The Audit explains: Hartwig believes the appropriate measure is compounded annual growth. Bloomberg took the percentage increase from one year to the next and averaged them all. This emphasizes the large jumps industry profits took from one year to the next.
Bloomberg’s method is unusual, but allowable. It’s certainly not a factual error.
Alleged error: Hartwig says Bloomberg “incorrectly insinuates that states have no prosecutorial power” over insurers.
The Audit explains: What Bloomberg said was that state insurance departments have no prosecutorial powers and that prior to Katrina no state or federal prosecutor had started a criminal investigation of insurer claims handling. The first statement is categorically true, and Hartwig’s letter offers no refutation of the second.
Alleged error: Bloomberg says insurers spent $98 million on lobbying. Hartwig says that figure is an exaggeration because it includes life and health insurers when the story dealt with property/casualty insurers.
The Audit explains: I think this one speaks for itself. Bloomberg never said otherwise. It’s not an error.
Alleged error: Bloomberg said the federal flood program “helped the industry increase profits by 25 percent in 2005, the year of Katrina.” Hartwig says the finances of private insurers are “entirely independent” of the flood program and that what the flood program did or didn’t do could not have an impact on insurers’ profits.
The Audit explains: While Hartwig is right that the industry’s and the government’s books are separate, private insurers are actually intimately involved in the flood program. Private insurers adjust federal flood claims for the government and were charged with the task of assigning the cause of Katrina damage to either wind (meaning insurers paid) or flood (meaning the government paid). Litigation and congressional testimony supports Bloomberg’s assertion that insurers on at least some occasions attributed losses caused by wind to flood damage, and thus avoided payment at the government’s expense.
Bloomberg’s phrasing was clumsy, however, in that it could lead to the conclusion that the flood program helped boost insurer profits by 25 percent when the sentence merely meant that profits grew 25 percent and the flood program helped. It is beyond question that this is true.
Audit’s bottom line: Bloomberg could have saved itself some headaches by using figures that were less tendentious: if it said insurers paid out 65 percent, instead of 55 percent, is that something insurers should be proud of? Should Bloomberg have said profits increased “six fold,” rather than an average of 46 percent a year in a given period?
It could have but didn’t have to.
Another point: facts are important, but arguments over the number of angels dancing on the head of a pin can serve as an unhelpful distraction from the need to address what are obviously real problems.
Bloomberg’s story had a point of view: that the insurance claims system is broken to the point that underpayment is now routine, indeed systemic. It used facts to support its point.
To me, that’s a strength. But, of course, that’s just my opinion.
I'm surprised you gave Bloomberg a pass on averaging multi-year growth rates, rather than compounding them, calling it unusual but allowable. Averages have their place, but they should never be allowed in interpreting a sequential time series, as happened here. If a company tried to talk about average growth over the years the way Bloomberg did, I'd hope the SEC would fine them for misleading investors. That's the type of misuse of statistics that Mark Twain complained about.
Posted by KLH
on Wed 9 Jul 2008 at 02:55 PM
I am disappointed to see that the point-by-point rebuttal by Mr. Hartwig and my own critique failed to convince Mr. Starkman about the article's shortcomings. We'll just have to agree to disagree.
Frankly, I just chalk this up to more of the same--the fact that the bulk of those in the media covering insurance (as well as those assessing the performance of reporters doing insurance stories), just don't understand how the business works, let alone appreciate how much it means to society and the economy.
Mr. Starkman raises the issue himself in his post.
He says that insurance is a "backwater in the mainstream business press," which is absolutely right, although I would dispute his conclusion that because of this, "its actors are thus unused to serious, arms-length scrutiny."
In fact, all the industry ever gets is negative press. Part of the problem is poor public relations by the industry. (Perhaps the Insurance Information Institute, beyond their useful annual "Fact Book," should offer at least an online introductory seminar for journalists covering the industry.)
But it's also the old "man bites dog" problem--no one thinks an insurance story is news if billions in claims are paid and lives, homes and businesses are rebuilt; they only send reporters when there is a dispute of some sort.
The result is that insurance news--good and bad--is under-reported or blatantly misreported. And when reporters are assigned stories, too many don't know what they are talking about, or falsely assume that all insurers, as well as their adjusters and agents, are crooked.
As for the Bloomberg letter of complaint to the Deadline Club, a couple of points.
"Bloomberg News" Editor In Chief Matthew Winkler characterized me in his letter as "a frequent defender of the insurance industry," as well as someone who "regularly appears as a speaker at industry functions..."
I knew Bloomberg and company would dismiss me as some industry shill. But as my loyal readers know--especially many of those in the industry having felt the sting of my pointed barbs--that's a bunch of hooey!
Indeed, any regular reader of my blog or NU column would probably be more likely to characterize me as "a frequent critic of the industry."
To refresh your memory, just check out my harangues against the mega-brokers after the contingency fee abuse and bid-rigging scandal, the book-cooking by AIG using bogus finite reinsurance purchases, and, yes, the industry's often poor handling of Hurricane Katrina claims. And don't get me started about the horrors of the health insurance industry.
In addition, Bloomberg might be unaware that a substantial part of the "National Underwriter" readership (15,000 subscribers) are in fact consumers--corporate insurance buyers including risk managers, CFOs and others who assess exposures and, in some cases, purchase insurance to cover them.
If this consumer audience ever believed that me or my magazine were shameless apologists for the insurance industry, they would send us packing.
Instead, we've grown tremendously among the buyer crowd in terms of name recognition, respect and influence.
As for the fact that I "regularly appear as a speaker at industry functions," I am guilty as charged.
But, frankly, who else would have me speak? As a business journalist covering the insurance industry full time, I cannot imagine a paint manufacturing conference asking me to talk about trends in their field.
Is Bloomberg suggesting I am bought and paid for by speaking fees?
Perhaps, but the fact is I have never been paid to speak to any group I've addressed. (I was offered a paid gig recently, but turned it down.)
I do speaking engagements to raise NU's profile and build on my reputation as an opinion leader, not to pad my bank account or solicit kickbacks from the industry I cover.
However, Bloomberg's letter did make one point that gave me pause: "Friedman never took the basic journalistic step of asking Bloomberg to comment on the 'Insurance Hoax' before he condemned it as a 'hatchet job' in his online column."
If I was working on a news story, I would absolutely agree--that's not fair. But in an opinion piece in an online blog, the journalistic ethic is murkier.
Still, it could not have hurt to seek out Bloomberg's opinion at the time. I was just so taken aback by the overwhelmingly one-sided attitude permeating the piece, as well as the way they presented their statistical "facts" and failed to distinguish the nuances within this vast industry, that I rendered my verdict based on the article as it stood--as any of their readers would.
Of course, Bloomberg's people and anyone else are welcome to respond to anything I say, right on my blog at www.property-casualty.com. That's what the comment section at is for.
Bottom line, I'm sorry Mr. Starkman didn't see the Bloomberg piece my way.
In my expert opinion, the Bloomberg article simply did not capture the "truth" behind this story.
A few bad actors does not an industry make, whether the field is insurance or journalism.
Posted by Sam Friedman
on Thu 17 Jul 2008 at 12:51 PM