his house, the "little old lady" whose income and insurance disappeared when her husband died.
"They call it anecdotal," Zapp said. "But, boy, is it real."
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Insurance Companies Force Coastal Homeowners Into State Insurance Pools in North Carolina, South Carolina, Texas, Georgia, and Alabama
Gene Taylor's House Member Office (D-MS-04) posted a Blog Post on May 2, 2008 | 5:12 pm - Permalink - Comments (View)
The attached tables were produced from data found on the websites of the state-sponsored insurers of last resort for North Carolina, South Carolina, Texas, Georgia, and Alabama. Much has been written and said about the insurance crises in Florida, Mississippi, and Louisiana. These figures show how quickly and dramatically insurance companies have dropped coverage in the coastal areas of other Gulf and South Atlantic states, forcing property owners into the wind pools and other state-sponsored insurance pools.
The North Carolina Beach Plan’s liability grew from $17.8 billion $65.9 billion in four years –
the plan covers $16.7 billion in New Hanover County alone;
The South Carolina’s Wind Pool’s liability grew from $5.4 billion to $16.1 billion in four years;
The Texas Wind Pool’s liability grew from $38.3 billion to $58.6 billion in ONE YEAR -
the wind pool covers $17.9 billion in Galveston County alone;
The Georgia Fair Plan’s liability in windstorm-only coverage grew from $565 million to $2.17 billion in three years;
The Alabama Beach Plan’s liability grew from $341 million to $1.6 billion in three years.
These state pools have severe limitations. They are not allowed to build up sufficient reserves to cover a major catastrophe, so they are forced to pay excessive rates for reinsurance coverage from a weakly regulated and uncompetitive industry. Single state pools tend to concentrate risk so that much of the pool would be hit by a single event. Mississippi, Alabama, Georgia, and South Carolina have relatively small coastlines of from two to six counties. Florida, Texas, and North Carolina have coastal cities where substantial risk is concentrated in the state pool.
The proposal to allow coastal residents to purchase wind and flood coverage in one policy from the National Flood Insurance Program would stabilize these coastal markets, spread coastal risk broadly and more efficiently, and eliminate the disputes over the cause of damages that are unavoidable when wind and flood coverage are provided by separate policies. The government would not be subject to the volatility and manipulation of the private insurance market that follows every major disaster.
The government would be able to set risk-based premiums based on the estimated losses, using the risk models and data currently used by the state pools, state insurance commissioners, and private insurance companies.
| North Carolina Beach Plan Insurance in Force | |||||
| County | 12/31/2003 | 12/31/2007 | |||
| New Hanover County | $4,450,699,772 | $16,751,477,256 | |||
| Brunswick County | $2,685,423,174 | $11,724,654,544 | |||
| Dare County | $4,244,818,771 | $9,382,734,452 | |||
| Carteret County | $2,748,052,589 | $8,925,728,138 | |||
| Onslow County | $832,813,557 | $5,582,086,035 | |||
| Other Counties | $2,835,093,470 | $13,576,435,544 | |||
| Beach Plan Total | $17,796,901,333 | $65,943,115,969 | |||
| South Carolina Wind Pool Insurance in Force | |||||
| County | 1/31/2004 | 1/31/2008 | |||
| Beaufort County | $1,868,243,000 | $5,421,524,000 | |||
| Horry County | $1,657,447,000 | $4,690,440,000 | |||
| Charleston County | $1,302,024,000 | $4,074,837,000 | |||
| Georgetown County | $413,208,000 | $1,429,026,000 | |||
| Colleton County | $213,364,000 | $494,449,000 | |||
| Wind Pool Total | $5,454,286,000 | $16,110,276,000 | |||
|
Texas Wind Pool Insurance in Force |
||
| County | 12/31/2006 | 12/31/2007 |
| Galveston County | $14,331,065,312 | $17,918,818,858 |
| Nueces County | $7,821,172,334 | $11,506,055,587 |
| Brazoria County | $5,300,242,001 | $10,083,607,009 |
| Jefferson County | $2,722,267,136 | $6,170,605,401 |
| Cameron County | $3,304,728,117 | $5,073,302,292 |
| Other Counties | $4,833,547,260 | $7,889,157,096 |
| Wind Pool Total | $38,313,022,160 | $58,641,546,243 |
| Georgia FAIR Plan Windstorm Insurance in Force | ||||
| 9/30/2004 | 9/30/2007 | |||
| Windstorm Only Policies | $565,006,000 | $2,171,976,000 | ||
| Alabama Wind Pool Insurance in Force | ||
| 3/31/2005 | 3/31/2008 | |
| Baldwin & Mobile Counties | $341,250,420 | $1,614,165,000 |
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Expansion of State Insurance Pools in North Carolina, South Carolina, Texas, Georgia, and Alabama
Gene Taylor's House Member Office (D-MS-04) posted a Blog Post on May 2, 2008 | 5:12 pm - Permalink - Comments (View)
Much has been written and said about the insurance crises in Florida, Mississippi, and Louisiana.
