If you've been following Allstate's threats to leave Louisiana if they're not allowed to drop hurricane coverage for most of south Louisiana you're probably puzzled. You might have thought, since the entire purpose of insurance companies is to, well, insure risk, that the spectacle of an insurance company that refuses to insure risks means that something is seriously wrong with the industry.
If you suspect that the insurance industry and Allstate took huges losses last year you'd be right. If you think that justifies the gigantic rate increases and outright cancellations we've seen in the wake of Katrina and Rita you'd be wrong. What neither the insurance corporations or the local media are saying is that, in fact, last year was a hugely profitable year for the insurance companies and Allstate in particular. It's not that they're not profitable it's that they don't consider our piddling little homeowner's policies profitable enough. The Los Angeles Times has the story: Industry profits rose 18.7% and their surplus rose 7% to nearly $427 billion. They are pleading a hardship to justify their exploitive behavior that simply does not exist. How'd it happen that our year of disaster brought record profits to insurers?
...the industry's remarkable performance also reflects a dozen-year effort by insurers to insulate themselves from the most extreme financial consequences of catastrophe by, among other things, shifting risks previously borne by companies to policyholders and the public...Hey, if Allstate thinks it is disappointed it ought to talk to folks down here in Louisiana's coastal 7th district who are sorely disappointed in a company they've invested their money in for years trying to abandon them a year of hardship for us and a year of record profit for Allstate! That's disappointment!
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...
The ratio of claims and expenses to premiums was among the lowest in three decades...
"If last year's hurricane season had occurred 10 years ago, it would have been devastating for the company," said Allstate Vice President Fred F. Cripe in an interview. "Last year, it was merely disappointing."
If all that makes you angry then you'll be happy to discover that you are not alone in thinking that the most appropriate response to that corporation's arrogance is exasperated satire.
Greg Peters, inking Snake Oil for the Independent, has a searing take this week on the ugly greed that is revealed by the "good hands people."
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But that's not all--Jon Stewart's Daily Show recently covered Allstate's decision to stop providing hurricane coverage on the coast.
That satirical take on the issue is real gem. It opens with hurricane footage representing the storms which are "endangering what we hold most dear....Insurance profits." One great segment is an interview where an apologist for the insurance companies who encourages us to regard the insurance companies as victims is treated with the respect it deserves. That is to say: None. But the riff hilarious.
They also interview a man who has been denied coverage because his home is in the path of hurricanes. I defy you to guess where he lives. (Hint: it's neither Erath nor Cameron.)
Deregulation of the financial industry by the Republican Congress brought down barriers between retail banks, commercial lending and insurance companies turned businesses like Allstate from staid but safe companies serving to pool risk for its customers into corporations with dreams of sky-high profits. It encouraged insurers to regard the insurance side of their business as the steady cash cow from which to siphon resources for investment in the more "productive" segments of the economy. That, inevitably, leads to the kind of behavior that we saw in Louisiana where Allstate decided not to "reinsure"--buy insurance for itself--in Louisiana before the storms hit. That cost the company about $2 billion dollars in largely uncovered losses.
The irony of an insurance company failing to adequately insure itself would be delicious for consumers struggling to responsibly keep up their own payments if it weren't for the fact that the Louisiana ratepayer will be the one to pay the extra costs associated with Allstate's irresponsible decision to go without insurance. (If a consumer did the same there'd be no one to make good his or her loss.) In other parts of the Gulf Coast Allstate did purchase reinsurance and the citizens of those states won't have as much money to make up. The injustice of this wasn't lost on at least one regional legislator--Don Cravins. He noted:
"You didn't take care of your business, so the citizens of Louisiana have to pay for your mistake?" said Sen. Don Cravins Sr., D-Opelousas, who questioned whether the company followed sound guidelines and purchased reinsurance. "Now that you've had a loss, you put the burden on the backs of Louisiana citizens to pay for your shortcomings."Cravins is absolutely right about this as far as it goes. What he doesn't mention is that the way the Republican Congress' deregulation of the insurance industry encouraged corporations like Allstate to skimp on protecting its ratepayers' pooled resources in order to invest "more profitably" elsewhere. Is it legal? Yes. Is it right? No. And deregulation makes it easy.
Allstate gambled that a hurricane would not hit Louisiana last year and did not not buy reinsurance, which cost the company $2 billion in claims, said Allstate attorney Edward Collins in testimony before a joint legislative insurance committee Tuesday.
The saying goes: "Follow the money." The insurance industry has spent $252,966,627 to lobby Congress since 1990. Much of it is PAC money and 2/3 of it has gone to Republican party.
Boustany, according to Open Secrets, has accepted nearly $100,000 dollars and counting in contributions from the financial sector effected by deregulation. About 2/3 of that figure was PAC money. It's easy to do the math.
We need to elect representatives that are not in thrall to huge, greedy corporations that do not have our interests at heart. We need a change in the 7th district.