Risk and Gaming

State Farm Insurance has pulled outto stop writing new policies in Mississippi…

State Farm Insurance Cos. is suspending sales of any new commercial or
homeowner policies in Mississippi effective Friday, citing in part a
wave of litigation it has faced after Hurricane Katrina, a company
official said Wednesday.

John at Americablog asks…“Wow, is that because State Farm doesn’t like black people, or southern people?”

I don’t think this has anything to do with race nor the South other than the coastal south. This is about insurance companies limiting risks, reacting to lawsuits and perhaps sending a message to state legislatures contemplating insurance reforms.

Insurance companies are limiting risks in coastal areas be it the southern Gulf Coast or the East Coast. Read this LA Times article for more info. And an example of this would be All State Insurance which recently stoppedwriting new policies in New Jersey.

don’t think it a coincidence that State Farm’s decision follows on the
heels of their settlement of a lawsuit brought by policyholders which
also included a deal that the state would drop a civil suitand
end their criminal investigation of State Farm. The state played
a bit of hardball with State Farm and I don’t think they care for that treatment.

present officials in Louisiana have been threatening to institute
insurance reforms such as Florida has done. A dance is ongoing between Gov. Blanco and insurers. She is wooing insurance companies but also using the leverage
of insurance reform. From a meeting today between Blanco and insurance professionals is this

If private insurance continue to underpay claims,
gouge prices and pull out of the market, the state is left with no
choice but to compete with the private sector, she said.

stopped short of calling for reforms as Florida instituted but it seems
she’s holding that threat out there. Of course the insurance companies
have their own err threats dance steps…

Louisiana property owners would be hurt if this state’s legislators
follow the example of those in Florida and approve pro-consumer
insurance reforms, insurance and business officials say. (Go here for more)

will be interesting to see how this plays out. I suspect as long as
insurance companies remain LA officials will do little. They probably
would be hesitant to legislate too many reforms that may give insurers a reason
to leave and there is probably no stomach to take on the risk as
Florida has done. Seems to be a cat and mouse game with the
insurers as the cat though.

At any rate I think State Farm’s decision to pull out of MS was due
to not wanting to assume coastal risk and the lawsuits but I wonder
if there also was a message in there for Louisiana officials.

6 thoughts on “Risk and Gaming

  1. State Farm hasn’t written new policies in Louisiana for years. If they’re trying to send a message to Louisiana officials, they’re going to need to dumb it down a little.

  2. I know State Farm also won’t write new policies in coastal North Carolina-I don’t know for how long, but I’m fairly certain it was before Katrina.

  3. greg…well they are an insurer in the state according to this from TP not long ago…
    –State Farm, the state’s second largest commercial insurer with about 12.6 percent of the market, said that it was not at liberty to talk about future sales or marketing plans, because to do so would get into proprietary information.
    State Farm’s Louisiana market area specialist, Morris Anderson, said the company is “closely watching” the amount of business that it writes, and that business has likely been written “with some restrictions.”

  4. This is a common problem with a simple solution. If a company chooses not to sell one line of insurance in a state, they forfeit the right to sell ANY insurance in that state. With a few reciprocal agreements between states, you’ll find the insurers accepting the risks they’ve underwritten elsewhere.
    If you want to want to limit the limitations, then tie life insurance sales to property or auto insurance. We had this problem in Kansas with State Farm and tornado damage. I don’t remember if it was Kathleen that took them to task, but they quietly rescinded their announcements and continued selling policies and covering risks.
    Insurance is a risk business and sometimes you’ll take a hit. But if they want to get in a business with guaranteed profits, I’d recommend that State Farm make a bid for one of the oil companies.

  5. Flood insurance, like hurricane insurance, is not like other insurance. An insurance company that sells a homeowners policy risks a big payout one at a time, for each house. But, flood insurance is almost an all or nothing business. Either no claims are filed, or every policy holder files a big claim all at the same time. I don’t think any commercial insurance company can survive selling that type of insurance. And, in fact, flood insurance is financed by the federal government, knowing that. Those of us who buy flood insurance are really just doing our civic duty to join into the pool of buyers so that when a flood does occur there is money available to help those who suffer losses. If Sacramento, for example, were to experience a worst case flood, no insurance company in the world could avoid bankruptcy if they had to pay the claims – it is FEMA that actually pays them.

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