The figures below were found on the websites of the state-sponsored insurers of last resort for North Carolina, South Carolina, Texas, Georgia, and Alabama. This data shows how quickly and dramatically insurance companies have dropped coverage in the coastal areas of other Gulf and South Atlantic states, forcing property owners into the wind pools and other state-sponsored insurance pools.
The North Carolina Beach Plan’s liability grew from $17.8 billion $65.9 billion in four years –
the plan covers $16.7 billion in New Hanover County alone;
The South Carolina’s Wind Pool’s liability grew from $5.4 billion to $16.1 billion in four years;
The Texas Wind Pool’s liability grew from $38.3 billion to $58.6 billion in ONE YEAR -
the wind pool covers $17.9 billion in Galveston County alone;
The Georgia Fair Plan’s liability in windstorm-only coverage grew from $565 million to $2.17 billion in three years;
The Alabama Beach Plan’s liability grew from $341 million to $1.6 billion in three years.
These state pools have severe limitations. They are not allowed to build up sufficient reserves to cover a major catastrophe, so they are forced to pay excessive rates for reinsurance coverage from a weakly regulated and uncompetitive industry. Single state pools tend to concentrate risk so that much of the pool would be hit by a single event. Mississippi, Alabama, Georgia, and South Carolina have relatively small coastlines of from two to six counties. Florida, Texas, and North Carolina have coastal cities where substantial risk is concentrated in the state pool.
The proposal to allow coastal residents to purchase wind and flood coverage in one policy from the National Flood Insurance Program would stabilize these coastal markets, spread coastal risk broadly and more efficiently, and eliminate the disputes over the cause of damages that are unavoidable when wind and flood coverage are provided by separate policies. The government would not be subject to the volatility and manipulation of the private insurance market that follows every major disaster.
The North Carolina Beach Plan’s liability grew from $17.8 billion $65.9 billion in four years –
the plan covers $16.7 billion in New Hanover County alone;
The South Carolina’s Wind Pool’s liability grew from $5.4 billion to $16.1 billion in four years;
The Texas Wind Pool’s liability grew from $38.3 billion to $58.6 billion in ONE YEAR -
the wind pool covers $17.9 billion in Galveston County alone;
The Georgia Fair Plan’s liability in windstorm-only coverage grew from $565 million to $2.17 billion in three years;
The Alabama Beach Plan’s liability grew from $341 million to $1.6 billion in three years.
These state pools have severe limitations. They are not allowed to build up sufficient reserves to cover a major catastrophe, so they are forced to pay excessive rates for reinsurance coverage from a weakly regulated and uncompetitive industry. Single state pools tend to concentrate risk so that much of the pool would be hit by a single event. Mississippi, Alabama, Georgia, and South Carolina have relatively small coastlines of from two to six counties. Florida, Texas, and North Carolina have coastal cities where substantial risk is concentrated in the state pool.
The proposal to allow coastal residents to purchase wind and flood coverage in one policy from the National Flood Insurance Program would stabilize these coastal markets, spread coastal risk broadly and more efficiently, and eliminate the disputes over the cause of damages that are unavoidable when wind and flood coverage are provided by separate policies. The government would not be subject to the volatility and manipulation of the private insurance market that follows every major disaster.
The government would be able to set risk-based premiums based on the estimated losses, using the risk models and data currently used by the state pools, state insurance commissioners, and private insurance companies.
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Reinsurers Gouge Texas Wind Pool
Gene Taylor's House Member Office (D-MS-04) posted a Blog Post on May 2, 2008 | 4:28 pm - Permalink - Comments (View)
The chart in the attachment below clearly demonstrates why the reinsurance industry is leading the opposition to Congressman Taylor’s proposal to allow the National Flood Insurance Program to offer wind coverage at risk-based rates. State risk pools are forced to buy reinsurance at prices far exceeding the estimated risks and anticipated losses.
