Katrina and the Insurance Tsunami

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I suggest that you do a show on how the insurance industry is crippling growth along the Gulf Coast. The Army Corps of Engineers has admitted in its own report that the flood was caused by design and construction failures, but it is not possible to sue the Army Corps of engineers. This means that 200,000 families have to fight with insurance companies and go hat in hand to the state government begging for scraps with which to rebuild.

Listener Ray Shea, in an email to Open Source, 1/12/07
anti-insurance sign among rubble

Like a good neighbor…[Mamish / Flickr]

This hour we’re taking Ray’s suggestion, asking: How could it have come to this? The insurance policies that Gulf Coast residents have counted on to rescue the region have instead become a major impediment to its reconstruction. Since Katrina laid waste to the Gulf Coast, policyholders charge that their claims have been denied or drastically devalued. Trying to understand the situation entails detangling a ball of red tape the size of a prize-winning pumpkin. Wind insurance doesn’t seem to cover hurricane damage; flood insurance doesn’t seem to cover waterlogged homes. Why, homeowners ask, are insurers focusing on loopholes in coverage while turning a blind eye to the holes in the roof?

About a month ago we filed a complaint against Allstate with the Insurance Commissioner in Louisiana….They get fools like me to pay them money every month for several years thinking I am insuring my house against wind and flood damage, and then after the largest natural disaster in this nation’s history, they don’t pay us. Instead, they pay some hack engineers to say it wasn’t windy enough during Katrina to make a house lean. And when it goes to court, Allstate will be able to claim they were simply relying on the opinion of “experts” and won’t be directly liable. And now Allstate has threatened to pull out of Louisiana if they are not able to drop coverage for 30,000 homeowners who they feel are too much risk. That would leave 220,000 homes without insurance. I had hoped that Katrina would have woken us up, and we would finally realize that our society needs more of a measure than just profit alone.

Michael Homan, Michael Homan, July 24, 2006

How awakened are we to the situation in the Gulf Coast? The “K” word wasn’t even uttered during President Bush’s State of the Union address. Perhaps he said it all in the immediate aftermath of the hurricane.

The good news is — and it’s hard for some to see it now — that out of this chaos is going to come a fantastic Gulf Coast, like it was before. Out of the rubbles of Trent Lott’s house — he’s lost his entire house — there’s going to be a fantastic house. And I’m looking forward to sitting on the porch.

George W. Bush, Presidential briefing from Mobile, Alabama, In Focus, Hurricane Relief, September 2, 2005.

Bush will have to wait a couple more years before he finds himself sitting on Lott’s porch, sippin’ a virgin mint julep. Even Trent Lott had to join a class action suit to get compensation. And others haven’t fared nearly as well. Many Gulf Coasters have insuree’s remorse: while the uninsured had no alternative but to rebuild, those with coverage have been living a life in suspension, cramped in FEMA trailers, hoping that the money will come.

house with anti-insurance grafiti

You’re in good hands…[Mamish / Flickr]

Yet is it really fair to ask the insurance industry to bear the entire burden of an actuarial apocalypse? Has it been burned beyond recovery by global warming and the climatic chaos that has spawned El Nino, La Nina and their destructive progeny? How do we deliver justice to a region that just feels deserted?

What happened to the days when paying a monthly premium bought security? Should there be a federal compensation fund like the one for the victims of 9/11? What is our moral responsibility to citizens whose lives have been undone?


Joel Garreau

Author of Edge City and, most recently, Radical Evolution

Reporter for the Washington Post

Allan Kanner

Founder and Senior Member, Kanner and Whitley, L.L.C.

Zach Scruggs

Litigation Lawyer The Scruggs Katrina Group

Michael Homan

Blogger Michael Homan


Extra Credit Reading

Joel Garreau, A Dream Blown Away, The Washington Post, December 2, 2006: “The big problem with climate change for the insurance companies is not the risk. Their whole business is getting paid to accept risks. The trouble is that their traditional means of calculating what is an acceptable risk — and how much to charge for it — is based on history.”

Joel Makower, Climate Change: ‘Adapt or Bust’, Marketing & Strategy Innovation Blog, June 25, 2006: “‘The insurance industry must now seize the opportunity to make a difference, not just to the future of our own industry, but to the future of society.'”

Rebecca Mowbray, Elevation Catch-22 hits homeowners, The Times-Picayune, February 11, 2007: “Fitzpatrick is trapped in a post-Katrina insurance conundrum that could affect thousands of people in south Louisiana if other insurance companies have rules similar to those at Allstate. Fitzpatrick is required to elevate his home to maintain flood insurance coverage, but if he elevates he won’t be able to maintain a private homeowners insurance policy. “

Michael Homan, Allstate Denies a Claim We Never Made, Michael Homan, August 8, 2006: “They are denying our claim that the flood waters damaged our foundation. Fine. We never made that claim to begin with. If Allstate would like to deny paying us for giant Santa Clause dolls made out of gold on our chimnees they are free to do that as well.”

AP, State Farm to stop writing new commercial and homeowner policies in Mississippi, International Herald Tribune, February 14, 2007: “Mike Fernandez, vice president of public affairs for State Farm, said Mississippi’s ‘current legal and political environment is simply untenable. We’re just not in a position to accept any additional risk in this homeowners’ market.'”

Michael Kunzelman, Sisters Blew Whistle on Katrina, The Washington Post, August 26, 2006: “The sisters, who managed teams of State Farm adjusters, say the documents show that the insurer defrauded policyholders by manipulating engineers’ reports so that claims could be denied.”

Leslie Eaton, Vacuum Maker Hailed as Savior Quits Gulf Town, The New York Times [Select], January 15, 2007: “The company says it cannot get enough insurance to cover its plant here, and cannot hire enough skilled workers to replace those who never returned after the storm, mostly because they had nowhere to live.”

2:44

In 2006, the markets began deciding who’s going to pay for climate change. And the answer, basically, is us. At least those of us who live in the path of big, bad storms. We’re either going to pay through higher taxes or higher insurance premiums, but either way it’s getting markedly more expensive to live near a coast. And not just from Texas to Florida, but also from Georgia to Maine. And it’s the Georgia to Maine part that really interests me. Because that’s the area that people really haven’t wrapped their minds around. But in 2006 the insurance industry got religion about just how vulnerable places are.

Joel Garreau

15:40

My wife called my insurance company . . . and they said, “Oh no, this isn’t covered, at all! You don’t get anything!” Now, I went to law school, so I said, “let’s talk to her supervisor.” But think of all the people in New Orleans, all the working class folks who maybe just took that and said, “Oh, I just don’t have a claim.” . . . The rationale was, “it’s just a flood story. It’s a flood story, so we don’t have to pay, we’re the wind carrier.” And actually, our roof was blown off. And they knew this, and they just tried to drive people away.

Allan Kanner

26:22

It was like being in a place where a neutron bomb had been activated, or some kind of a science fiction movie. Nobody around, incredibly silent, no colors, everything was in sepia tones, and no birds – it was just really creepy. We called Allstate every day, and we waited and waited and waited, and we kept being told that clearly the wind made out house lean, but they needed a report from the engineers. So finally, in February, two individuals from a group called Haag Engineering visited our house, and they left after fifteen minutes without asking us any questions. They just told us that they didn’t need our input. Finally, at about eight months after our house was damaged, I received a letter in the mail, a letter from Allstate, claiming that they were going to deny our claim because of the report from Haag Engineering, which said, among other things, that it wasn’t windy enough during Katrina to make a house lean.

Michael Homan

38:54

There are several instances where either adjusters or engineering firms changed conclusions, and we’ve seen several of those involving State Farm. One in particular is where the first engineer went out there and said, “Well, this damage is a result of wind,” and of course that would be covered, even under these insurance agencies interpretation of the policies. And then a week later, another engineer was sent out, and came back with a different conclusion.

Zach Scruggs

44:50

I’m looking at the cold hard numbers here, and looking at the fact that this going to fundamentally rearrange where people live.

Joel Garreau

45:05

That’s really wrong. Joel, you’re assuming that nothing else changes . . . I think it’s going to change. You’re assuming that the insurance industry is going to stay put exactly as it is. A lot is going to change . . . we are going to change insurance. We are not going to be passive any longer.

Allan Kanner

Related Content


  • mcasemo

    A new insurance issue in new orleans.

    “Elevation Catch-22 hits homeowners” from the times picayune

    http://www.nola.com/search/index.ssf?/base/money-3/1171177870230680.xml?MBPZ&coll=1

  • mcasemo
  • plnelson

    Everyone is obliged to know what their insurance policies cover, and don’t cover, and how that determination is made. I have no sympathy for fraudulent insurance companies that attempt to rip off distressed homeowners, but I also have little sympathy for homeowners who sign an insurance contract without reading or understanding what they were signing, and are now trying to extract more coverage than they are due.

    When we insured our current house we were offered the standard HO-2 policy that most homeowners buy without questioning it. Of course we’re not most homeowners, so we went over the policy with a fine-toothed comb to determine what was covered, and under what circumstances, how the valuation is determined for the structure, the contents, etc, etc. Everybody should do this! It’s a very “interesting” experience. When we were done we basically rewrote the policy from the ground up. The new policy cost us about 40% more than the original one but we are confident we’re well-covered.

    For most homeowners an insurance policy is a checkbox item. They sign something without reading it; bring an insurance voucher to their closing, and forget about it until disaster strikes. They simply “assume” they’re covered for this or that, and when this or that happens, they’re sorry. Consumer Reports did a whole article a year or two ago describing how UNDER-insured most homeowners are, because they are attracted to the most rock-bottom prices. You get what you pay for.

