Monday, March 19, 2007

C'est Levee

Construction Site, Baton Rouge LA 2/2007 from Baton Rouge Blues.
All reproduction rights reserved Wm. Greiner
Homeowners drop insurance after Katrina
By MICHAEL KUNZELMAN, Associated Press Writer
NEW ORLEANS - Disgusted with his insurance company after Hurricane Katrina, the Rev. Simmie Harvey let his homeowner policy lapse and left his house in the hands of a higher power.
Somebody up there must like the 88-year-old Baptist minister: His newly uninsured house escaped serious damage last month when a tornado ripped through the city's Uptown neighborhood and toppled a tree that narrowly missed his home.

"I wasn't lucky. I'm blessed," he said. "I'm going to be all right. The Lord takes care of me."
Facing soaring premiums or feeling shortchanged by their insurers, a growing number of homeowners and businesses in Louisiana and Mississippi are "going bare," or dropping their coverage altogether, insurance agents and consumer advocates say. Many more are drastically reducing their coverage.

"I have every belief that it's going to be more and more common," said Amy Bach, executive director of the United Policyholders advocacy group. "If it's a choice between eating or paying their insurance bills, of course they're going to eat."

With the new hurricane season beginning June 1, it is a risky strategy. These people could lose everything in a storm or some kind of tragic accident around the house.

"You're basically playing Russian roulette with your most valuable asset," said Robert Hartwig, president and chief economist of the Insurance Information Institute, an industry-funded group.

Elderly homeowners — particularly those on fixed incomes and those who have paid off their mortgages — may be the most likely to go uninsured. Most homeowners don't have that choice, because mortgage companies require borrowers to have insurance. Those whose homes are paid off can drop their policies, unless they are getting government grants or loans that require one.
"Definitely, you'll be seeing more of this," said Bennett Powell, a Metairie insurance agent whose firm sold Harvey his policy.

Exactly how many policyholders are going bare is unclear. The insurance commissioners in Mississippi and Louisiana are not keeping track, and insurers say they do not how many of their former customers are simply buying new policies from a different company.

Shopping around can also be a risky strategy, because homeowners in Louisiana who switch are no longer protected by a state law that bars insurers from canceling policies that have been in effect for three years or longer.

"Do not shop," said Louisiana Insurance Commissioner Jim Donelon. "That protection outweighs the advantage of shopping, in my opinion."

Homeowner insurance typically covers wind damage from hurricanes, as well as damage to the home from fires, auto accidents and other misfortunes. It also protects a homeowner if someone gets injured on the property. Along the Gulf Coast, flood insurance is sold separately from homeowner insurance, and made available thorugh a federal program.

Robert Page, a Houma, La.-based insurance agent and president-elect of the National Association of Professional Insurance Agents, said the owners of three large apartment complexes in Houma recently dropped their wind and hail coverage after their premiums doubled. Page said only a few of his thousands of customers have gone completely bare after Katrina.

But "it's only the beginning," he said. "In my opinion, it's going to get worse before it gets better."

Harvey, whose modest ranch-style house has a neat lawn and a long driveway for his black Cadillac, rode out Katrina in his home during the summer of 2005 and only briefly evacuated the city in the storm's chaotic aftermath.

His roughly $1,800 annual premium did not increase significantly after Katrina, but he said he elected to drop his Farmers Insurance Co. policy because the company paid him about $4,000 even though he blames the wind for about $10,000 in damage to his roof.

"If that's all I can get, I don't have any need to get insurance," he said, figuring he is better off saving his money than paying premiums.

In Louisiana, insurance companies raised their homeowner rates an average of 13.2 percent in 2006, according to Amy Whittington, spokeswoman for the Louisiana Insurance Department. Some insurers went far higher.

Many small business owners are feeling the sharpest pinch. The insurer of last resort for many Mississippi homeowners and businesses is the state's "wind pool," and its commercial rates have jumped 268 percent since Katrina.

Tom Simmons, who owns three office buildings in Gulfport, Miss., said he paid $3,070 in premiums for the rental properties before Katrina. Maintaining that level of coverage this year would cost more than $25,000, he said.