The Texas Wind Pool is proposing to purchase $1.5 billion of reinsurance above a self-insured retention of $600 million. That means the wind pool will cover the first $600 million in wind pool losses, with the reinsurance covering three layers from $600 million to $2.1 billion. The reinsurance premiums will cost $201.25 million.
The first $500 million reinsurance layer, from $600 million to $1.1 billion, will cost $86.25 million. That means the wind pool will pay a premium that is more than 1/6 of the insurance coverage where the risk models estimate there is a 1 in 12 chance of needing any reinsurance and a 1 in 22 chance of needing the entire $500 million.
The next $500 million layer, from $1.1 billion to $1.6 billion, will cost $62.5 million. The wind pool will pay a premium equal to 1/8 of the coverage where the probability of reaching $1.1 billion is estimated to be 1 in 22 and the probability of reaching $1.6 billion is about 1 in 35.
The third $500 million layer, from $1.6 billion to $2.1 billion will cost $52.5 million. The wind pool will pay a premium that is more than 1/10 of the coverage where the probability of reaching $1.6 billion is estimated at 1 in 35 and the probability of reaching $2.1 billion is about 1 in 45.
The Texas wind pool is not alone in being gouged by the reinsurance industry. The Mississippi wind pool is paying $65 million in premiums for reinsurance to cover $470 million of the first $570 million in wind pool losses. The wind pool has a self-insured retention to cover the other $100 million.
The Texas Department of Insurance
Topic: Docket No. 2683
The Commissioner of Insurance will consider the following matters:
The Commissioner of Insurance will consider the following matters:
Docket No. 2683: Consideration of petition by the Texas Windstorm Insurance Association requesting approval of a reinsurance program to operate in addition to or in concert with the catastrophe reserve trust fund established under Subchapter J, Chapter 2210 of the Insurance Code.
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State Farm disses other insurers in Florida
Gene Taylor's House Member Office (D-MS-04) posted a Blog Post on May 2, 2008 | 4:23 pm - Permalink - Comments (View)
In Florida, it seems that State Farm is dropping customers and then warning them not to buy policies from other private insurers. State Farm agents are pushing the state-run Citizens Property Insurance Company as more reliable than the private companies offering coverage in Florida. This is counter to the official industry line that the state plan is risky and private insurers are not.
By BY MATT REED Florida Today Watchdog blog
Originally published 10:10 a.m., April 24, 2008
Every day, I get a phone call about hurricane insurance that goes exactly like this:
Caller: "Um, yes . . . I received a notice from State Farm saying they were dropping me."
Me: "Yup. They announced months ago they're dropping almost everyone and not selling new policies."
Caller: (Pause) "Well, another agent put me with one of these new companies, and it's about $1,000 a year less."
Me: "Great. So, what's the problem?"
Caller: "I just got a scary letter from my old State Farm agent saying companies like mine have terrible ratings and I should buy a policy with Citizens."
So, with letters in hand, I checked out the scare tactics State Farm agents are now using on the same people their company summarily ditched. Why would they steer former clients to Citizens Property Insurance Co., the state chartered insurer of last resort?
CITIZENS PAYS THEM
Bottom line: State Farm agents lose business if their clients don't buy from Citizens. Unlike Allstate or Nationwide, State Farm has no agreement with a new regional company to pick up homeowners' policies. The only other home insurance its agents can sell is Citizens.
For that, State Farm agents collect commissions of 6.9 percent to 8.6 percent for home policies (depending on risk) and 12 percent for commercial policies.
If they can hang on to homeowners, they also stand a chance of keeping clients' auto, umbrella and life insurance policies.
Citizens "is backed by the financial strength of the State of Florida," says one letter from a State Farm agent.
That's not exactly true, Citizens spokesman John Kuczwanski said. Citizens does have the power to assess all Florida policyholders to raise money if it falls short, but its policies aren't backed by the state general fund.
THE RATINGS GAME
But the scariest parts of the State Farm letters are those pointing to bad strength ratings by A.M. Best or Moody's for Florida's new, competing companies such as First Protective, Universal, Royal Palm, and Edison. Another rating company recommended by the state, Demotech Inc., gives those companies "A" ratings for stability. One State Farm letter slams Demotech as "inconsistent."
"That sort of upset me," said Virginia Paddock of Vero Beach, who researched her First Protective policy before buying through an agency in Indialantic. "It's a little scary."