    As for State Farm pulling out of Mississippi – they have a right to make that business decision. Here in Massachusetts the auto insurance rates are set by the state. Many auto insurance companies prefer to set their own rates so they simply don’t do business here. Would YOU do business in a state where you can’t even set your own prices? I’m amazed that ANY insurance companies do business here. I’m a stockholder in several insurance companies (none of the ones mentioned in the article) and I do expect my companies to operate according to sound, profitable business principles. If that means pulling out of a whole state then so be it.

  • Sutter

    Once again I find myself agreeing with PLNelson (we never agreed in 2006…). No sympathy for insurers who try to get out of their obligations, but they’re businesses, not public utilities, and have to make decisions going forward based on business considerations. The government can — and should — provide additional coverage if public policy warrants as much.

  • It would be nice if people could more easily understand their insurance policies, as well as their credit card agreements, their mortgages, their software license agreements, their tax forms, their car insurance, etc. These things are very complicated, and it is time-consuming to go through them all, especially since they can change at a moment’s notice. Sure, companies need to act as businesses… but how about laws that make all these legal documents much more easily understood by the average person?

    There are lots of legal documents that people are required by law to sign (to get a house, drive a car, avoid jail…). When a business purposely writes agreements so obscurely as to confuse consumers, can’t we have some sympathy for the people who are forced to sign them?

  • Lumière

    ////….can’t we have some sympathy for the people who are forced to sign them?\\\

    Sure you can, just not from …..

    The market is the only way to sort this out and, in the case of contract performance, the courts.

    Ultimately, not everyone can aford to live below sea level or along an earthquake fault zone

  • mcasemo

    If pulling out of Mississippi and Louisiana is represents sound, profitable business practice because of the future risk, should they be writing policies in other cities vulnerable to hurricanes, like Houston, Miami, Long Island, Wilmington…

  • Sutter

    I suspect that if the risk/reward ratio showed that this would be profitable, they would. Remember, they make profit from the premiums, so they don’t want to pull out everywhere — just where the risks really are so high that they cannot get away with charging premiums that are high enough to ensure (with reasonable certainty, anyway) that they will come out ahead.

  • Sutter

    (Of course, I’m not suggesting that insurance companies should be permitted to discriminate in this regard on the basis of race, if that’s what you’re getting at, mcasemo.)

  • mcasemo
  • Lumière

    mcasemo – thanks for link

    “While premiums for homeowners insurance have increased by more than half since the early 1990s, coverage, especially in disasters, has shrunk. Historically, insurers covered a little more than 60% of total losses in disasters, according to Hartwig, the industry economist. During the 2004 hurricanes in Florida, they covered less than 50%, according to Hartwig’s numbers. During Katrina, he said, they covered about 30%, due in part to the high flood damage.”

  • plnelson

    The government can — and should — provide additional coverage if public policy warrants as much.

    Up to a point, this is true. When I lived in Boston (Alston-Brighton in the mid-70’s) I had to buy my apartment insurance from a state-sponsored high-risk pool because commercial insurers wouldn’t touch it – they regarded the risk of theft to be too high to insure.

    Since that area (my apartment was on Commonwealth Ave) is a major part of Boston it would not be reasonable to tell people not to live there. So the state gave us a way to insure ourselves.

    On the other hand in Florida and Cape Cod and Long Island, wealthy people build fanstatically expensive trophy houses right on the beach. Following Hurricarnes Katrina and Wilma many commercial insurers are pulling out of those areas and the wealthy people are demanding to be insured in the state’s high risk pools. Is that reasonable? If you build a $5 million dollar house in a place exposed to high risk is it reasonable for the taxpayers to underwrite that risk?

  • plnelson

    If pulling out of Mississippi and Louisiana is represents sound, profitable business practice because of the future risk, should they be writing policies in other cities vulnerable to hurricanes, like Houston, Miami, Long Island, Wilmington…

    That’s up to them to decide, isn’t it? In the case of Mississippi part of the reason was the risk that state courts would not enforce or honor insurance contracts. In other words, the uncertainty and risk State Farm was worried about wasn’t the risk of storms and floods, but the legal and political risk.

  • mcasemo

    State Farm gets sued, decides to pull out because of the “legal and political” climate, playing bully to the state. Here’s a scenario: Now the state will consider legislation like Mike Foster in Louisiana for “tort reform”, which restricts trial lawyers from seeking punitive damages from businesses, as a pro-business strategy.

  • I think the issue for the the insurance customers here is that they were told by the governmental authorities that they were living in a place with normal risk based on sound engineering of the levies. They bought what they likely thought was adequate coverage – there is no doubt that many of us don’t understand how the coverage works on our insurance – and then, Katrina hit. Insurance companies don’t want to pay for the fact that the government decided not to upgrade the levies. The homeowners feel that someone has screwed them over and they have nowhere to turn.

    While I will always wonder about people who build their homes on a dune cliff by the seashore and then expect insurance to cover the loss of their house, New Orleans is different because of the assurances of the government regarding the dams. People made life-important decisions based on this information and they have a right to ask for assistance now.

    The question of communcal social responsibility goes so much farther than Katrina. We have repeatedly, as a culture, turned our back on the concept of lifting everyone rather than just ourselves. The Katrina fallout is so massive that, even though we try with all our might, we may not be able to deny the suffering of our fellow citizens. But rather than consider that we need systemic change and that, “there but for a little grace, go I”, we resent people for being destitute. Right here on this blog, people are blaming the victims. Stupid fools should have read their insurance policies and never lived in New Orleans. They don’t deserve any more than the homelessness they’ve got now. Because, you know, it’s repugnant and you are completely devalued if you’ve ever been ignorant.

    I don’t think the issue of compassionate action on a societal basis can be addressed in the same hour as the accountability of the government and the insurance companies in relation to Katrina.

    As for the business decisions of the insurance companies, I’d like to know how many insurers lost money in 2006? What were the top executives paid? Can we have a list of insurance companies denying these claims? Has anybody suggested a boycott action? They might reconsider if masses of policy holders defected to other insurers this year.

  • plnelson

    People made life-important decisions based on this information and they have a right to ask for assistance now.

    But if the government misled them then their beef if with the government; why should the insurance companies get stuck with the cost?

    Example: Here in Massachusetts the risk of an earthquake is low compared to, say, Los Angeles or San Francisco. So, unlike California, the government does not urge people here to buy earthquake insurance here, so most people don’t have any.

    But earthquakes do happen once in a while here and shortly before I bought my last house there was a small one near Littleton MA that caused $16,000 of damage to a friend’s chimney, so I got earthquake coverage for my house. My neighbors don’t. If we have an earthquake do my neighbors have the right to demand coverage from their insurance companies anyway on the basis that they thought they were safe from earthquakes here?

  • plnelson

    As for the business decisions of the insurance companies, I’d like to know how many insurers lost money in 2006? What were the top executives paid?

    None of the companies I have stock in lost money. They were all profitable and paid a nice dividend. I’m sure the executives in my companies were paid well, as befits the executives of any successful company.

    Look: companies are in business to make money. the job of a CEO is to increase shareholder value. I expect any company I own to operate according to sound business principles to achieve that. I don’t have any lack of compassion for hurricane victims but the the question is WHO is responsible for making them whole? Insurance companies are not welfare agencies.

    If any insurance company failed to pay a claim that they were contractually obligated to pay they should be hauled into court. But contracts work both ways. Both parties have to live up to the terms of the contract.

  • mcasemo

    Insurance companies in new orleans are not paying for flood damage, and are not being asked to. If a tree fell on a house, or the roof was blown away, and the house flooded then they are being asked to cover the claims they are responsible for. But they like to assume things like the flood caused the tree roots to loosen, then fall on the house, rather than the wind blowing it over.

  • ShlomoLeib

    You like capitalism? You like deregulation? Then you must love what the Exxons, the Walmarts, and the insurance companies are doing to humanity. All in the name of profit.

    So what are we worth to them? Any guesses?

  • Sutter

    I’m glad you bring up deregulation, Shlomo, because this, I think, gets closer to the problem. In my view, insurance companies do not have a special moral duty of some sort to forego profits to help people etc. etc. — they’re in business, and no different in most ways from other businesses selling things other than risk management. So, as long as they’re living up to their contracts (not at all clear they are here), they’re doing what is required of them.

    On the other hand, however, there may be a strong case for market failure in the insurance industry: This is an industry characterized by huge informational disparities between the sellers on the one hand and the buyers, on the other. Insurers have access to actuarial data that just isn’t available (or at least affordably available) to the ordinary purchaser. So, if the insurer knows that there’s a 1% chance of my suffering a covered $100 loss this year, they just need to charge me $1 plus administrative expenses and a reasonable return for the year. Let’s say $1.50 in all. But for all I know, the risk is more like 3%, so I might think that $3.50 or $4 would be a reasonable premium. In these circumstances, there is a good case for regulatory oversight to ensure that profits don’t reflect an unreasonably high rate of return. (Alternatively, and less intrusively, the government could make the relevant information available to consumers and stay out of the price regulation game.) If public policy warrants this approach, we should pursue it.

    To me, it makes much more sense to talk in these terms — terms of public policy mandates — rather than in suggestions that certain industries bear a special _moral_ burden, just because their services happened to be implicated when people are at their most vulnerable.

  • rc21

    shlomoleib, I love capitalism, and most big companies. They do more for humanity than any other entity that I can think of. Profit is good. Would you prefer companies have losses?

  • webcastboy

    Just goes to show, you can’t count on anyone but yourself. Strikes me you’d be better off investing that X hundred dollars every month into a mixed portfolio and then having the money on-hand to pay for damages yourself.

