Insurance Claims And Issues

Rescission of Health Insurance Policies in California.

     Rescission is a word used to describe cancellation in California.  In the law, including apparently in California, "rescission" is a claim or cause of action available to Insurance Companies.  Rescission is only available when persons applying for Insurance make a material misstatement in the application.  A material misstatement, in turn, in basic terms is one which induces the Insurance Company to issue a policy which it would not have issued, or to issue a Policy without a particular Exclusion which it would have included, or to charge a lower Premium than it would have charged, had it known the truth.  Rescission is usually regulated by Statute.

     In California, one Statute has recently been enacted that addresses the availability of rescission in the area of Health Insurance.  Effective January 1, 2008, "health plans" are required to pay medical care providers -- such as doctors and hospitals -- in advance.   This means that Health Insurance Companies in California which authorize treatment must pay the providers even if the Policyholder's-patient's Health Insurance Policy is rescinded later on.

     A second California Statute is on the way, apparently.  On Tuesday, January 29, 2008 the California Assembly unanimously approved an "anti-quota bill".  It now goes to the California Senate for consideration.  The new bill reportedly "would expand the scope of an existing state law forbidding insurance companies from tying any compensation for claims reviewers to their claims decisions."  The California bill reportedly targets "bonuses or incentive pay to any employees based on their decisions to cancel people's policies."   See Lisa Girion, "State Steps Up Scrutiny of Insurers" (Los Angeles Times Online, Wed., Jan. 30, 2008).

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"It's NOT the Subprime Collapse, Silly!": Allstate Reports 4Q Results.

     Allstate reports that in the Fourth Quarter of 2007, "unrealized losses from mortgage and asset-backed securities" cost it $502 Million or $502,000,000.00.  Allstate had to "write down" $82 Million on those investments.  To "write down" means to mark as worthless, in plain terms.

     Allstate also reported Catastrophe Claims totaling $472 Million or $472,000,000.00 in its 4Q in 2007.  The company reported $318,000,000.00 of that amount as due to wildfires in California in 2007.

     Allstate's net income for the 4Q fell 37.3%.  Allstate attributed its smaller income to Catastrophe Claims.  Not to its poor investment decisions.  Expect Premium Rate Increases in 2008.  Here is a Reuters Report on January 29, 2008 .  It mentions the figures posted here and attributes Allstate's lost income to Catastrophe Claims, too.  Here is  an Associated Press Report on January 30, 2008, the title of which is "Allstate Profit Drops 37% on Storm Losses".  This Associated Press report does not mention Allstate's poor investment decisions, only Allstate's reported Catastrophe losses.

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Condominiums Windstorm Self Insurance.

    In a little-noticed Insurance development in 2007, the Florida Legislature wrote laws that began to allow condominium associations and others to form self-insurance trusts.  In basic terms, participants in the new trusts pool their resources to provide a fund for the payment of certain damage claims.  The Legislature acted in response to the extreme upward spiral of Premiums for Homeowner's and other Property Insurance, and the total cancellation or nonrenewal of many of those kinds of Insurance Policies in Florida.

     On January 18, 2008, the Palm Beach Windstorm Self Insurance Trust issued its first windstorm policies.  The policies are reportedly the first windstorm policies of this kind ever to see the sun in Florida.

    The Palm Beach Windstorm Self Insurance Trust is a group of 58 condominiums and cooperative associations in Palm Beach County, Florida.  The results of its experiment with Self-Insurance Windstorm Insurance Policies will be watched closely, not only in Florida but across the United States wherever Catastrophes may occur, meaning just about everywhere.  See "Palm Beach County Condo Group Self-Insures" (South Florida Sun-Sentinel.com, Saturday, January 19, 2008).

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The Role of Insurance Costs in Rebuilding New Orleans.

    Leslie Eaton is a New York Times newspaper reporter who has covered the Gulf Coast after Hurricanes Katrina and Rita with insight.  She has turned what can be confusing statistics into useful analyses more than once.  Here is another informative report, as of Sunday, January 27, 2008 by Leslie Eaton, "So Many Places to Live, But So Far Out of Reach/New Orleans Faces a Housing Challenge" p. 15, col. 1 (New York Times Sunday Nat'l Ed., January 27, 2008).   

    The price of houses in New Orleans is reportedly slowed by the cost of Insurance, among other things.

    The State of Louisiana's "Road Home" program is also explained in the linked article.  Many homeowners in Louisiana have decided not to rebuild their houses since Hurricanes Katrina and Rita struck in 2005.  The State of Louisiana buys such houses and turns them over to the local government, such as the City of New Orleans.    The properties will be redeveloped or resold by the local government.  By at least one reported estimate, there are up to 20,000 "derelict" buildings in the City of New Orleans alone.