Why do ratings differ?
A.M. Best and Moody's measure factors including depth of reserves, company age, profitability and diversification across regions and lines of insurance.
If you can get an affordable policy with an "A " rating from A.M. Best, take it. But new Florida-based companies that specialize in homeowner's insurance and rely on backup "reinsurance" to pay hurricane claims stand little chance with the agency.
Demotech primarily measures a company's ability to remain solvent and pay claims in a crisis.
And that's what you really need to know, right?
"In 2004, four hurricanes and one tropical storm struck Florida," Demotech President Joseph Petrelli told me by e-mail. "There were nearly 100 newer, regional insurers and only one failed. The Florida office of Insurance Regulation and Demotech are doing a fine job."
And remember, no rating predicts how quickly an insurer — big or small — will send an adjuster to accurately pay you.
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State Farm abandons Alabama Coast & New Jersey Shore
Gene Taylor's House Member Office (D-MS-04) posted a Blog Post on May 2, 2008 | 4:07 pm - Permalink - Comments (View)
A few months before Hurricane Season, State Farm announced that it was abandoning coastal Alabama and the New Jersey shore. They had already pulled out or severely restricted underwriting in most other Gulf and Atlantic States.
State Farm will impose significant restrictions on any new policies in Mobile, Baldwin counties
By JEFF AMY, Business Reporter
The Mobile Press Register
Wednesday, March 19, 2008
State Farm, Alabama's largest property insurer, will impose significant restrictions on new policies in Mobile and Baldwin counties beginning April 1, in what the company said Tuesday was an effort to cut its exposure to possible losses from a hurricane.
The company, based in Bloomington, Ill., will no longer write wind and hail coverage on homes south of Interstate 10 in Mobile County, and south and west of U.S. 98 in Baldwin County.
In much of the rest of the two coastal counties, State Farm will require a 5 percent hurricane deductible unless a house is armored against wind in ways that few local houses now are. That means a policy holder would have to pay for damage equal to 5 percent of the insured value of a house after a storm before insurance would kick in.
By ELAINE ROSE Staff Writer,
Press of Atlantic City
Monday, April 21, 2008
If you call a State Farm Insurance Company agent in Ventnor after office hours, you get a tape-recorded message saying, "Like a good neighbor, we are there for you 24/7."
Don't try and sell the "good neighbor" bit to Mary Nugent, of Pennsylvania, who has a home in Longport.
After paying premiums to State Farm for 25 years with no claims, Nugent got a letter from the company last week saying it will not renew her policy as part of a program "to reduce our exposure to catastrophic property losses." The state Department of Banking and Insurance approved their "block nonrenewal plan."
"Since your property is located on a barrier island, your policy is being nonrenewed" and will expire June 9, the letter said.
That got Nugent mad, and not only because she has to hunt down a new insurance policy at, most likely, a much higher price.
"You can't take the cream-of-the-crop (policies) and say, 'If we have to take a risk,we're not going to do it. We want all profit all the time,'" Nugent said.
The Oberon Avenue bungalow has been in her family for 100 years, and it has never taken in water, Nugent said. Meanwhile, her friends who live on the Delaware River in Bucks County, Pa., which has been subject to flooding, are getting renewed.
Officials say Nugent and other State Farm customers in New Jersey shore communities are the latest victims ina trend that has been going on for years.
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Mississippi Law Journal - Hurricane Katrina Special Edition
Gene Taylor's House Member Office (D-MS-04) posted a Blog Post on May 2, 2008 | 2:52 pm - Permalink - Comments (View)
Check out the special edition of the Mississippi Law Journal, including Gene Taylor's article about the urgent need for federal insurance reform.
Book 77.3: Hurricane Katrina Special Edition
This Special Edition examines
Kathryn E. Dennis, Foreword: Remembering Our Mississippi Gulf Coast
John M. Czarnetsky, Hurricane Katrina & the Revised Bankruptcy Code: Kick 'Em While They're Down
U.S. Representative Gene Taylor, Federal Insurance Reform After Katrina
Ronald G. Peresich, Revamping the Wind Pool
Karen A. Lash & Reilly Morse, Mitigating Disasters: Lessons from Mississippi
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Times Picayune Editorial Regarding Wind & Flood Claims
Gene Taylor's House Member Office (D-MS-04) posted a Blog Post on February 5, 2008 | 1:11 pm - Permalink - Comments (View)
EDITORIAL: Not minding the store
Saturday, February 02, 2008
The Federal Emergency Management Agency is stubbornly ignoring mounting evidence that it has poorly run the flood insurance program, and it's time the White House and Congress force the agency to change its ways.
