[StBernard] Insurance industry greed strangling recovery

[Westley Annis]

Wednesday, November 15, 2006 
 
James O'Byrne
 
To keep everyone focused on the most important issue facing his candidate,
campaign guru James Carville once posted on the war room of Bill Clinton's
first presidential campaign the phrase, "It's the economy, stupid." 
If Louisiana were to come up with similar pointed advice about the biggest
issue threatening to kill the coastal region's chances for recovery, it
would be: "It's the insurance, stupid." 
 
In my own efforts to return to my beloved city and become a homeowner once
again, I have come squarely up against the enemy. Forget about the 30 or 40
or 50 percent increases you've been reading about. The reality is far darker
 
Before Katrina, homeowners insurance at my home in Lakeview was $2,000 a
year. Recently, I signed a contract to buy a new home in the much higher and
drier University section of the city. Homeowner's insurance on that home
will cost me $5,300 next year. 
 
And now we discover that I could face a 58 percent increase on top of that.
So according to the state, by 2008, I could be paying $8,374 a year for
homeowner's insurance, $6,374 more than I was paying in 2005. 
 
It is clear now that my decision to return from renting in the suburbs to
buy a house in Orleans Parish is a gamble not because of hurricanes, but
because of the insurance industry. 
 
My Lakeview home was a total loss after Katrina, but the flood insurance
settlement came from the federal government. My own insurance company paid
me not one cent after taking into account the 5 percent "hurricane
deductible" the industry imposed several years ago. 
 
I was insured with Travelers Insurance for 15 years and never filed a claim.
Today, Travelers, like every other insurance company in America, won't sell
a new policy to me, or anyone else in the New Orleans area. 
 
But my new lot sits 13 feet higher than my Lakeview lot. It's a classic
raised New Orleans home, with a half-finished basement. The main living
space is 7 feet above the greatest urban flood in history. The basement had
minor flooding, 12 inches of water during Katrina. Cost to the insurance
company: zero. 
 
And still, no insurance company will touch it, so I have to turn to the
state plan for insurance of last resort. 
 
This is rapacious and indefensible, and someone in our government has to
address it. Otherwise, the prohibitive cost of insurance will stifle our
recovery and kill our economy. 
 
Insurance is more than just another commodity. It is essential to the
economy of any community. Access to affordable insurance is necessary to
start or expand a business or buy a home. Banks won't lend money without it.

 
But what about all those record claims the insurance industry had to pay out
in 2005? Here's the unbelievable part: In 2005, the insurance industry
overall recorded profits of $44.8 billion and increased total reserves to
$427 billion -- after claims were paid out for Katrina. 
 
This was an all-time record profit for the industry, their best year ever.
But after those numbers were reported, several industry leaders said 2005
was a fluke. 
 
Then comes this word from The New York Times last month that insurance
companies are expecting record profits again in 2006. This time, it's going
to be hard to stop the partying. According to industry executives and
analysts cited in The Times article, 2006 profits will far exceed last
year's and may surpass $60 billion. 
 
How is this possible? Despite efforts by insurance industry executives to
cloud the issue, the reasons are really quite simple, and stunningly
cold-blooded. 
 
Over the past several years, the insurance industry has done a brilliant job
transferring risk from the companies to the policyholders; by drastically
raising premiums, increasing hurricane deductibles and dropping hundreds of
thousands of policyholders outright. 
 
They have been ruthless at doing what they do best: increase profits. Call
them the Pirates of the Gulf Coast. 
 
The government has allocated billions of dollars to improve flood protection
along the Gulf Coast. But it's worth asking, what good is it to spend
billions of dollars improving flood protection for New Orleans if the
insurance industry is going to pretend like the flood protection isn't
there? 
 
The industry collected premiums from Louisiana policy holders for decades,
and now wants to abandon much of the state and take its record profits
elsewhere. I am not an expert on insurance reform. But I do know wrong when
I see it, and this situation is simply wrong. 
 
Regulators so far seem willing to let the multibillion-dollar insurance
industry be the instrument of our demise. But If New Orleans and southeast
Louisiana are to have any hope of recovery from Hurricane Katrina, insurance
rates have to be brought back into the realm of the sane. Otherwise, how in
the world will we ever bring our citizens home? 
 
So when someone asks you what's the biggest obstacle to our recovery,
remember the answer: It's the insurance, stupid. 
. . . . . . . 
James O'Byrne is Features editor. He can be reached at
jobyrne at timespicayune.com or at (504) 826-3314.