> but if it was a significant problem, it would show
> up in those profit reports[,] right?

Maybe, maybe not, if they are continuing to make as much money as they are. After all, they’ve been paying a lot for (some of the) losses experienced due to the hurricane.

In other words, their obscene profits could be so obscenely large they grew substantially despite all they’ve had to pay. And we’ve not come to the end of lawsuits related to the hurricane.

Now in an annual report, if there were any unusually large damages paid, they should be listed.

The insurers are hardly sweet and innocent. I dislike the idea of their forming a *gag* “government-business partnership.” By the way, you’ll like the last line:

“The Act would establish within the Treasury Department a Fund that would sell, at actuarially sound and self-sufficient rates, federal catastrophe reinsurance directly to state catastrophe funds.”

“When there are large-scale catastrophes, insurers lose money, and consumers are faced with higher prices and reduced availability of insurance.”

http://www.protectingamerica.org/

Note I mentioned legal threats as well, such as have been made by attorneys general against insurers in this case and against other companies in other circumstances. The insurers are under no obligation to stay where they are abused. At least one attorney general (probably running again soon for office) wanted to have a court strike down existing, long-unquestioned exclusions in insurance policies.
And this same attorney general is trying to force insurers to cover people, even if the insurer isn’t doing business currently in any other part of the state! This is complete nonsense.

“In response Mississippi Attorney General Jim Hood revealed a proposal –

That would force carriers writing auto insurance in the state to provide homeowners and commercial insurance if they write those policies elsewhere in the United States. He said the legislation mirrored similar legislation passed in Florida.”

> I think you need look to further than the origional post

I’ve gone over the entire thread.

> “State Farm Insurance, the nation’s largest insurer,
> recently said profits climbed 65 percent ”

I didn’t miss this. Don’t worry.

> unless there is some wacky book keeping, then
> obviously lawsuits aren’t really a problem.

Misuse of the courts (and of the legislature) is a separate problem.

> Are you some sort of spawn of Bill O’Reilly
> and Michelle Malkin?

Are you some spawn of Stalin? My statement makes much more sense than yours; do you really want to earn any more of the same?

> Did you not read about the obscene insurance industry profits?

Yes, and I’m aware that insurance often is, what was described earlier, a racket; think of cheaper, substandard parts your auto insurer might want to substitute for “real” parts when repairing your vehicle, and in fact think of the game played with “flood” versus “storm” or “wind” [wind-driven-wave] damages after the recent hurricane. I’m the last one who could be accused of being ignorant about something.

That does not negate the problem of junk lawsuits, and even misconduct by attorneys general, including on the Gulf Coast.

> As someone who thinks that health insurance is
> very close to a “right� I just don’t think this falls
> in the same category.

It doesn’t because typically what’s bought is not insurance (which would be true for “catastrophic coverage” only), but pre-paid health care going beyond what is tragic, avoided, and usually doesn’t happen.

In many respects insurance is an example of “market based socialism”. Participation is at least in theory voluntary, and people pay premiums to the insurance company with the expectation that should the event being insured against occur, the financial impact of it will be “socialized”, i.e. spread among all the policyholders. However, insurance companies are not just big bags of money taking in premiums and paying out claims.

Full service insurance companies typically offer four major lines of insurance product to individuals: Automobile, Fire & Casualty (i.e. homeowners & renters insurance), Life, and General Liability. (There are also business oriented insurance products, but let’s leave them aside for now.)

Each product line is managed separately from the others, both as a matter of good business, and of state insurance regulations. It wouldn’t do for example, if an insurance company started raising auto insurance rates to subsidize higher than expected life insurance claims, or vice-versa, or to raise premiums in California to pay for losses in the Gulf Coast. As long as rates are set by state regulators, each state must be a self contained unit for sharing risk. The product lines are also segmented by state.