    The over-arching problem here is that you’ve got the awful sound of two incompatible ideals crashing into each other. People pay insurance companies for emotional piece of mind. Insurance companies are purely in it for the money. There is, quite literally, no way to truly every “fix” this problem. The best you can hope for is an uneasy truce…and that truce is inevitably shattered whenever there’s a major event that disrupts the status quo. Like a Katrina/Rita.

    That said, it’s not like New Orleans residents haven’t known for years…even decades…that the levees weren’t safe, and that all it would take was one big storm to destroy the entire city. This was well-documented.

    In fact, good documentation is, in a sense, part of the problem. To illustrate, lets look at the medical insurance industry. Let’s say there’s a genetic test to show how likely it is for you to get X type of disease. Said disease is treatable, even preventable, if you catch it early enough….so this test is good – it gives you a heads up that you need regular screening, and with said screenings you should be fine. Guy takes the test, it comes back positive. He’s bummed, but he feels better knowing that he’s prepared for what’s ahead.

    Problem is, it virtually guarantees that you will need expense screenings and, very likely, expensive treatment. An insurance company looks at that and says “Why should we insure this guy? We’re guaranteed to lose money on him!” And without insurance, he can’t afford the screenings and he dies.

    Alternate scenario, guy realizes the insurance problem and refuses the test. Tries to get screened as much as he can, but it’s not enough. Said disease has progressed too far by the time they catch it, and he dies.

    Moral of the story: don’t get sick.

    Truthfully, one could pull WAY back and say more that the “problem” with all kinds of insurance is Americans’ overall inability to accept that bad things, like disasters and death, can and WILL happen to good people. We spend all this time and effort to fight against the inevitable, instead of learning that there will always be a certain percentage of people who get screwed. That is the price humanity pays so that many may enjoy a better life.

    Several times societies have tried to make it so that ALL may enjoy a better life. It’s called communism, and beyond TINY groups (less than 25-50 people), it just doesn’t work. Inexorably, everyone’s quality of life goes to pot. So while we may all be the same, we’re all miserable.

    Let’s put this in perspective…many people who chose to live in New Orleans did know the risk, and accepted it. They knew that they were living on borrowed time, so to speak, and thus they lived accordingly and enjoyed life. Is that such a bad thing?

  • Lumière

    ////….characterized by huge informational disparities between the sellers on the one hand and the buyers, on the other…\\\

    That is the definition of a “profit”.

    When Wallymart says they sell for less and report ever growing earnings per share, you know the consumer is being duped.

    ///…you’d be better off investing ……having the money on-hand to pay for damages yourself.\\\

    The size and ability to lay off risk is what allows insures to do what you can’t: self-insure

  • Sutter

    Lumiere,

    No, that’s not the definition of profit. Profit is when A can trade goods or labor with B that A is able to produce or acquire more cheaply than A. The differential — known as “gains of trade” in the time of Adam Smith — permit the maximization of value; the excess after the trade (accounting for all costs) is the profit. I say this not to be pedantic, but to point out that well-functioning markets permit profit (though not what economists call “economic profit,” which refers to profit above a normal rate of return) even absent significant informational asymmetries. Insurers could still profit even if buyers had perfect information, because the insurers would still enjoy cost advantages arising from their ability to pool risks among a very large class of buyers.

  • Sutter

    Oops — that second sentence should end “more cheaply than B.”

  • Chelsea

    Mcasemo: Thank you for these links. I’m trying to get a hold of Dr, Pat Fitzpatrick from the Rebecca Mowbry piece that you linked to. His story would be good to hear on the radio.

    Allison, I completely agree that there won’t be time to talk about compassionate action and societal responsibility during the show but at least this we can discuss it on this thread.

    The way this hour is shaping up it looks as though it’ll be a mix of discussing how the insurance industry is adapting to global warming, hearing about class action suits from lawyers in Louisiana and Mississippi, and hearing personal stories from homeowners who are in a Waiting for Godot universe, cramped in trailers, wondering if they’ll ever get the cash to rebuild.

  • mcasemo

    webcastboy – the floodwalls and levees in new orleans were supposed to withstand cat 3 conditions. the feds would not consider cat 5 levees to protect the busiest port and area supplying 20% of domestic oil production. the levees failed under cat 2 or less conditions. the army corp and several independent investigations concluded the design and construction flaws caused this catastrophic failure. The corps words: “a system in name only”. We, in new orleans, did not know the federally designed and constructed levees and floodwalls were “a system in name only”.

    The folks living behind the 146 levees in 28 states (plus Puerto Rico and DC) identified by the army corp as posing an unacceptable risk of failing are living on borrowed time as well. I guess they can now enjoy life as much as we do in new orleans.

  • Lumière

    “I say this not to be pedantic,…”

    lol

  • Sutter

    Well, I wasn’t TRYING to be pedantic. Whether I succeeded or not may be another question… 😉

  • Lumière

    Just do it !

    Sutter

    Adam Smith theory is similar to philosophy, it looks great on paper.

    If the world could be ordered anything like Adam Smith conceived of it, we wouldn’t need regulation to stop the super predators e.g. Carnegie, Rockefeller, Gates

    Oh yeah, they were just doing bad b/c later they were going to do good –

    I can’t get that McNamara quote out of my mind – it applies everywhere.

  • herbert browne

    Way back at the lead-in, El Niño y La Niña came in for some heat… as this qote ..”Has it been burned beyond recovery by global warming and the climatic chaos that has spawned El Nino, La Nina and their destructive progeny?..” suggests. This is, um, a beautifully constructed sentence- but it’s not right. I suppose climate IS “chaos”- until it makes sense- but the two “Children” are no more destructive than the upwelling, or the Gulf Current, or any other regular phenomena are… and they have been with us far longer than the orgiastic excesses of fire that the Industrial Revolution has spawned (if we’re looking for somewhere to point a finger at “destructive progeny”)… ^..^

  • Sutter

    If you are saying that government regulation necessary to counter accumulations of corporate power, I’m 100% on the same page. Absolutely.

    (Also, I’ll note that while I’m no expert on Smith, I believe he himself recognized as much, and was not the avatar of the unfettered market that he’s sometimes made out to be.)

  • ShlomoLeib

    Sutter,

    Well said above. Very well stated. It is interesting that the defenders of such practices cite ‘moral and ethical’ obligations to shareholders and investors, yet none such responsibility to the consumers, be they vulnerable or otherwise. Without regulation and accountability, every financial step you take becomes a gamble for you, but seldom if ever for them.

    The insurance companies employ 100s of corporate lawyers to reviewing each and every letter of each and every contract before it is even printed. Who do you think those lawyers are looking out for? You? Me? How many lawyers do YOU have? The fix is in unless the people stand up and demand something better.

    “Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.” (Keynes)

  • rc21

    If a businees over charges for a product,or puts out a defective product, someone will come along and offer that product at a cheaper price,and make it better.

    Govt regulation usually leads to higher prices. Let the consumer decide who to buy from and who to stay away from. Govt regulation should be used on a very small scale.

  • plnelson

    So, if the insurer knows that there’s a 1% chance of my suffering a covered $100 loss this year, they just need to charge me $1 plus administrative expenses and a reasonable return for the year. Let’s say $1.50 in all. But for all I know, the risk is more like 3%, so I might think that $3.50 or $4 would be a reasonable premium. In these circumstances, there is a good case for regulatory oversight to ensure that profits don’t reflect an unreasonably high rate of return.

    I’m not convinced there’s any such thing as “an unreasonably high rate of return”. Havr you ever shopped for insurance? There’s a LOT of competition out there! Any company that charged excessively high premiums would be undercut by competitors who were willing to settle for a somewhat liower rate of return.

    I’m an active stock market investor – not a “trader”, but a serious investor who tries to pick successful well-run companies well-positiioned for high profits over the long run. Every so often I think about investing in “Big Oil” company because people keep talking about their “excessive profits”. But guess what – there’s a LOT more profitable companies out there than oil companies.

    Still if you think that insurance companies are making “excess profits” why don’t you invest in one and get some of those profits back as dividends? Insurance companies typically pay decent dividends. And dividends are a significant source of income for many retired and elderly people. If you pass laws limiting profits that’s who you’d be hurting.

  • plnelson

    Well said above. Very well stated. It is interesting that the defenders of such practices cite ‘moral and ethical’ obligations to shareholders and investors, yet none such responsibility to the consumers, be they vulnerable or otherwise.

    Can you cite an example of someone suggesting a “moral or ethical obligation” to a sharholder or investor?

    Speaking as an investor, I regard the executives of the companies I invest in to have two obligations:

    1. A LEGAL obligation to obey the law.

    2. A BUSINESS obligation to work for the best interests of the shareholders BECAUSE WE OWN THE COMPANY. They are working for us.

  • Sutter

    PLN says “And dividends are a significant source of income for many retired and elderly people. If you pass laws limiting profits that’s who you’d be hurting.”

    This is only half the picture though. You’d be “hurting” those who receive profits — including the elderly, institutional investors, individual investors — but you’d simultaneously be helping all those who buy the product. Surely you don’t believe that excess profits are a type of social insurance, distributing wealth from purchasers to investors? If so, why not be direct about it and just effectuate wealth transfers explicitly, and limit them to the elderly or the other groups about which you are concerned? That would be much more targeted.

    On the other issue, of course I have purchased insurance. But even amidst competition (as defined by a multiplicity of sellers), if purchasers as a class lack sufficient information, a market can fail. The “undercutting” theory you cite works in economics textbooks, but not always in real life, because even multiple producers of similar products can reach de facto price equilibria significantly above cost. On the way home tonight I stopped at the supermarket, and bought some store-brand seltzer for $0.59 per liter. That’s pretty standard (sometimes it’s $0.50, sometimes it’s $0.69). We all know that seltzer costs a few cents per liter, tops. The same goes for lots of products. I don’t know personally whether it applies to insurance, but some of the posts above link to articles suggesting that it does.