For months reports from government investigators as well as whistleblower lawsuits have exposed how FEMA's lax management of the program is likely wasting billions in taxpayers' money. Yet to this day, the agency's brass refuse to investigate or correct problems. Their lackadaisical attitude with the taxpayers' money is unacceptable.
The most recent criticism came last week from the Government Accountability Office. In a report, the GAO pointed to the "inherent conflict of interest" that exists when the same private insurer determines flood damage, which is covered by the government, and wind damage, which is covered by the private insurer. GAO investigators concluded that insurers who provide wind coverage "have a vested economic interest" in determining which damage was caused by flood or wind. The report recommended that FEMA obtain wind damage files from private companies to check whether taxpayers have gotten fleeced.
The GAO observation jibes with a lawsuit filed by former insurance adjusters last year that exposed credible evidence that several insurers lowballed wind damage after Hurricane Katrina and exaggerated flood damage -- essentially shifting their responsibility to taxpayers. The former adjusters said they reinspected 150 properties with flood and wind damage and in every case flood damage had been inflated and wind damage underreported. The suit cited eye-popping examples, such as State Farm allegedly paying more than $88,000 for flood damage in a Metairie home with no flooding and AllState counting flood damage twice in an eastern New Orleans home.
These have not been the only problems. In September, the GAO said FEMA has handed over to private insurers an exorbitant portion of annual premiums from homeowners to pay for the companies' operating costs. But the agency has done little to make sure the companies are not artificially inflating those costs and has routinely ignored requirements for regular audits of the insurers.
While complaints mount, FEMA has tried to minimize the problem and refuses to even investigate. FEMA officials have routinely said that they doubt private insurers would take advantage of the government program, but the agency has not really examined the issue enough to back that opinion. Even the inspector general of the Department of Homeland Security, which includes FEMA, said he could not really say whether insurers shifted costs from wind damage to flood claims because he did not have wind claims data to examine.
Yet FEMA is responding to the latest GAO report by claiming, again, that it does not need wind damage information to police the flood insurance program and that there's no proof that wind and flood damages were handled improperly. Of course, the agency won't find any proof as long as it refuses to actually check.
FEMA officials also said private insurers probably would fight the agency if it sought to get wind damage data and that "the marginal value of such data would be costly." But the Property Casualty Insurers Association of America, which also argues that FEMA does not need wind damage data, said state commissioners already have access to that information. If the states already have the data, sharing it with FEMA should not be costly or contentious.
What is plain to everyone is that FEMA simply does not want to look into the complaints. It's unclear yet whether the agency is seeking to cover its own ineptitude in managing the flood program or covering up for private insurers who may have abused the system. Congress and the White House should not tolerate either.
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Taylor comments on GAO Wind & Flood Report
Gene Taylor's House Member Office (D-MS-04) posted a Blog Post on January 30, 2008 | 5:34 pm - Permalink - Comments (View)
REP. TAYLOR COMMENTS ON GAO WIND AND FLOOD REPORT
Findings reinforce importance of multiple peril insurance provision
WASHINGTON, D.C. – Rep. Gene Taylor commented today on the U.S. Government Accountability Office’s report that greater transparency and oversight is needed for determining the extent of wind and flood damage after a storm.
“I applaud the GAO for confirming that insurance companies have an inherent conflict of interest when they are allowed to determine whether to assign damages to their own wind insurance policies or to the federal flood insurance policy claims,” Rep. Taylor said. “The report reinforces my proposal to give homeowners the option to buy wind and flood coverage in the same policy.”
The multiple peril insurance provision in H.R. 3121, passed by the House of Representatives in September, would allow coastal residents to buy insurance and know that hurricane damage would be covered. It would protect taxpayers by ensuring that more hurricane damage is covered by premiums rather than by disaster assistance programs.
The volatility and uncertainty of the coastal insurance market are the biggest obstacles to recovery on the Gulf Coast. Insurance companies are withdrawing from almost every coastal market, forcing many homeowners into state insurance pools.
