Between a Rock and a Hard Place

… That’s where State Farm is according to me.  So says the New York Times ($ required). ( I couldn't see what I was quoted as saying until today as I don’t subscribe!), but Waler Olson at Point of Law gets the gist of the article right.

It seems to be common knowledge that Senator Lott has threatened the insurance industry over Katrina.  I have commented on this boorish behavior here and here as has David Rossmiller and the the WSJ has a recent editorial on his “ferocious campaign” against the industry. 

The insurance industry has been stuck between those two places for quite some time.  What I find particularly troublesome is that the first approach was the attempt to destroy the insurance contract by voiding the flood exclusion through the claim that it was against Mississippi law.  Luckily, that didn't get far, but it did cause  insurers to consider whether they can continue to operate in Mississippi. Now we see a concerted effort by legislators at the Federal level to try to punish the industry for their perceived misbehavior.  This is likely to have a greater effect, but not the way the legislators believe. 

A number of companies with significant premium volume already wary of writing catastrophic risk, in part, because how they are treated after a large loss occurs.  Prices are not permitted to rise to adequate levels and the industry is vilified for asserting its contract rights.  No wonder Allstate wants out just about everywhere it faces a wind risk.  There is a long run cost to the coastal states for their misunderstanding of how insurance and contracts work.

Let’s fast forward two or three years….  Mississippi can not redevelop along the coasts.  Gadflys are going to suggest that it is the robber-baron insurers who wouldn’t insure the coastal properties.   However, in actuality, it was Mr. Hood and Sen. Lott who will destroy Mississippi’s future opportunities by their short-sighted populism and antagonism towards the one private industry with the greatest incentive to supply capital of its own free will to the coasts.  How many people will recognize this fact?  Mr. Dale, the current insurance commissioner, understands this and is distancing himself from the federal fray as well as the “Let’s do What Florida did Approach”.  The Mississippi market is already fragile and is not getting better.

update:  Mike the Actuary and QandO make the same point -- and much better too.

Comments

[Carol]

This retribution Lott is working on is deeply wrong but the silliest part of it is the notion that if you print what isn't covered by a policy on the front page, and this is part of one of his "ideas," someone will actually read it. They don't read their policies now so what makes that pompous windbag think they will start now? If the silly, silly people had read their policies, they would have known they had no coverage for flood and none of this would have happened.

My inclination is to blame the agents: why weren't they selling, selling, selling flood insurance and if they couldn't sell it, get the declination writing?

[Erin]

I will be quite interested to hear your thoughts on the Senate hearings on Wednesday when AG Hood gets to cloud the issues even more with his misunderstandings. How come no one from the insurance industry has been invited to speak at these hearings? It sounds to me to be a very biased "investigation." No wonder the insurance companies want to leave.