Down in Florida, State Farm has exited its coastal hurricane-insurance business, saying it couldn’t afford it anymore.
But thanks to an investigation by Paige St. John and the Sarasota Herald-Tribune we now know that State Farm is still in the hurricane-insurance business in Florida and its machinations are making it lots of money (emphasis mine):
A Herald-Tribune investigation finds Florida’s largest insurer has instead found an easier way to profit from homeowners desperate for coverage. And the desperation State Farm helped create allows it to command some of the highest rates in the world.
The conduit for this back-door insurance is DaVinci Reinsurance Ltd., an offshore company with no physical office or employees of its own that sells policies to insurers to cover their storm losses….
Through DaVinci, State Farm quietly continues to collect money from thousands of former customers who were told their homes were too risky to insure.
Why would State Farm beg off the riskiest parts of the hurricane-insurance business in Florida while secretly funding re-insurance of the same via Bermuda? St. John reports:
In Florida, the insurance rates State Farm can charge are regulated by the government. Profits are controlled and taxed. The potential loss from a major hurricane is measured in billions of dollars.
DaVinci’s premiums, on the other hand, are as high as the market will bear. Based in Bermuda, it avoids U.S. taxes and faces no limit on profits. If a hurricane strikes, State Farm would lose no more than its investment in DaVinci — $350 million at the end of last year.
The fact that it create a vacuum in the insurance industry in Florida allows State Farm, through DaVinci, to charge staggering rates:
Northern Capital paid DaVinci as much as 40 cents for every $1 in protection it received, akin to paying $80,000 a year to insure a $200,000 home.
A risk assessment done for state regulators shows Northern Capital’s coverage from DaVinci had a technical value — the average annual expected hurricane loss — of no more than 4 cents per $1 insured.
But it’s worth noting that The New York Times warned about this exact thing in an excellent story four years ago. Many of the same players are still involved: The Journal quotes three of the same doctors that the NYT did back in 2006.
We’re critics of one-and-done, the idea that just because a story’s been written before doesn’t mean you can’t do it. We’d rather have the drumbeat. And this shows how you do that—even if the drumbeats were four years apart.
The Times warned about the implications of the profit motive four years ago, but didn’t have the data. The Journal follows up in 2010 and confirms that it was correct to warn about it.
It’s good work by both.
— Lost in most coverage of the Obama-GOP tax deal is what happens to the 99ers—those unemployed folks who’ve exhausted all the benefit extensions after 99 weeks. Nada. They’re out of luck.
The other day my electricity went out and I went to the coffee shop to work. There I sat next to two 60-year-old guys talking about their job searches. One had hit 99 weeks two months earlier. The other had a few weeks left.
Meantime, the unemployment sits right under 10 percent. Underemployment is at 17 percent. There are five applicants for every one job opening. It’s a crisis. Good luck to those guys and everybody else.
If I were king, I’d extend the 99ers’ benefits and put them to work cleaning up parks, teaching kids to read, painting commercial roofs white, etc.
You could put a million people to work for $25,000 a year at a cost of $25 billion and keep folks out of homeless shelters and the like, stimulate the economy at the most-minimal cost possible, and give the public something visible for its money.
But what do I know?