“I urge the Senate to pass this legislation in order to stabilize the insurance market in coastal states,” Rep. Taylor said. “I strongly support GAO’s recommendations that insurance companies be required to turn over their wind claims files so that FEMA can verify that the companies applied the same standards to the flood insurance claims as to their own wind claims. I am disappointed, but not surprised, that FEMA opposes that recommendation. FEMA needs to recognize that its oversight responsibility is to protect federal taxpayers, not insurance companies.”
The GAO’s findings include these major points:
· A conflict of interest exists when insurance companies are responsible for determining both the extent of the flood damage that NFIP must pay and the extent of the wind damage that the insurance company itself must pay;
· NFIP cannot determine the accuracy of flood claims payments on properties that were subject to both high winds and flooding, because FEMA does not collect any information on wind claims and does not require companies to explain their procedures for distinguishing between wind and flood losses;
· Property owners with separate homeowners, wind and flood insurance policies cannot know in advance whether all their damage from a hurricane will be covered because of differences in the policy limits; the uncertainty is increased because NFIP cedes control of the damage determination to the insurance company despite a vested economic interest in maximizing the flood claim and minimizing the wind claim;
· Legal disputes between wind and flood coverage have increased because of insurance companies’ anti-concurrent causation clauses that attempt to exclude coverage of wind damage if flooding contributed to the loss.
The Flood Insurance Reform and Modernization Act, H.R. 3121, which passed the House in September, already addresses some of the concerns raised by the GAO report:
The House approved a Taylor amendment that prohibits insurance companies from using anti-concurrent causation language to exclude coverage of wind damage solely because flooding also contributed to the damage.
The House also approved an amendment offered by Rep. Mel Watt that would require insurance companies to report their actual expenses operating the flood program and to undergo an independent audit of their administration of NFIP policies every two years.
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U.S. Attorney subpoena's engineering firm's computer hard drive
Gene Taylor's House Member Office (D-MS-04) posted a Blog Post on October 25, 2007 | 7:22 pm - Permalink - Comments (View)
By Michael Kunzelman, Associated Press Writer
NEW ORLEANS -- An engineering firm that helped adjust insurance claims on the Gulf Coast after Hurricane Katrina is seeking to block an employee's computer hard drive from being turned over to a federal grand jury in Mississippi.
Forensic Analysis & Engineering Corp. asked a federal judge on Wednesday to bar Zach Scruggs - an attorney for hundreds of homeowners suing insurers after Katrina - from complying with a subpoena for the hard drive obtained by U.S. Attorney Dunn Lampton.
Lampton, whose jurisdiction includes Mississippi's Gulf Coast, has convened a grand jury that is believed to be investigating the insurance industry's handling of claims after Hurricane Katrina.
Some state and federal officials and homeowners' attorneys have accused insurers of overbilling the federal government billions of dollars for Katrina's flood damage. The companies say their policies cover damage from wind but not rising water. They sell separate flood insurance policies that are subsidized by the federal government.
Forensic says it doesn't want to interfere with Lampton's investigation, but argues that its employee's hard drive may contain privileged information that should remain confidential.
Scruggs' firm, for one of its cases against State Farm Fire & Casualty Co., obtained the hard drive from Forensic employee Nellie Williams in July. Forensic, which helped State Farm adjust claims after Katrina, says Scruggs' firm wasn't entitled to obtain the hard drive.
On Oct. 9, U.S. Magistrate Judge Robert Walker in Gulfport, Miss., agreed to temporarily block Scruggs from disseminating any information obtained from the hard drive. Two days later, however, Lampton's office served Scruggs with the subpoena for the hard drive.
Scruggs subsequently asked for Walker's permission to comply with the subpoena. Walker hasn't ruled on that request.
Forensic's lawyers say the timing of Lampton's subpoena was "odd, but coincidence just cannot be the explanation." Instead, the firm's attorneys claim Scruggs tipped off Lampton's office to the existence of the hard drive "in direct contravention" to Walker's order.
"Knowledge of the exact location of the hard drive and its potential contents are most likely not a lucky guess," Forensic attorney Kathryn Platt wrote.
Richard "Dickie" Scruggs, Zach's father and law partner, said they told federal investigators about the hard drive before Walker issued his Oct. 9 order.
"We weren't trying to circumvent Judge Walker's order," he added. "We have complied with the letter and the spirit of his order."
A spokeswoman for Lampton's office declined to comment on the subpoena or on the grand jury's proceedings.
In May, Allstate Corp. and Nationwide Mutual Insurance Co. disclosed that they have been subpoenaed by a federal grand jury in Mississippi and would be cooperating with its probe of Katrina insurance claims.