    The New Orleans Redevelopment Authority is the arm of the City of New Orleans that will redevelop or resell these derelict buildings in the city.    This government operation has had the responsibility "to deal with blighted properties" since long before the 2005 Hurricanes were given names.  Its results have been adjudged failures pretty consistently, it is fair to say from reading this news article.

     On a separate note from ownership, renting was the main means of occupation of homes in New Orleans before Katrina and Rita.  "Much of that housing was destroyed; many remaining properties need expensive repairs.  Construction and insurance costs have soared ...."

    At the current rate at which housing is being built or rebuilt, it is unlikely that there will be a New Orleans anytime soon that looks like New Orleans looked before August of 2005, if New Orleans ever looks like that again.

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Mississippi Hot Air Recycled by HUD Late on a Friday Afternoon.

Remembering that Insurance Companies have declined to pay many Homeowner's and other Property Insurance Claims resulting from Hurricanes along the Gulf Coast, and that Courts in some decisions have ruled in favor of some of the Insurance Companies' positions, these developments in Mississippi are of interest:

• Congress authorized $5,500,000,000.00 or $5.5 Billion in "hurricane recovery grants" on the condition that 50% should be spent for the benefit of low-income families hurt by the 2005 Hurricanes, Katrina and Rita.
• The State officials in charge of spending these Federal Taxpayer Funds in Mississippi have spent less than 25% of it to benefit low-income families hurt by the 2005 Hurricanes.
• Within that amount of spending, the State officials have debited an account for future spending on the poor of $100,000,000.00 -- taking it from another account which is also set up for future spending on the poor.  The officials issued a press release that moving these funds around means that they have "added" $100,000,000.00 worth of assistance for the poor who were caught in the wake of Katrina 3 years ago.  The newspapers published that as the lead or the headline in their "news reports" about this "development".
• Taking a page from the book of the people currently in charge of the Federal Government, the State officials in Mississippi insist that they need more money, much more money, from the Federal Tax trough.  The Mississippi officials want to build a new port, which will add jobs but those new (and temporary) jobs will not go to low-income people in significant numbers if past history repeats.   The State officials who have been gifted with Federal Taxpayer Hurricane Relief Funds are just not inclined to spend those funds on Hurricane Relief or to rebuild the port wrecked by the Hurricanes, as previously posted here.  The latest developments are reported by Leslie Eaton, "Mississippi to Use Some Hurricane Aid For Housing Program" p.A13, col. 3 (New York Times Nat'l Ed., Thursday, January 24, 2008).   

Bond Insurers, Balloons About Mortgages, Bailed Out?

    By any measurement the people who ran Bond Insurance Companies did a dumb thing.  For as long as they kept to what they knew, which is Insurance for municipal bonds, they received large profits and faced little risk.  Apparently they got bored.  Greed whispered to them in the night, sometimes in the day.  They could not rest content as they were.  They were forced, forced, to stray.

    They did not stick with what they knew.  They ventured into ventures of which they did not know.  Clearly they did not know.  Look at the results of their deeds.  Several Bond Insurance Companies lie in ruins according to the companies that rate their credit.

    Still, some of the persons that ran the Bond Insurance Companies deny the results of their actions.  There are such persons, still, who say that the credit agencies are cruel and filled with overweaning emotion that causes the credit agencies to mistakenly remove "AAA" from the credit ratings of Bond Insurers, and rate them "AA" or even "CCC" (junk) instead.

    The results should be the proof.  If the Bond Insurance Companies continue to tank, their credit ratings naturally should tank with them.  Their credit ratings should not be badly affected if their excusers are to be believed, and if it is true as they say that even though Bond Insurers wandered afield into subprime mortgages and CDOs, because, they say, Bond Insurance Companies do not face major financial difficulties since they pay on claims as they go, so to speak, and not all at once.

    Why, then, is there a move afoot by the New York State Superintendent of Insurance to cajole or plead with  banks and other financial institutions to  intervene and bail out the Bond Insurers?  See Vikas Bajaj & Jenny Anderson, "Next on the Worry List:  Shaky Insurers of Bonds" p. A1, col. 2 (New York Times Nat'l Ed., Thursday, January 24, 2008).

    If individual persons receive no protection who default on mortgages that were oversold to them in the first place, why is any protection contemplated for the comfort of persons who claimed they knew better then, caused a crisis, and claim now that they still know best?  This is what the New York State Superintendent of Insurance reportedly contemplates nonetheless.  It is reported that he is attempting to group together funds amounting to about $15 Billion for this purpose.    See Erik Holm and Jesse Westbrook, "N.Y. Regulator Pushes Banks to Rescue Bond Insurers (Update 3)" (Bloomberg.com, Thursday, January 24, 2008).