The key number for running an insurance company is not net profit for the company as a whole, but the ‘Loss Ratio’, i.e. the ratio of dollars paid out divided by dollars collected. When the loss ratio is greater than one, the insurance company is paying out more dollars than it is receiving–a condition that clearly can not continue indefinitely. When the loss ratio is less than one, life is good for the insurance company. If it gets too good (in either Automobile or Fire & Casualty product lines at least) the state regulators will decree a reduction in rates (see this example in California). When the Loss Ratio goes the other way, regulators will grudgingly approve rate increases. The loss ratio is managed separately for each product line and each geographical market.

When a big disaster hits a region, it 1) sends claims way up, 2) reduces premiums collected (people can’t and don’t pay for continuing coverage on an asset that has already been destroyed), and 3) drains the reserve the insurance company has established for claims for that area and that insurance product line.

When that happens the insurance company must either 1) increase premiums on the remaining policyholders in that market who were not affected (in order to rebuild the reserve, i.e. share the cost of the disaster more broadly), 2) decide that it must reduce it’s overall level of financial exposure to that market and product line, either by canceling policies or planning slower growth in the future, or 3) a mixture of both. Note that options 1) and 2) work at cross purposes, since the fewer policyholders in the area, the higher the premium increases on the remaining policyholders must be in order to rebuild the reserve, even if it is trying for a smaller reserve than was maintained for the larger policyholder base. (A less ethical–and illegal–way to rebuild the reserve is to deny or stall payment for valid claims.)

Because insurance companies are not allowed by law (and might not as a matter of business policy even if allowed) to cross subsidize losses across state lines or across product lines, states are stuck with paying rates high enough to “socialize” the cost of the major disasters they are prone to, i.e. earthquakes in San Francisco, wildfires in Southern California, hurricanes in the Gulf Coast states, tornados in Kansas.

Because the big insurers operate in almost all states and product lines, it is not surprising that they might be showing a good overall profit and be paying massive claims in one or more markets. The existence of profit is neither sinister nor wrong. Unethical behavior is both. Unfortunately, when it occurs it generally takes lawsuits to prove it. If the company is more concerned for its short term bottom line than its long term reputation, then screwing the policyholders can look like a good idea.

In theory, competition between insurance companies will mitigate this, but only over time. In the short term, good state regulators are the policyholders’ best friends. Unfortunately, state regulators and politicians are not immune to unethical behavior either. The current actions of the Mississippi Attorney General in trying to force insurance companies to pay claims that were clearly not covered is an example of this. The long term result may be the total withdrawal of the major insurance companies from the Mississippi market–at any price.

What about when the courts are misused with junk lawsuits to force insurers to pay what they aren’t responsible for, plus outrageous punitive damages in addition?

I think you need look to further than the origional post

State Farm Insurance, the nation’s largest insurer, recently said profits climbed 65 percent to $5.3 billion, up from $3.2 billion the year before, even after paying claims for Katrina and Rita.

Allstate earlier reported 2006 earnings rose to a record $5 billion.

In 2005, the premium-loss ratio averaged a healthy 57 percent — that is companies kept 57 cents of every premium dollar collected, according to the state.

unless there is some wacky book keeping, then obviously lawsuits aren’t really a problem.

jweidner

Does that mean that people don’t have a right to live in NO because a natural disaster was particularly devastating in a given year?

no, but it might mean they have to live there without insurance.

When the inevitable disaster happens, the insurance companies will do what they do best, avoid the liability, and place it firmly on the taxpayers.

DLS,
Are you some sort of spawn of Bill O’Reilly and Michelle Malkin? Did you not read about the obscene insurance industry profits?

And yeah, living anywhere is risky and there might be freak occurences but it’s average risk that’s most important. Even though there are lots of tornadoes each one affects a small area…even though earthquakes affect large areas they are rare. What doesn’t work is large areas affected frequently. If you’ve ever lived by water I’m sure you’re aware of 10-100-1000 year floodplains charts. NO floods all the time since it’s under sea level and all water has to be pumped out…even heavy rainstorms would flood the pumps and innundate regions of the city. We lived across the lake and never moved to the NO side primarily because people expected to be flooded at least once every 10 years in the affordable areas. It never did the whole city at any time though so it was (mariginably) manageable.