  • ShlomoLeib

    Capitalism isn’t about selling cheaper, rather producing it cheaper. Whether or not the goods or services offered are done so at a cheaper rate is immaterial and not a direct result of the cost of production. It’s not what you need, it’s what you can get, or get away with.

    re:moral or ethical obligation

    I suggest the response be re-read. A LEGAL obligation based upon what? A BUSINESS obligation based upon what? Ethics and morals. Why do you think we established laws in the first place?

    Treating corporations as if they are somehow not a human creation is a diversionary tactic employed to redirect the debate. It means that the shareholders can emotionally and morally detach themselves from whatever the corporation is doing to produce them a dividend. Out of sight, out of mind.

    Enjoy your blood money.

  • plnelson

    If so, why not be direct about it and just effectuate wealth transfers explicitly, and limit them to the elderly or the other groups about which you are concerned? That would be much more targeted.

    How would you do that? If you artificially limited their profits via some sort of bureaucratic intervention the effect would not be to transfer wealth, but to simply eliminate it, as insurance companies and their investors abandoned those states or those market segments. History has shown over and over again that governments are not as good as free markets at generating prosperity.

    As an investor (and dividend recipient) I don’t want the government giving me a handout; I want to make my OWN decisions about where I can get the best ROI.

    if purchasers as a class lack sufficient information, a market can fail.

    I don’t think they “lack” information – I think most insurance buyers are simply drawn to the cheapest price and the hell with due diligence. As I said, I took it upon myself to make sure I understood my insurance coverage and when I did I found that I would have been underinsured if I just accepted the standard HO-2 policy out of the box.

    So of course you probably think the government should ENFORCE people buying more insurance. (e.g, the state should require some kind of “super HO-2” policy as the default.) But guess what – that will COST a lot more. And everyone will complain that “the government” made their premiums go up!

    Anyone who buys car insurance in Massachusetts gets a document from the State advising them about how much coverage they should carry for collision, liability, etc, etc. And MOST PEOPLE IGNORE IT. Because it costs more to follow that advice. But you can’t say they weren’t warned. People have to take responsibility for their choices.

  • Sutter

    PLN says “So of course you probably think the government should ENFORCE people buying more insurance.”

    On what are you basing this assumption about what I think? I make clear above my preference for markets, except in those cases where markets fail, which all economists, however libertarian, know they do. I certainly do not believe everyone should buy (or be forced to buy) super-premium insurance. In fact, above I expressed my preference for curing any market defect by making more information available rather than by “banning profits” or whatever it is you’ve imagined me proposing. (And yes, we disagree about the accessibility of the relevant information here. Tell me, statistically, what the chances are of you suffering any particular loss for which you are insured, and the amount of loss you are going to endure if you suffer that loss. If you cannot do so, you have purchaseed your policy in the absence of adequate information, because you have no real sense of the relationship between the premium and the policy’s value (which at bottom is the chance of harm times the magnitude of the harm).)

    Our other disagreement is getting a bit far afield, but how you would do that is the obvious way: Taxing and providing payments. I think we agree that would be a bad idea here. I’m just saying that “the eldery get the dividends” is a terrible argument on which to base a decision not to intervene even if the market is failing.

  • mcasemo

    Focusing on the free market/Adam Smith/wealth of nations aspect of this issue now just provides a cloudy, lame excuse for the extremely greedy actions of the insurance companies. You could get away with murder these days proclaiming it was done for the shareholders (Iraq, Halliburton). Does the free market trump justice? We need more people who have experienced this injustice communicating here rather than folks with etrade accounts and enough time in the day to compare price/earnings ratios. Oh, that’s right, all those people are still in trailers, or hammering nails into their houses, calling their insurance company every single day to be left on hold, told to be patient 536 days later. Told conflicting information day after day, having adjustments reversed, told to raise their house, denied insurance. They are shining your shoes, serving your drinks, and cleaning your houses, toilets, cars, and vomit. They paid their premiums, fought for your freedom in war after war, and it seems people are more concerned with how Ed Rust makes out.

  • herbert browne

    Re ..” History has shown over and over again that governments are not as good as free markets at generating prosperity..”-

    And yet, without the support & protection of governments, free markets can’t flourish… so the above statement is something akin to “history has repeatedly shown that flowers produce more pollen than leaves do.” What one finds on the surface rarely offers enough information to make knowledgeable judgements possible…

    It’s interesting to me that the Federal Gov’t (we, the people) paid claims back in the Savings & Loan debacle above and beyond what the “insurance policy” (FDIC) demanded, in many cases… and the idea that people’s MONEY is insured- without any of us having to read & understand & sign & pay premiums for that “Service”- strikes me as… as an incredible lesson in the manipulation of cultural values. But, of course, it’s not OUR money, is it?.. it belongs to the Government that printed and issued it (and sort of promised that it would continue to operate as a medium of exchange, based upon… our credulity, I guess…). So, it’s something that really MATTERS- to the Government (we, the people)- unlike poor people’s bad teeth, & broken houses, etc… ^..^

  • Lumière

    ///I’m an active stock market investor – not a “trader”…\\\

    I’m an active trader – not an investor

  • Lumière

    If this is true here is the market at work:

    “While premiums for homeowners insurance have increased by more than half since the early 1990s, coverage, especially in disasters, has shrunk. Historically, insurers covered a little more than 60% of total losses in disasters, according to Hartwig, the industry economist. During the 2004 hurricanes in Florida, they covered less than 50%, according to Hartwig’s numbers. During Katrina, he said, they covered about 30%, due in part to the high flood damage.”

    courtesy of mcasemo

    http://www.latimes.com/news/nationworld/nation/la-na-insure5apr05,0,3061059.story?coll=la-home-headlines

    Btw, per Chelsea

    The way this hour is shaping up it looks as though it’ll be a mix of discussing how the insurance industry is adapting to global warming, hearing about class action suits from lawyers in Louisiana and Mississippi, and hearing personal stories from homeowners who are in a Waiting for Godot universe, cramped in trailers, wondering if they’ll ever get the cash to rebuild.

  • I cannot help but believe the decision to pull out of this area is intimately related to “the tangled knot of race and class”. Look at a related situation: The political power and symbiotic relationship between the Cuban-American community of Miami and the GOP guarantees that region will never face such an outrage, even though their region is much more susceptible to hurricanes.

    Additionally, there is no way insurance companies would be able to pull such a maneuver in higher income places like New York (after 9-11), or Seattle (after “the big one” or Mt. Rainer erupting). But the people of Louisiana and Mississippi are poorer and statistically browner and ergo as far as these insurance companies are concerned their lives and financial situations are more expendable.

  • mcasemo

    Conclusion from Robert Hunter, a former insurance commissioner of Texas, now the insurance director of the Consumer Federation of America

    “The property/casualty industry has been remarkably successful in recent years in

    maximizing profit through rate increases, coverage reductions, inappropriate claims practices and the shifting of high risks onto taxpayers. As a result, insurers are underpaying losses as a percentage of premiums. In fact, insurers have significantly abdicated their corporate purpose as risk takers and sentinels for safety.”

    http://www.consumerfed.org/pdfs/2007Insurance_White_Paper.pdf

  • webcastboy

    mcasemo Says: “We, in new orleans, did not know the federally designed and constructed levees and floodwalls were “a system in name only”.”

    Ummm…yes, you did. After all, how could Mr. Bill know, but Mr. Bush didn’t?

    http://www.americaswetland.com/video/reed.wmv

    http://www.mrbill.com

  • Lumière

    ////Louisiana and Mississippi are poorer and statistically browner and ergo as far as these insurance companies are concerned their lives and financial situations are more expendable.\\\

    Are you saying poor whites are gettiing access to low cost insurance?

    don’t be daft…..the only color insurance companies care about is green

  • mcasemo

    webcastboy,

    “That’s right, Mr. Bill. And since New Orleans is below sea level, if a hurricane hit us directly, it could PUSH THE WATER OVER THE LEVEES and fill it to the top.”

    Cute, but first – a hurricane did not hit new orleans. The weaker western side of katrina skimmed orleans parish. Second – water did not push “over the levees”, it pushed through them. There is a big difference. The difference being competent levees.

    Walter Williams assumed the levees would hold what they were supposed to, and would be overtopped because of a direct hit and the fading wetlands. He did not know they would tumble under the weight of cat 1 or 2 conditions.

    We knew there was risk from a direct hit of a cat 4 or higher storm, and were fighting to reduce it (wetlands, bigger levees), but we did not know there was this much risk, that levees were so flawed they would crumble under their own weight.

    So when you say “many people who chose to live in New Orleans did know the risk”, it is categorically wrong.

  • plnelson

    Tell me, statistically, what the chances are of you suffering any particular loss for which you are insured, and the amount of loss you are going to endure if you suffer that loss. If you cannot do so, you have purchaseed your policy in the absence of adequate information, because you have no real sense of the relationship between the premium and the policy’s value (which at bottom is the chance of harm times the magnitude of the harm).)

    No, this is incorrect. I don’t need to know what the risk of something is; I only need to know how much I’m willing to pay to be protected from that risk. When people buy insurance they are paying for peace-of-mind. They are not paying $X for X risk reduction, versus $2X for protection against 2X risk. I hang out with some pretty compulsive geeks and even I have never met anybody who says “I’ve got $500,000 worth of stuff and a 1-in-1000 chance of a fire so I’m willing to pay $500 for insurance.” Instead, people say, “I’ve got $500,000 worth of stuff and it would all be lost in a fire so I’m going to shop around for fire insurance”.

