Asymmetrical Information

The next question is how many economic illiterates among the chattering classes will tout it as a brilliant idea.

At least 545.

Even better - how many will claim that State governments have every right in the world to retroactively change the terms of binding contracts? Contracts clause, smontracts clause...

Why stop with the insurance companies? They could go after banks, manufacturing companies, oil companies, pharmaceutical companies, and of course, Halliburton. "But Ernie, but Ernie," you say, "None of these write flood insurance!"

Well, neither did the insurance companies, and besides, they all seem to have lots of money. Remember, "From each according to his ability, to each according to his need." I heard a professor at school say that. I think it's in the Constitution or something.

/moonbat mode off

Scruggs is out of his mind. If the AG takes that case, he will lose. Worse, he will see most of the carriers he sues pull out of Mississippi, or at least threaten to do so unless he backs off. People who cannot get flood insurance are in that position because the risk is so high, no one will underwrite it. Having assumed the risk of living in an area sure to flood at some point, these people have made a very foolish economic decision. Staying on in the face of a hurricane is a recipe for disaster. Whether they sustained loss of life or just loss of all they own, their plight is not one that engenders a whole lot of sympathy. On the sad scale, it is about a 3.

I can't access the linked article. Is the Dickie Scruggs in question the personal injury lawyer and brother-in-law to Trent Lott?

/moonbat mode off

That's funny. We use /bugsoff at my company.

Wouldn't that violate the takings clause of the 5th amendment? (Not that that matters much in the US these days :-P )

Takings...Takings...didn't we used to have a law about that?

Timothy,

Right on - twice! (I know who 535 of the 545 are. Who are the other 10?)

Anony,

The Supreme Court just "amended" the Fifth Amendment. We may need to "re-amend" it to make its clear language clear again to the judiciary.

There is flood insurance available through the federal government. If it is too expensive, maybe that ought to tell you something. Ya think!

Subscribers only.

Can us non-subscribing plebes have a post update that includes a few money quotes?

'mouse: try googling news using the search terms 'scruggs flood insurance'. I found this article:

http://www.post-gazette.com/pg/05251/567907.stm

I don't know if it's the same one, but it looks like it may be. It's in the Philadelphia Post-Gazette, and it credits the WSJ.

It was the industrial spills that caused most of the damage, not the flood.

Aren't the commercial insurance companies responsible for that? There certainly is considerable precedence in the literature.

On a more practical matter, I doubt the insurance companies have the political capital to get out from under this.

Almost everybody in America is heavily invested in the evacuees plight, and even the slightest appearance of using loopholes to get out of paying off promptly will get the insurance company executives prosecuted a la Enron.

More importantly, what chance of survival does an insurance company with a worldwide reputation of not paying off have?

You really think the nationally recognized stock rating organizations aren't keeping an extremely close eye on what happens next? Ratings are undoubtably going to go down anyways. Any further incidents could completely close off capital funds entirely. There isn't an insurance company on the planet that could survive that.

Randy: Prosecuted for what? Not paying off on insurance they didn't sell?

a la enron? You mean they will slap someone on the wrist 6 years from now? Crime pays well, if it didn't there would not be so many involved in FEMA.

What those people need is not flood insurance but flood savings. The insurance companies and/or banks could offer a program where you save a certain amount of money each year, building up a balance which is then used to pay for damages.

It would, in fact, be a form of self insurance managed by an insurance company. Of course, a savvy homeowner could just set up his own investment account and deposit money in it to build up a reserve to use in a disaster. They could even offer a form of insurance that would protect against premature losses (before the account had enough in it). This insurance would actually be insurance as it would pool a bunch of risks, all of which wouldn't come due at the same time as people would have been saving for different times.

Actually, they are cutting out the 'middleman' of big companies.

Congress has already authorized taking it directly from us.

Please bear in mind that all the money government spends on this either will be taken from us in taxes, or through lost purchasing power due to inflation - an especially pernicious tax...

Timothy: At least 545.

Ed Reid: Right on - twice! (I know who 535 of the 545 are. Who are the other 10?)

Maybe the breakdown is (435 + 100) + 9 + 1 ?

How I am I supposed to be able to afford regular insurance for my house after the insurance companies are forced to pay for all those policies that were never bought in the first place???? You don't think they run charities do you? They'll turn right around and jack up my rates to cover it. Risk plus profit over all policies is the formula - and if the risk skyrockets, so does my policy. What in the world are some people thinking?

I suspect the insurance companies will end up paying a lot more than they want to and a lot less than their customers want them to. This is an industry that has zillions of dollars (and pounds and euros) and they can surely use some of that to create influence to keep their contracts from being torn up by the government. The 9/11 style compensation fund sounds like probable.

In the end we'll pay for most of it. (And by "we" I mean "you" because I'm living in England now and my foreign income isn't taxable by the US. But I can't gloat, because I'm paying higher taxes to Queenie than I ever did to Uncle Sam...)