Simmons is considering dropping his wind and hail policies but holding onto his fire and liability coverage. Even though none of his properties flooded during Katrina, the thought of heading into the next storm season without wind coverage is "scary as hell."

"The whole darn area is facing this sort of thing," he said. "The insurance companies obviously want out. Maybe they're just pricing us out of the market rather than just saying they're leaving the state."

Jeffrey O'Keefe, president of the Bradford-O'Keefe Funeral Homes on Mississippi's Gulf Coast, already has scaled back his coverage.

Before Katrina, he paid $61,224 in annual premiums to insure five funeral homes, two cemeteries and a crematorium. Renewing that $7 million in coverage would have cost about $781,000, so he reduced his coverage to $2 million. But he is still paying $122,113 in premiums, twice as much as before the storm.

"As a small business owner, it's really putting a hurt on us," he said. "It's a bad problem."

3 Comments:

Blogger Giugi said...

Taking their marbles back: Louisiana residents are not playing with the insurance companies anymore!

Louisiana residents are refusing to renew their homeowners insurance policies. Some say its madness, I say it makes perfect sense.

In the wake of Hurricane Katrina insurance companies refused to pay for losses caused by the hurricane. Their argument was simple, and rational: their insurance policies contained water damage exclusion provisions. Be that as it may, residents who had paid their premiums found themselves holding less than a bag of money. Some courts did construe exclusions so narrowly so as to allow recovery so as to allow recover (In re Katrina Canal Breaches Consolidated Litigation). This in turn prompted some insurance carriers to stop providing homeowners insurance in Louisiana. The insurance companies refused to play ball by either providing realistic coverage on the front-end, or staying in the state when they were held to what is theoretically (albeit not contractually or legally) their responsibility.

Despite the obvious argument that if something is excluded in a contract, no court should be allowed to rule to the contrary, I still believe that the situation whereby insurers were allowed to insure Louisiana residents against everything that could happen to people generally but create an exclusion for what would probably happen to Louisiana residents specifically- hurricanes being a common occurrence in the Gulf- was an aberration. This aberration ultimately led to a, well deserved, market failure. Insurance companies are, theoretically, in the business of shifting risk onto themselves in exchange for capital to invest. That should be the basic premise of the insurance industry. The development of this industry, however, has slowly made it more of a “capital investing” and less of a “risk shifting” industry. A glaring example of how insurance companies have been able to “game the system” is the ISO insurance contracts which ensure that everyone gets the same thing; in the case of Louisiana residents, everyone gets the same nothing.

Insurance companies are not just businesses. If they were, the McCarran-Ferguson Act would not exist. Insurance companies serve an important role in our society: they prevent complete collapses when disasters strike. It is the recognition that the insurance company is a strange “public service” that Congress has allowed it to be exempt from numerous anti-trust laws and legislatures around the country create special safety nets for insurance companies. But the insurance industry seems to have taken the baby and left us with the bathwater. It is unacceptable that insurance companies are allowed to do business with such freedom while refusing to actually take on the risk the rest of society depends on them to. The Louisiana insurance companies are just one example of this trend.

Louisiana residents have, in their own way, understood the rules of the game. If an insurance company will not provide coverage for one of the things which is most likely to happen to them- water damage- there is very little incentive for them to purchase the product. Insurance carriers refused to cover something likely to happen, and Louisiana residents are simply refusing to buy something that will not help them in a situation that is most likely to occur. Risk averse people like myself would never be able to make the choice. But as the Kansas City newspaper reports, if people have to choose between eating and paying insurance, they will not choose to go hungry. I say, well done to Louisiana residents: if you do not need it, do not buy it!

10:23 AM  
Blogger Giugi said...

Giugi is actually Maria Vittoria Carminati Garbino, student at the University of Houston Law Center (J.D. Candidate 2008).

10:24 AM  
Blogger William Greiner said...

Blah, blah lawyer speak? The fact is many homeowners in louisiana and Mississippi who are owed money are denied claims by insurance companies! I blogged about the insurance tactic of “Anti-Concurrent” coverage in January, so save your arguments for law class! This is the real world and real people have been hurt!

10:11 AM  

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