    People decide what they want to be protected against and then shop araound for insurance to cover that. If people in N.O. did not choose to to be protected against flood because they didn’t think the risk was very high, that’s not the insurance companies’ fault.

  • plnelson

    Re ..” History has shown over and over again that governments are not as good as free markets at generating prosperity..”-

    And yet, without the support & protection of governments, free markets can’t flourish…

    Exactly. And the support and protection that allows free markets to flourish is enforcement of the law, in enforcement of contracts. So if insurance companies find themselves in a state where they can’t be confident contract law will be enforced it’s understandable they would leave.

  • plnelson

    Additionally, there is no way insurance companies would be able to pull such a maneuver in higher income places like New York (after 9-11), or Seattle

    You wanna bet?

    This has already been discussed in this thread. Insurance companies are pulling out of high-risk coastal areas from Florida to Cape Cod and leaving people with multimillion-dollar beach houses uninsured! The Wall Street Journal had a big article about this last year featuring photos from some resort communities on Long Island. The rich people who own these rophy properties are sobbing into their silk monogrammed pocket-squares because the states’ high-risk pools typically top out at $1 million – far less than the value of their beachfront estates.

  • plnelson

    “The property/casualty industry has been remarkably successful in recent years in maximizing profit through rate increases, coverage reductions, inappropriate claims practices and the shifting of high risks onto taxpayers. As a result, insurers are underpaying losses as a percentage of premiums. In fact, insurers have significantly abdicated their corporate purpose as risk takers and sentinels for safety.”

    Any insurance officials who engaged in illegal claims practices should go to jail; not sure if this is what he means by “inappropriate claims practices”.

    But otherwise, their corporate purpose IS NOT to be “risk takers and sentinels for safety”. Their corporate purpose is to offer products and services at quality and prices that allow them to make a profit in a highly-competitive environment. Just like any other company.

    “Maximizing profit”, whether “through rate increases, coverage reductions” or just the opposite, is what they are SUPPOSED to do. If they could make good profits by rate DECREASES or INCREASING coverage they would do that.

    As far as “shifting of high risks onto taxpayers”, what do you propose as a remedy? If you require insurance companies to cover everyone regardless of risk then either everyone’s premiums go up, or the insurance company leaves the state, as State farm is doing.

    Risks are high for a REASON, and the correct solution is not to dump on the insurance company but to reduce the risks. If people in the city can’t buy commercial theft insurance because the risk is so high then is it better to coerce some insurance company to insure them anyway, or fight crime more effectively?

  • Sutter

    PLN, your argument that price and cost are unrelated is facetious at best. Prices are determined by both demand (how much do particular customers value the product — the issue you claim is determinative) AND SUPPLY (the amount for which a producer will sell a product, which is keyed to its costs). Markets in which prices are related only to “value” (in economists’ terms, where price just rides the demand curve) are not competitive. So, if your argument is that people pay just what for the value they perceive themselves to be getting, you’re conceding that the market is not sufficiently competitive. And that’s a product of insufficient information (a market can have many sellers and still be uncompetitive). Moreover, if you were right and people were paying for just the peace of mind with no regard for the cost to the insurer (risk of payout times magnitude of payout), then there would be no harm to the insurers of regulation making the actuarial information more easily available.

  • plnelson

    Markets in which prices are related only to “value” (in economists’ terms, where price just rides the demand curve) are not competitive. So, if your argument is that people pay just what for the value they perceive themselves to be getting, you’re conceding that the market is not sufficiently competitive.

    How so?

    Regardless of your theories, the insurance market is actually HIGHLY competitive. When was the last time you shopped for homeowners’ insurance? Have you EVER? The exact same face value of coverage can typically be found over about a 2:1 price range.

    The only markets where prices ride the demand curve are for commodities. And insurance is only commoditized in the secondary market, not the retail market. At the consumer level, perceptions of customer service, company reputation, etc, decommodify the market. If you doubt this then compare the prices for homeowners’ policies by AMICA (a goldplated mutual insurance co) to some of its lesser-known rivals. (even allowing for their policyholder dividend) Yet despite their high prices they are doing quite well, sales-wise. Are all its customers crazy? (BTW I do not have an AMICA homeowners’ policy)

    I used to work for Prudential. Most people have NO CLUE what the risk is of any particular insured hazard, and do not make any effort to compute the price they are willing to pay based on risk * loss potential. That is simply not how most normal people buy insurance, and I don’t know what ivory tower has convinced you otherwise.

  • Lumière

    ///I think most insurance buyers are simply drawn to the cheapest price and the hell with due diligence. As I said, I took it upon myself to make sure I understood my insurance coverage…\\\

    ///I used to work for Prudential. \\\

    Not really a big deal for you, was it?

  • jazzman

    The abstract concept of insurance is as old as humankind’s collective memory. It’s fear-based (fear of loss, fear of angering the powers that be and incurring their wrath) and the roots of this concept can be traced to humankind’s belief in causation by Agency.

    In the prehistoric era, convinced that supernatural Agents were responsible for everything, the concept of ritualistic sacrifice (bribe) for the benefit of gods or whatever Agency was created and practiced. Sacrifices were required to be things of value to the person/society performing the ritual (the bravest warriors, virginal or nubile women, the best animals, best of the harvest, etc.) in order to demonstrate their fealty and seriousness to the Agent (the cautionary allegory of Cain & Abel demonstrates the peril of inadequate offerings.)

    These rituals were to insure that the Agent would bestow benefits upon the society: E.g., good hunts & harvest, strong offspring, protection from enemies, weather events, and general misfortune etc. If despite such precautions misfortune still occurred, then the Agent’s agent (shaman) would then exhort/extort the tribe to make further sacrifices as the original sacrifices (coverage) had obviously been inadequate (or the rites performed to insure a good hunt/harvest neglected to include appropriate provisions to mollify the weather gods etc. – so the Agency exercised a loophole and denied the claimants’ supplication.)

    From then to today the concept has barely changed: People afraid that they are vulnerable to the whims of Agency (be it God, the Devil, bad luck, bad karma, bad weather, statistics (the law of averages), or poor decisions etc.) sacrifice something society values (cash) to the Agent’s minions (insurance agents) and if the bribe isn’t entirely successful in forestalling the events against which the bribe is supposed to protect, it is assumed (theoretically) that the insurance agent will mitigate some of the damages by bestowing a greater benefit than the initial sacrifice.

    Many people believe that having insurance is a talisman which protects them against undesirable consequences, and are convinced that without it they are more likely to attract misfortune. From my POV they are correct as I believe people tend to attract that which they fear and so the peace of mind that insurance provides actually does prevent some people from creating what they would consider to be unfortunate circumstances.

  • plnelson

    Not really a big deal for you, was it?

    That was 30 years ago. I didn’t use any special technical or insider knowledge. There wasn’t a single question I asked that wasn’t purely common sense. We didn’t do ANYTHING requiring special insurance knowledge – in fact our best questions we got from Consumer Reports and surfing the web. Anybody could have done it.

    I started by contacting our agent and expressing our concerns about not knowing exactly and precisely whether we were fully insured, with 100% replacement value, and all our living expenses if we lost the house. I grilled the insurance company on the phone over a period of many days ([b]regular ROS participants have probably noticed I have a pit-bull personalilty[/b]). I would ask questions at 4PM, and then call them back with followup questions the next morning. I had them send me sample policy changes which I would then ask more questions about. What does this mean? What does that mean? We got everything in writing. They had to go to their underwriter for many questions. After these preliminaries we invited a representative from the insurance company over to our house and showed him specific things and asked questions like, “How do you compute the value of this”? “We have one of -these- and we want you to pay us the cost of a new on, not a depreciated one” – how do we do that? What proof do you need so we can claim this expensive one-piece Corian kitchen counter? Etc, etc. We grilled him for hours, got it all in writing, with signatures.

    And as far as having technical knowledge, I’m not a doctor but I make a point of having a good science background. When I go to a doctor I make SURE I’ve read the peer-reviewed literature on whatever the condition is I’m seeing him for, that I use the right technical terminology and that I understand the anatomy of whatever we’re there to talk about. I’m not a dentist but when go to one I use the right terminology (#8, distal, buccal, etc) .

    Any normally intelligent person who doesn’t spend all their time watching TV can learn a little about the world – you don’t have to be a technical specialist or some kind of genius.

  • jazzman

    If there were no such thing as insurance and people knew they had to act prudently and responsibly in life because there was no safety net other than family, friends and community the fragmented social structure which is abetted by not having to take responsibility for one’s actions would be less so.

    I’m reminded a scene from the movie Fried Green Tomatoes that sums up the permission to act irresponsibly due to the fact that one is insured. Kathy Bates’ character uses her insurance as a license to ram her car into a car driven by 2 rude women that usurped the parking place she was signaling to enter. When asked by the women: “What are you doing? Are you crazy?” Kathy’s character says: “Face it, girls, I’m older and I have more insurance.”

    It is that tacit attitude that lets people (by dint of being insured) feel that they can act inappropriately or not have to face the consequences of their behavior other than perhaps pay a higher premium if they filed a claim or be dropped as a high risk client.

  • jazzman
  • jazzman

    Insurance is based on the premise that statistically, sooner or later it’s inevitable that undesirable events will occur to a percentage of the populace, the ratio of those affected to those unaffected form the basis of actuarial risk assessment. It is the insurers’ task to set and collect premiums so that the total pool covers the actual calculated risk and leaves a tidy profit for the company.