Still, most of the development along the coast has been done since the 60s and we were in a low hurricane occurence time span then. Now that they’re predicting we’ll have many hurricanes the average amount of risk is far far greater than anywhere else in the country. I’m not saying that people won’t be allowed to live there, just that if private companies won’t cover them and there’s no “greater good” reasoning for people living there (like there might be in New Orleans to keep the shipping traffic up) then it shouldn’t be subsidized by the government.

People live in the bayou with houses that float, and in order to qualify for insurance in many areas you now need to have your house be 10 (? I think) feet off the ground on posts. If people want to do this all the more power to them.

As someone who thinks that health insurance is very close to a “right” I just don’t think this falls in the same category. I think it’d be a lot more useful to the poor to use the trillions of dollars we’d need to spend to keep the coast inhabitable (at reasonable risk for the people that lived there) for something else.

The fact is that people shouldn’t be living on the coast in the numbers they are — if the insurance company can’t make money off their policies then what are they suppossed to do?

But isn’t this the whole basis of the insurance industry? They analyze the risk present and assign a probability to certain events coming to pass, then charge a premium accordingly. I’m sure they’ve charged the people along the southeastern seaboard a nice premium to cover hurricane damage probabilities (tho I admitedly don’t know that for a fact, but an insurance company wouldn’t be a very good one if they didn’t). Now a particularly bad hurricane comes along, and the solution is…let the insurance companies off the hook? Force people to move away from what may be an historical family plot of land?

I think it leads to sober realization that nature still dictates where we can afford to live. There is no “right� to live in whatever area you want.

That’s a somewhat silly statement. Natural disasters can strike anywhere and just because they may be more prevalent in one area or another doesn’t mean people shouldn’t be allowed to live there (or not have a right to do so). After all, this is the first time NO has flooded in how many years? Does that mean that people don’t have a right to live in NO because a natural disaster was particularly devastating in a given year? Do we similarly tell anyone living in any of the states considered “tornado alley” that they have to move because they live in an area known to have multiple tornado strikes in a year? How about the west coast? Do we clear the west coast because the entire coastline from CA to WA is an active seismic region? In any of those scenarios, people’s homes are always considered to be “at risk”.

And if the point of that statement was that poor people don’t (or shouldn’t) get to choose to live in a place like NO or California, that seems particularly odious. What’s the solution – force all the poor people to the plains where they face a lower risk, and allow all the coastline for the rich?

I don’t know though, insurance companies are excellent at squeezing blood out of stones. They’ve looked at the future projections and are scared out of their minds and to pull out of a region completely (many places along the coast can’t get any coverage now) is drastic. Like Kevin said, if this was just a cynical ploy their profits would eventually dry up…that’s why I’m not sure it is.

In Louisiana, politicians and regulators are part of the racket! There was a great article in the Washington Post I believe, a couple of weeks back, about L.’s senator who lost some property in Katrina for which his insurance company wouldn’t reimburse him, promptly threatening massive regulations of the insurance industry countrywide thanks to the committee he sat on.

His insurance company suddenly had a change of heart, and he and a number of local developers who were his chums, received full recompense.

Now all is happy between the government and the insurance industry.

As you say, Chris: a racket!

It would be interesting to know how much of those record profits Polimom notes end up in the election funds of politicians, state and federal.

In the long run, however, the market does correct with new information. If this is how the insurance companies are going to play, people will simply stop buying insurance, which means profits dry up.

While this is bad for local economies I think it leads to sober realization that nature still dictates where we can afford to live.

In this case, however — when a company, even after having paid out the claims, still had a 65% profit increase — it looks very much as if it’s the insurance companies dictating where people may (or may not) live, rather than Mother Nature.

The fact is that people shouldn’t be living on the coast in the numbers they are — if the insurance company can’t make money off their policies then what are they suppossed to do? Last time I was in LA a lot of people were talking about moving because they were worried about insurance policy. While this is bad for local economies I think it leads to sober realization that nature still dictates where we can afford to live. There is no “right” to live in whatever area you want.