Lawyers for State Farm also have confirmed that at least two of its employees were targets of a federal grand jury's probe of its Katrina claims handling in Mississippi. But it wasn't immediately clear whether the Allstate and Nationwide subpoenas were linked to the same probe.
"It's hard to tell where they're aiming," Scruggs said of the grand jury proceedings. "They haven't shared it with me."
Scruggs also has cooperated with Mississippi Attorney General Jim Hood, whose office has investigated allegations that insurers fraudulently denied claims after Katrina. Scruggs' firm provided Hood's office with copies of internal State Farm documents obtained by two sisters who helped the company adjust claims.
In June, however, U.S. District Judge William Acker in Alabama ruled that Scruggs "willfully" violated a court order to return the documents. Acker named two special prosecutors to handle the case after U.S. Attorney Alice Martin declined to prosecute Scruggs for criminal contempt charges.
Forensic said Scruggs' handling of the hard drive is "not completely dissimilar" from the contempt proceedings in Alabama. Scruggs, for his part, rejected that comparison.
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Insurance market failure on the Texas Coast
Gene Taylor's House Member Office (D-MS-04) posted a Blog Post on October 25, 2007 | 7:17 pm - Permalink - Comments (View)
By Hunter Sauls, The Facts (Brazoria County, TX)
October 24, 2007
After the devastation of hurricanes Katrina and Rita, selling windstorm insurance along the Gulf Coast no longer is a risk many insurance companies are willing to take.
As more people turn to the quasi-public Texas Windstorm Insurance Association, many don’t know their new policies come with some requirements they haven’t seen before.
Within the last 18 months, more than 2,500 Texans have purchased new windstorm insurance policies with the Texas Windstorm Insurance Association each week, said Jim Oliver, general manager of the association. The norm is about 400 or 500 a week, he said.
About 207,000 policies had been written by the end of September, but at the end of the year it should be 250,000. Oliver said the insurance association will carry more than 50 percent of windstorm policies along the coast, even higher in some counties.
As more people turn to the quasi-public Texas Windstorm Insurance Association, many don’t know their new policies come with some requirements they haven’t seen before.
Within the last 18 months, more than 2,500 Texans have purchased new windstorm insurance policies with the Texas Windstorm Insurance Association each week, said Jim Oliver, general manager of the association. The norm is about 400 or 500 a week, he said.
About 207,000 policies had been written by the end of September, but at the end of the year it should be 250,000. Oliver said the insurance association will carry more than 50 percent of windstorm policies along the coast, even higher in some counties.
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With more than 250,000 policies along the Texas coast by the end of the year, Texas Windstorm is exposed to more than $60 billion in potential payable damages, Oliver said. It never would get that high because no single storm or even storm season would destroy the entire covered area, he said. But several high points, such as Galveston and Corpus Christi, could cost more than $2 billion each if a major storm hit.
“If we had a storm in any of these areas, the possibility the damages would exceed our current resources, requiring the state to get involved and issue tax credits is pretty significant,” he said.
Looking at the damages and the effect on the state’s funds is irrelevant because the damages from past storms have largely been absorbed by private companies, he said. They aren’t there anymore.
“In 2005 when Rita hit Beaumont, we had only 3,700 policies there,” Oliver said. “Now we have over 21,000 policies in Jefferson County alone.
“To look at past exposure is really meaningless,” Oliver said. “You have to look at current exposure — otherwise you’ll be woefully short.”
“If we had a storm in any of these areas, the possibility the damages would exceed our current resources, requiring the state to get involved and issue tax credits is pretty significant,” he said.
Looking at the damages and the effect on the state’s funds is irrelevant because the damages from past storms have largely been absorbed by private companies, he said. They aren’t there anymore.
“In 2005 when Rita hit Beaumont, we had only 3,700 policies there,” Oliver said. “Now we have over 21,000 policies in Jefferson County alone.
“To look at past exposure is really meaningless,” Oliver said. “You have to look at current exposure — otherwise you’ll be woefully short.”
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Senate insurance reform news - Oct. 23, 2007
Gene Taylor's House Member Office (D-MS-04) posted a Blog Post on October 25, 2007 | 7:13 pm - Permalink - Comments (View)
By Keith Herbert, Newsday
More New Yorkers are turning to unregulated insurers for property coverage, further proof that federal regulation is needed to stabilize the hom