    They are adept at this practice and further their interests by attempting to convince the client (mark) that the law of averages states that many are likely to run afoul of that law and experience unpleasant consequences but if you are smart you’ll bet against yourself and buy insurance to protect you and your property in case bad stuff happens (and it will.) So if you lose (bad stuff happened) during the allotted time, you win, but if you don’t lose in the time span, we win. It’s no wonder that 10% of the top 200 richest companies in the world are insurance companies.

    If coverage were simple (not weasel worded and in legalese with its attendant semantic sense of ethics) then it would still be profitable by simple actuarial calculations but perhaps they would be less inclined to construct the giant edifices and favor their OODEPs with obscenely huge salaries (who by most accounts do little or nothing to justify them.)

    The current profit model also includes applying the 3D code (Deny, Delay, Defend) wherever it makes sense monetarily (which is almost always if they stand to lose a large amount) and C/B calculations as to how much money and interest may be realized vis a vis not paying legitimate claims in a timely manner vs. an unfavorable class action or government ruling with concomitant fines.

  • jazzman

    In modern society the insurance industry has capitalized not only on FEAR and guilt (how will your family survive, if you die or become incapacitated?) but has insinuated itself into virtually every aspect of many peoples lives.

    In MA compulsory liability insurance is required to drive a vehicle, and if one has an auto loan then a comprehensive policy is required by the title holder. Mortgage lenders require HO policy to protect against property damage and may demand PMI in addition. (I am aware that lenders are responsible to their stakeholders and need to be able to protect their interest in case of damage or default.)

    Lawyers (no offense intended to sutter) have spawned a litigious zeitgeist in modern western society so that not only do people not have to take the responsibility for their actions or experience, they can profit from their dramas (the mere threat of a lawsuit (nuisance) is enough in many cases to get a settlement – 1/3rd to the lawyer for a couple of threatening letters.)

    Malpractice insurance has driven the cost of medical and other professional disciplines at a far greater rate than inflation. A doctor is not allowed to make a medical determination that is not sanctioned or second guessed by the insurance provider and their shills, and because of liability, conduct exhaustive diagnostic tests to rule out any (even remote) possibilities or face malpractice if a diagnosis is mistaken or incomplete.

    The quest for cradle to grave protection (as if it were able to be externally provided instead of taking responsibility for one’s own choices) has fed this vicious cycle.

    Peace

  • plnelson

    From my POV they are correct as I believe people tend to attract that which they fear and so the peace of mind that insurance provides actually does prevent some people from creating what they would consider to be unfortunate circumstances

    If that were true then rich, insured people would suffer more floods, fires, illnesses, etc (even though their insurance might compensate them). But in fact it’s the poor uninsured people who suffer those calamities. I’m insured to the hilt but I’ve hardly ever had to make a claim.

    There are many theories about how and why people buy insurance. One of my favorites has to do with predicting the future. Essentially, if you buy flood insurance then it’s the same thing as owning a crystal ball that can look into the future and predict with perfect reliability that you will not suffer financial loss due to a flood. It cannot predict anything else, but it can predict that with remarkable accuracy.

    So if insurance is a way of predicting certain details about your future, then it can be viewed as buying INFORMATION.

  • plnelson

    If there were no such thing as insurance and people knew they had to act prudently and responsibly in life because there was no safety net other than family, friends and community the fragmented social structure which is abetted by not having to take responsibility for one’s actions would be less so.

    So you’re saying that the poor people who drowned or lost their homes in New Orleans are responsible for their fate? What about someone driving down the road who gets hit by a drunk driver?

  • plnelson

    Lawyers (no offense intended to sutter) have spawned a litigious zeitgeist in modern western society so that not only do people not have to take the responsibility for their actions or experience, they can profit from their dramas

    I only sued one company but I won. We were refinancing our house and when we showed up for the closing, the rate on the mortgage was 1/8% higher than the rate we had locked. A small error, they said, but it was only $13 a month. Surely we weren’t going to make a problem over it. Rates had gone up since we locked so surely we wouldn’t walk out of the closing, since we would be unable to find that rate again.

    Surely we would. We walked out and straight to a lawyer who sent them a threatning letter. The mortgage company resisted at first as rates kept climbing. In the end they caved and it cost them $17,000 + a mortgage at the locked rate + everyone’s legal expenses.

    A nation of laws needs lawyers.

  • jazzman

    plnelson says: If that were true then rich, insured people would suffer more floods, fires, illnesses, etc (even though their insurance might compensate them). But in fact it’s the poor uninsured people who suffer those calamities. I’m insured to the hilt but I’ve hardly ever had to make a claim.

    No it’s the exact opposite of what I said: People with insurance tend to NOT suffer from calamities even though if they did they’d be damn sure they were compensated. Poor, uninsured people out of FEAR and a general lack of confidence tend to experience calamities.

    Essentially, if you buy flood insurance then it’s the same thing as owning a crystal ball that can look into the future and predict with perfect reliability that you will not suffer financial loss due to a flood. It cannot predict anything else, but it can predict that with remarkable accuracy.

    You are predicting a subjunctive event, an hypothetical event that says: If it were then it would be. If there is no flood you suffer a financial loss due to superfluous insurance premiums. If there is a 90% chance you will be flooded then there is a 10% chance you won’t be. In that case your engineer’s psyche would opt for the minimizing the probability of loss and purchase flood insurance. If it were a 50% or less chance one would (out of FEAR than flooding might occur) probably still buy flood insurance. My house floods regularly and I have no flood insurance other than my sump pump and with the exception of family dental which pays way more than the premium or medical insurance when my last child was born I have never filed a claim (auto or homeowners) and all the insurance premiums that I have been forced to buy till now have been wasted.

    So you’re saying that the poor people who drowned or lost their homes in New Orleans are responsible for their fate? What about someone driving down the road who gets hit by a drunk driver?

    Yes and so is the person killed by the drunk driver. The drunk driver and the so-called victim are equally responsible for their drama.

  • jazzman

    PLN A nation of laws needs lawyers.

    I agree, to defend one from the abuses of the laws and those who use the law to abuse others. This nation which has been codifying everything from the ridiculous to the sublime ever since congress convened in the 18th century and has repealed a fraction of 1% of those has made law practice indispensable. However as I’ve stated on numerous occasions here, there only needs to be 2 laws. No one can physically harm another and one may not deprive another of one’s lawfully acquired possessions.

  • mcasemo

    is a “lawfully acquired possession” one that was obtained without physically harming some other person? because that’s the only other law. could i put a loaded gun to someone’s head, take their possessions then call it ok? i did not physically harm them, so alls good.

    i’ve had enough. i’m a listener only from now on. life is too short to read through this crap. i thought it might help to stay engaged on this thread, but what I thought would be a nice connection to a caring population outside of the gulf coast has turned into a ridiculous, moronic, exercise in futility. Good luck with your lives, because you obviously don’t care about ours (until shipping of subsidized corn out of the port of new orleans sky rockets, or gas/oil prices reach obscene levels…)

    peace.

  • Lumière: I am saying that disservice being done to the residents of the Louisiana and Mississippi will not carry the same political consequences for insurance companies as it would in another region of the country.

  • herbert browne

    My thanks to jazzman for an extensive explication of the why’s and wherefore’s of our cultural search for comfort- emotional & physical- down through the millennia… and the fear-based model that makes most insurers wealthy. If PROTECTION mattered first (eg what’s offered by the “original” support system of family & friends), then we’d have it- from our community (& the government is the achievable level of community that’s generally available)- and it’d be some form of moderated “no-fault”. So, we wouldn’t pay off the multimillionaires who build on a barrier island, or straddle an active earthquake fault, or assemple log palaces in lodgepole timber where fire is an active ecological principal… and most of these would be “2nd” (or greater) homes, anyhow. But we would cover everyone’s primary residence; and it would be done by actuarial methods. And, since we all participate actively, then we all have a stake in making it a point to be as responsible and conscious of potential hazards as we can be- because, if we do better collectively than the actuaries predict, OUR RATES GO DOWN. Rather than betting against ourselves, we are cooperating to find a less-expensive, less-litigious way of insuring our shelter. And those who have the wrap-around corian counters, teak plate ledges, baby grands and lapstrake toboggans are free to pursue additional coverage for their precious earthly goods, beyond what we, in our collective wisdom, decide are the “bare essentials”…

    Re ..”this nation which has been codifying everything from the ridiculous to the sublime ever since congress convened in the 18th century and has repealed a fraction of 1% of those has made law practice indispensable..”-

    Right… and WHO has made those laws? And WHO stands to gain from their implementation? The poor rarely have an active hand in making laws… an the obvious conclusion follows. I’ll never forget my first curious impulse to pick up some income tax booklets and try to figure out what was going on in there… and discovering “passive activity”, and “oil depletion allowance” and some fabulously arcane things that, ultimately, enabled me to grasp at least a little of the sleazy saga of Enron. Poor people had nothing to do with any of that… but they (& all of us) are affected by it. My good friend, Rev. Billy H has summed up jazzman’s basic code thus: “everybody eats; and nobody hits”- which is a long,long way from the fear- driven, atomized society of “rugged individuals” to which every commodity on earth is being pitched, every second of the day and night.

    If some States- or ALL States- decide to treat insurance companies the way that those companies treat their clients- ie look at them as a way of acquiring wealth, while avoiding all possible claims by any “Legal” means necessary, what would result? Will the insurance companies bail, and go somewhere else? Will the States develop a “single=payer, no-fault” model for mandatory insurance? In my view, auto insurance should be so, now, because it’s demanded of drivers in most States. Why not treat it as a Public Utility? It’s being done successfully in other countries. Someone will surely argue against “the Nanny State”- but why is that worse than paying for Protection to someone who’s principal interest in you is as a source of income? The poor & the middle classes, especially, will be better off with the former option- and have a say in the process. ^..^

  • Lumière

    nbowling

    I honestly don’t know what you’re getting at – our country is integrated -there are minorities everywhere.