    Finally, any bailout of the undeserving who caused the problem that led to the bailout will take a little time to put together.  See Erik Holm, "New York Says Aid for Bond Insurers Will Take Time (Update 1)" (Bloomberg.com, Thursday, January 24, 2008).

    In the meantime, what bailout is contemplated by government officials for the homeless?  Or for the local governments who paid good Taxpayer money for the Premiums that the Bond Insurance Companies have spent on other things in other areas far from where Bonds do dwell?

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Allstate Provides some Documents to Florida.

            Slow Drip, Drip, Drip of Documents Planned While Appeal is Decided.

     The so-called McKinsey Report on insurance behavior in handling claims and increasing profits was among many, many documents subpoenaed by the State of Florida from Allstate.  History helps to understand.  See previous posts here as well as the brief summary below.

     With at least 60 days to respond to subpoenas served on it by the Florida Office of Insurance Regulation, Allstate on January 15 announced its decision not to provide documents.  Instead, Allstate filed 51 pages of objections that day.

     On January 16, the OIR suspended Allstate's certificate to do business by issuing any new Automobile Insurance Policies until it complied with the OIR subpoena.  On January 17, the OIR apparently entered a further order suspending Allstate's certificate for all new Insurance Premium business of any kind in Florida until Allstate complied with the supoenas.  That meant that Allstate could not collect new Premium money while its certificate was suspended.

     Allstate appealed this decision on January 17.

     On January 18, a Florida appellate court stayed the OIR order until the appeal was done.

    The latest development for now occurred on January 23, 2008.  It is now reported that one of Allstate's 51 pages of objections was that the McKinsey Report addressed  how to maximize profits for Allstate from handling Automobile Insurance claims rather than any other kinds of claims for losses such as Homeowner's and other Property Insurance claims.

    On Wednesday, January 23, 2008, Allstate produced some documents in response to the Florida subpoena even as Allstate pursues its appeal.  Allstate's limited production includes the seeming distraction of the McKinsey Report.  According to the news article, Allstate apparently plans to produce more documents in phases as it hopes for a favorable ruling on appeal.  See Anika Myers Palm, "Allstate Provides Documents to State" p. C1, col. 5 (Orlando Sentinel Central Florida Business Section, Thursday, January 24, 2008).  To be fair, the headline on this newspaper report should read, of course, "Allstate Provides Some Documents to State".

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Bond Insurance Companies Blew It.

"They lost their way out of greed."  Joshua Rosner, quoted on Bloomberg.com, Tuesday, January 22, 2008.

     The sad story of many Bond Insurance Companies overreaching their limits is capsulized in these few sentences:

By chasing the higher profits of CDOs while underestimating the risks, the bond insurers jeopardized their basic business: insuring municipalities against default. In practice, cities and states rarely default. That's because they can raise taxes to meet obligations or refinance their debts. The designers of CDOs don't have those options.

See the rest of this excellent news report by Christine Richard, "Ambac, MBIA Lust for CDO Returns Undercut AAA Success (Update 2)" (Bloomberg.com, Tuesday, January 22, 2008).

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QBE Insurance Group "Protects" Itself With "Derivatives Hedges".

    The good news to add to the headline of this post is that QBE reports that its major financial portfolio does not include "direct investments" in subprime mortgage schemes or CDO's in the United States.

    The bad news is -- besides as the above headline indicates, that QBE actually states that it is "'substantially protected through derivatives hedges'" --  that QBE in addition admits that it has "indirect investments" in those downgraded securities in the United States because it has investments in banks.  QBE refuses to elaborate, it is reported by Brett Miller, "QBE Says Its A$1.7 Billion of Equities Are Hedged (Update 2)" (Bloomberg.com, Wed., January 23, 2008).

    QBE Insurance Group Ltd. is Australia's largest Property and Casualty Insurance Company.

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Number 3 Auto Insurer Reports Progressively Plunging Profits, Premium Income.

     Progressive Corporation, the number 3 Auto Insurance Company in the United States behind State Farm and Allstate, reports that its 4Q profit in 2007 fell 41%.  Its share price has fallen 21% in a year.  It is the first of the 10 largest Insurance Companies in the U.S. to report Fourth Quarter 2007 performance.

     While Progressive is eliminating jobs and restructuring its internal organization to save money, Progressive is also spending money.  On the one hand, it terminated 341 employees in November and combined two units into one unit to sell Auto Insurance.  On the other hand, Progressive spent $8,200,000.00 or $8.2 Million on making its November job terminations and it just announced that for the next 16 years it will pay a total of $58,000,000.00 or $58 Million for the 'naming rights' to the baseball stadium where the current Cleveland Indians play baseball.

     These announcements and more are reported by Erik Holm, "Progressive Profit Falls 41% on Lower Premium Revenue (Update 3)" (Bloomberg.com, Wed., Jan. 16, 2008).

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