*The 9/11 style compensation fund sounds MORE probable.

ErnieG: " It's in the Philadelphia Post-Gazette"

Nit-Pickity me: It's in the what?

Has anybody ever bought a home in a flood plain? I own a house on the gulf coast. My insurance costs are greater than principal and interest. When, not if, a hurricane blows that house away, maybe I'll be insurable next time around, or maybe not. But, here is the point, you can't get financing on a flood-prone home without flood insurance. If people own property on the gulf coast and don't have flood insurance, it isn't because they didn't know they needed it. If they bought less insurance than they needed, it isn't a loophole for their insurer to say, "Sorry, you didn't buy enough insurance" or "Sorry, you quit paying your premiums." Please, quit enabling poor planning and personal irresponsibility.

Oops. Pittsburgh. I was put off by the Philadelphia dateline on the story I linked to.

*blushes and goes off to open a beer*

"Randy: Prosecuted for what? Not paying off on insurance they didn't sell?"

That's the point, they did sell it. Those commercial companies had insurance against toxic spills, and thats what they have to pay off. The flood alone would not have made the neighborhoods totally unihabitable, it took the toxic wastes to do that. Preliminary reports indicate the chemical containers were not properly secured.

On a slightly more humorous note, About two weeks before Katrina, one of the major vendors of commercial insurance in NOLA, lost a case about avoiding paying off using that exact argument.
http://www.insurancejournal.com/news/southcentral/2005/08/19/58616.htm

THe funny part is they lost it to the Times Picayune, the NOLA newpaper that is probably going to get a Pultzer for it's coverage of Katrina.

I can't wait to see how T-P covers the insurance payoffs during the reconstruction.

Couldn't happen to a more deserving company
http://www.the-catbird-seat.net/Zurich.htm

randyjg2(at)yahoo.com
Will someone please fix that bug in email address verification??!

Even if the State somehow manages to force Insurers to pay out for uncovered flood damage, how will the Insurers convince the reinsurance industry to pony up? I wonder if the Insurance companies will survive. Too much of the money for this sort of disaster is spread out through the re-insurance market. Without their cash, the Primary Insurers would not have the means to pay out even the valid claims. Add Flood claims that the ReInsurers refuse to cover and you start to see folks with valid claims in line with all the other creditors in front of the judge.

There would be no better way for Mississippi to guarantee they would rank 50th in terms of development for years to come than to force insurers to pay for damage that was outside the insurance contract.

What surprises me is that so many people were able to own land without having flood insurance. Either the prices were low enough they could afford to pay cash, the property had been paid in full, or they were defrauding the mortgage company by not insuring the equity on the loan. That would make them wealthy, stupid or crooked in that order. In any case, I don't feel it is my responsibility to take money away from my children's education to pay for it.

Dickie Scruggs, the brother in law of Trent Lott,(R-MS) and attorney who sued big tobacco.

They weren't in a flood plain, thats why no flood insurance. Besides it is up to the insurance companies to prove that it was flood, rather than wind or toxic waste that caused the damage.

Since thats virtually impossible, the courts are required by law to rule in favor of the insured. The insurance companies knew this when they wrote the contracts. They just never expected the next two general elections to ride on the courts decisions.

CNN is broadcasting the start of the fight now. Heres my handicapping of the game.

The courts in the area are notoriously anti insurance. Public opinion is nothing short of a lynch mob at this point, and the courts personel have to live in this area. There is no chance the insurance companies will win any cases.

THere is no chance they can even delay any cases without the media ripping them more than losing the case is worth.

THis is the first time since watergate that reporters have smelled blood with nothing to stop them, I don't think they are going to pass up the chance to play this for all it's worth.

Here is whats going to happen. There is a mix of foreign owned and american insurance companies as major insurers in the area. The foreign owned ones have already pissed off large segments of the American public, including the newspapers in the area, even before the storm.

The American companies will make a deal with the government to let the foreign insurance companies take the brunt of the costs. Hopefully, the foreign companies will withdraw from the insurance market, leaving the American companies a lot stronger. I suspect the first indication of this will be various government officials and relatives purchasing large amounts of American insurance companies stocks.

P.S. if you get the chance, read a Herbert Hoover biography in order to know what comes next.

One final thing. If you wanna know who the big winner in insurance in NOLA is going to be, keep an eye on AFLAC.

AFLAC has only a tiny presence in the area (300 agents). They could easily pay off all their policies for Katrina related damage, then announce that they had paid off all policies in full, no quibbles, in only a few days. The publicity value alone would more than compensate even if they paid off double the policies. (which wouldn't be a bad idea)

You can pretty much bet that any policyholder gettting even the slightest resistance from their insurance company about Katrina would immediately switch to AFLAC.

randyjg2(at)yahoo.com

Comments are Closed.