  • Lumière

    We have eliminated capitalism and, slowly, we are moving towards one of these three?

    SOCIALISM: You have 2 cows, and you give one to your neighbor.

    COMMUNISM: You have 2 cows. The State takes both and gives you some milk.

    BUREAUCRATISM: You have 2 cows. The State takes both, shoots one, milks the other, and then throws the milk away…

  • Lumière

    ////….a ridiculous, moronic, exercise in futility…\\\

    We are indeed ridiculous, moronic, and futile – but we care.

    Otherwise we wouldn’t be posting.

    In order to profit from the sublime intellect posted here, one needs to think in terms of systems.

    This was a huge disaster and most systems broke down.

    regarding insurance companies: they have been chiseling away at policies since Andrew and homeowners didn’t notice.

    This is why we have state regulation – the secretary of sate should have been notifying people of that trend.

    Business is a funny animal – it requires trust in an adversarial relationship….

  • Sutter

    PLNelson writes: “Regardless of your theories, the insurance market is actually HIGHLY competitive. When was the last time you shopped for homeowners’ insurance? Have you EVER? The exact same face value of coverage can typically be found over about a 2:1 price range.”

    I thought we had covered this above, but yes, I have shopped for, and bought, homeowners’ insurance on more than one occasion. And it’s just like the retail market for bottled seltzer, which I describe above: Many providers, significant price differentials (as I said, seltzer prices generally vary a dime in either direction from $0.60 per liter — a very significant variation). But, as with seltzer, the presence of many insurance providers does not guarantee that even the lowest rate is the rate you’d get in perfect (or near perfect) competition. You’re confusing the presence of many providers with a competitive market. As I’ve explained above, that’s just one component of a competitive market. Other factors can still prevent the market from being “competitive” in the economically relevant sense. I don’t know empirically whether the insurance market does or does not meet these conditions, but given the figures Lumiere cites above and the informational disparities I described earlier, I think there’s a good case that the market is somewhat dysfunctional.

    You try to dismiss all this as mere “theory,” but you can’t have it both ways. The benefits of the market, on which you rely, are theoretical as well. They rely on certain circumstances to ensure that the market does what we want it to do — namely, to create value and to spread that value out among producers and consumers. In your value=price world, producers would reap all of the surplus value; under the Econ 101 perfect competition supply/demand model, that surplus is split between suppliers and consumers. In real life, we need to get somewhere in between. This may be “theory,” but it’s a necessary corollary to your faith in the market, and cannot be dismissed — particularly if you want to argue to mcasemo and others that they have to just grin and bear it when insurers make choices consistent with the market.

  • Sutter

    Jazzman: No worries — I’m not that kind of lawyer. We of course disagree about the degree to which law and lawyers are necessary — and about whether on balance laws help or hurt the weak and the disadvantaged vis-a-vis what would occur without those laws. But that’s a discussion for another day.

  • cary

    I just read through the 75 responses before mine, and watched with sadness and resignation the eventual throwing up of hands on the part of mcasemo. It’s the differrence between being a part of the tragedy and opining on the tragedy. A discussion of what to do about insurance companies in this situation and in general is not about the tragedy itself. We know that real people are suffering, to say the least, but since we are not those people we can afford to be analytical. If the discussion isn’t about people, I don’t see the point. plnelson, you seem to be saying that people need to be more careful about buying, and if they aren’t, it’s their fault, not the companies’. The market is working. But what are you saying about the people? And I’m not talking about Trent Lott. They got where they are because they are guilty of poor judgement or lack of education? Do they deserve whatever they get? It almost makes sense, until you look into their eyes, and the eyes of their children and their elderly. The greatest fault of the market is that it has no heart. Lumière mentioned our alternatives (socialism, communism, …), and how they have panned out. No one system is going to solve the problems of human nature. We’re going to ##$% up whatever system we use. We have our little imperfections, like carelessness, ignorance, lazyness, greed, and lack of sensibilities, and we need to make allowances for them. These inevetibly take the form of government regs, adminstered by other people with those same imperfections. Then we litigate to see who pays, while people suffer and a nation forgets. I suggest that Open Source hosts a show on what to do for these people right now. We seem to be able to go into plenty of debt when we want to protect oil from it’s rightful owners, and companies from thier own management. What we really need to do is take care of these people now, and find fault later. And that includes the people that were conveniently shipped out of town so far that they can’t come back, like dogs that no one wants. Seems like houses that were totaled by the storm are just sitting there, and houses that weren’t all that damaged are being bulldozed away.

  • ll
  • herbert browne

    Thanks to II for the blog link… and the McCarran-Ferguson synopsis, as well. It’s good to know that a bi-partisan effort may come out of the Senate, yet… ^..^

  • Lumière

    Interesting anti-trust legislation.

    The purpose of fed regs is to allow for wealth creation, sometimes by granting monopoly powers – steel, telco, banks all went through this – and subsequently forcing more competition by anti-trust regulation.

    This is how gov is supposed to work – Insurance companies are now ( notice the date of the anti anti-trust legislation) large enough to cover losses and they should.

  • Lumière

    plnelson

    Let me tell you a story about your vaunted AMICA

    Had an accident – kid on a learner’s permit back ended me – no real visible damage

    In RI they have to fix or pay cash – that’s the law written into my policy

    The supervisor tells me “the company policy is not to pay full value.”

    I said: show me where it says that in my CONTRACT.

    Btw, I asked her to tell me what my record was: no tickets or claims – not true, but that is what she said.

    I threatened to send a letter to the prez and the commish of insurance.

    Two adjusters and three checks later I got a fair settlement.

    The system works…lol

  • mcasema, I’m sorry to see you bow out on this one. I must admit that I didn’t have the energy to take this one on.

    I find it difficult to have a dialogue with someone who thinks that if something works for him and those around him it can’t possibly be bad. As a caucasion female with one side of her family firmly rooted in the wealthy elite class, it could be easy for me to sanction the dominant forces at work in our culture. My family has fared well. However, it is clear to me that many, many people are suffering. It’s not simply that they are lazy or dumb or irresponsible. They are oppressed and powerless, which leads to a psychological state of defeatism and a range of behaviors from self-destructive to destructive of others. Sometimes we have to realize that people need help fighting for themselves and we have to be willing to assess whether the systems we operate under are truly good for everyone. This is why I love this definition of leadership:

    “The servant-leader is servant first… It begins with the natural feeling that one wants to serve, to serve first. Then conscious choice brings one to aspire to lead. He or she is sharply different from the person who is leader first, perhaps because of the need to assuage an unusual power drive or to acquire material possessions. For such it will be a later choice to serve – after leadership is established. The leader-first and the servant-first are two extreme types. Between them there are shadings and blends that are part of the infinite variety of human nature.

    The difference manifest itself in the care taken by the servant-first to make sure that other people’s highest priority needs are being served. The best test, and difficult to administer , is: do those served grow as persons; do they, while being served, become healthier, wiser, freer, more autonomous, more likely themselves to become servants? And, what is the effect on the least privileged in society; will they benefit, or, at least, will they not be further deprived?” Robert Greenleaf

    So, who are the leaders in this situation? And can we make the assessment? Have the least privileged benefitted? If not, are we really ok with that? If not, what can we do?

  • Lumière

    //…..lazy or dumb or irresponsible. They are oppressed and powerless, which leads to a psychological state of defeatism and a range of behaviors from self-destructive to destructive of others.\\\

    Be careful with conjecture….. there is a hidden bias in your post:

    Pluralism allows for the oppressed and powerless to rise above.

    The powerful are no less prone to self-destructive & destructive acts.

  • webcastboy

    mcasemo, I see where you’re coming from. And I don’t deny that you’ve got a point. But you’re missing the forest for the trees. To say that you felt “safe” because the levees would withstand a Cat2 storm and not a Cat4 is bordering on idiotic. WEATHER IS UNPREDICTABLE. Katrina was damn near a Cat5 storm barreling straight over Bourbon Street…instead, at almost the last second, it weakened to a Cat3 and veered away so that New Orleans got a compartively mild dopeslap instead of the biblical treatment.

    Now yes, you can say…and rightly so…that the levees probably should’ve withstood those conditions. But if they had you would’ve merely dodged yet another bullet. Sooner or later New Orleans was GOING to flood like it did. The combination of human nature (complacency and denial) and Mother Nature (overwhelming force and unpredictability) made it inevitable. Yet people CHOSE to ignore that risk and live there anyways.

    I’m not saying New Orleanians were unique in their denial of the danger the city was in. San Francisco comes to mind as another example of “denial” considering that “the big one” will come along someday and swallow the city whole. Seattlites often forget that some of the Cascades are still active volcanos…despite Mt.St. Helens’ rather stark reminder in 1980.

    And I also I don’t really New Orleanians their attitude. Life is all about risk. And yes you can take steps to mitigate risk here and there. But I’ve lived on the seacoast my entire life. I’ve been a sailor since I was six. And I damn well know two things: weather will always do what you don’t expect it to, and weather can easily destroy ANYTHING man tries to create.

  • lumiere says; “Pluralism allows for the oppressed and powerless to rise above.

    The powerful are no less prone to self-destructive & destructive acts.”

    I didn’t say they were mutually exclusive. I was delineating some of the factors behind the destructive behaviors of the oppressed. This does not imply that they are the only ones capable of destructive behaviors. The post was about recognizing that it is inappropriate to simply blame the oppressed for struggling to find a decent life in a system which operates against them at every turn and that we all would be better served to try and see things from their perspective and see if we need a system change.

  • jazzman

    mcasemo asks: is a “lawfully acquired possession” one that was obtained without physically harming some other person? because that’s the only other law. could i put a loaded gun to someone’s head, take their possessions then call it ok? i did not physically harm them, so alls good.

    I say lawfully acquired only because that concept is usually accepted by the majority of western people who believe in the rule of law I personally would emend the 2nd rule to read acquired by adhering to the tenets of Absolute Morality http://www.radioopensource.org/is-god-in-our-genes/#comment-8573#comment-8573 or more generally possessions acquired by consenting adults thru free agreement with all parties under no duress. In the case of inherited assets, the possessor is entitled to all uncontested property no matter how it was acquired by the benefactor. Your example clearly is a violation of rule #2 as you are depriving someone of their property under duress.

    Good luck with your lives, because you obviously don’t care about ours (until shipping of subsidized corn out of the port of new orleans sky rockets, or gas/oil prices reach obscene levels…)

    Just because people some of us believe that people are responsible for their actions and that many are abused by insurance companies with their semantic sense of justice doesn’t mean that the majority of the ROS posters here don’t care (though it’s possible some may not.) I certainly empathize with the affected and sent money to Habitat for Humanity for Katrina related housing. It is obviously in the national interest to maintain the Port of New Orleans infrastructure or find a feasible alternative.

    I view all misfortune as challenges/opportunity for all involved and believe that everything is for the best despite how bleak things appear. Your pointing out the less than ideal actions of some insurance companies may someday improve the situation for others, keep posting and shining the light on their actions.

    Peace,

    Jazzman

  • melbay49

    Insurance companies are created to make profit. When losses occur beong the ability of a company to pay only two things can happen. They deny payment or the company goes bankrupt. Only a third party can bail them out. They could sue the oil interests for causing the losses but that could be in court for twenty years. I suggest that the federal government be that third party. In the process buy the bankrupt companies out for what will be a very small price, and form them into a federal insurance system. Aren’t we all asking this to be do anyway through the mechanism of FEMA? If we are to foot the bill why is it wrong to reap the profit. This would also have the happy effect of making the government interested in pushing back against the oil profits that are costing us everything.

  • Igor

    I’m kinda getting tired of plnelson, that market-savvy astrophotographer with plenty of time to spare… “I-believe-that-everything-is-for-the-best” Jazzman is no different. C’mon, guys, get a life, for chrissake…

  • webcastboy

    Whoops. Pretty critical typo in my last paragraph. Here it is corrected.

    And I also I don’t really begrudge New Orleanians their attitude. Life is all about risk. And yes you can take steps to mitigate risk here and there. But I’ve lived on the seacoast my entire life. I’ve been a sailor since I was six. And I damn well know two things: weather will always do what you don’t expect it to, and weather can easily destroy ANYTHING man tries to create.

  • ll

    I think the comment from Allan Kanner about insurance companies managing risk was quite telling, specifically that one risk of the insurance companies is the risk that their customers will file a claim and fight for what they are due.

  • ll

    webcastboy says to mcasemo:

    “But you’re missing the forest for the trees. To say that you felt “safe” because the levees would withstand a Cat2 storm and not a Cat4 is bordering on idiotic.”

    The federal flood insurance program based their premiums on the strength of the levees. People were required (w/ mortgages) or strongly suggested to be insured based on where the levees were and how they were supposed to perform. “safe” is not what we are taking about. Risk is what we are talking about, and justice. Man-made disaster. Understanding some of these things might help alleviate you from your inclination to call people idiotic. Come visit New Orleans, talk to some people, understand what’s going on. Come meet some of us “trees”…

  • hurley

    I’m with Cary and mcasemo on this. Disapointing to see the thread devolve here and there into an arid sermon on how the Seven Habits of Highly Effective People body forth the sublime wisdom of the market. Though I must say I admire pinelson’s tenacious refusal to be sold a bill of goods. If I ran a law firm I’d be making cow-eyes — flashing dollar signs — that he might jump the fence. Too obvious to state that poor people are often poor because they are relatively uneducated, thereby ill-equipped to parse — or even read — the fine print on a policy they are probably too poor to purchase in the first place. Poor people also tend to have a more submissive posture toward authority than a well-healed engineer might — no knock on you pinelson. Especially poor black people in the American South. But even if you condemn the victims of Katrina their lack of savoir-faire in insurance matters, it hardly compares with the rapacious treachery that tends to characterize the behavior of much of the insurance industry in the wake of natural disaster. I know whereof I speak, having gone through two hurricanes, including Camille in 1969, and having worked for FEMA via a contractor in the wake of another — after turning down a job as an estimator once I understood what was expected of me. Besides losing just about everything in the second instance, I saw first-hand how the insurance industry often works, but then the guests on the show described that well enough.

    Wonderful show. Also the Barry Manilow bit. Manilow — in Vegas — singing insurance jingles. Imagine paying to see that. Time to take out a policy, just in case…Talk about the song that makes the whole world sing…

  • jazzman

    Igor says: “I-believe-that-everything-is-for-the-best” Jazzman is no different. C’mon, guys, get a life, for chrissake…

    Are you objecting to the quantity of my posts or my optimism? The quantity is due to only having access to a computer at my work and can only post during breaks or after work hours so sometimes I store commentary or replies (like this one I‘m starting during lunch.)

    The optimism is how I choose to manipulate reality since everyone’s reality is subjective and a function of their beliefs. My beliefs include the concept that I control events in my life rather than god, fate or others. In that way I can take the credit for success as well as failure and if I perceive the failure as an edifying experience then the so-called undesirable event becomes a valuable object lesson.

    When one is pessimistic and they say “See, I knew it would suck, fail, end badly etc. (insert applicable pejorative of choice), I was right!!!” What does one have except the superficial perception that undesirable consequences occurred, and the ego gratification that one was clever enough to predict such an outcome? In other words bad stuff happened and it sucks but at least I expected it would and could have taken steps (and possibly did) to insure that I would not be more adversely affected than I might have otherwise been.

    In my experience one gets what one focuses upon. Expect gloom and doom or look for undesirable occurrences and you will seize upon those and ignore favorable circumstances to justify your worldview. I focus on believing things are for the best and my life (and I do have one – contrary to your implication) is generally free of the Sturm und Drang that pessimists experience.

    Peace,

    Jazzman

  • Lumière

    hurley & jazzman

    great responses !

  • Noeta

    I am an insurance adjuster. Work for one of the big companies.

    I skipped Katrina. Frankly, I didn’t go because I love New Orleans and just didn’t want to see it after the storm. That doesn’t mean I haven’t worked hurricanes. I’ve flown in to Florida. Been evacuated out of Florida. Flown back, and spent months working and living on the “front Line” in less than perfect conditions. I’ve also been to earthquake, flood, fire, and ice storms.

    Here’s what I know: Thousands of people just like me volunteer leave our families and fly into truly miserable conditions to work storm claims. We do it for the company. We do it for you. I also know that the employees at my company donated millions of their own money to help the victims of Katrina. Millions my company quietly matched.

    I also know that most adjusters simply want to pay whatever the contract says and move on. We’re far too busy to waste time doing anything else.

    Take a look at the websites for any of the major companies. Take a look at the court records. The rough picture is this:

    Over 90% of the claims are paid and closed

    Over 80% of the people surveyed were happy with the payments

    About 2% of the claims used an engineer.

    Bottom line: Most insurers spent millions to get people there as fast as possible to pay as many claims as fast as possible.

    I understand the devastation when you don’t get paid after your house has been destroyed, but that fact remains that the policy is a contract. It says pay for this, but not for that.

    So when adjuster stands on a street and has nothing but slabs to the left and standing homes to the right with only roof and window damage, or the bottom floor is stripped of siding and walls but the upper floor is fine, it’s fairly easy to see what is wind and what is water. Then they look at the policy/ contract that says we don’t pay for flood/ tide/ wave driven by wind or not. They pay for what they can an move on.

    Yes, it would be nice to pay for more, but it can’t be done.

    Yes, insurance companies have made a good profit last year or two. But let’s not forget the lessons of Andrew: Major companies paid out more in losses than all the profit they collected over the life of their company. Large companies, a lot of them, went out of business and left the policy holders out in the cold.

    One more thing before I bring this all too long post to a close: The policy/ contact that you claim has too much fine print was approved by your state. The premiums you pay are monitored and approved by your state. Few businesses are regulated an monitored as much as an insurance company.

    I extend my heartfelt sympathy’s to all of you that suffered through the storm.

    I also applaud the armies of insurance people that worked day & might to make it better for you.

  • Lumière

    You explained how it is supposed to works

    Plz tell us what State Farm was doing falsifying reports to deny claims – what I don’t understand is why a local office would do this – isn’t the local SF office losing potential new policies (the screwed will never do biz with SF again)?

    Is there a company wide profit-sharing plan?

  • Noeta

    Have any of the hundreds of judges, lawyers, or investigators working the storm actually proven any reports were changed? Or are we still talking about what disgruntled independent adjusters and lawyers are using to fan the flames?

    Again, less than 2% of all claims had any engineer’s report. If there was an effort to change reports to avoid payment, it appears to have been a stunning failure.

    I believe State Farm is mutual company. No stock. No dividends. No profit sharing.

  • Lumière

    2%? Seems low, doesn’t it?

    Makes one wonder more why any docs needed to be changed.

    A mutual is a type of capital structure – it doesn‘t preclude bonuses or employee incentive plans.

    AMICA is a mutual and I get a div every year – if you want to call the div a return of premium based on their claim experience – that’s ok with me