You know me as The Audit, a mild-mannered, bespectacled, some would say underachieving critic and interpreter of the business press—just another New York metrosexual with a $72 haircut.
I read the business news. It’s what I do.
In fact, though, I lead a double life. Beknownst to my supervisors here at Columbia, I am also the chief underwriter and deputy War Eagle first-class of The Insurance Transparency Project, a shadowy journalistic organization funded indirectly by a dapper globe-trotting Hungarian billionaire/philanthropist, who may or may not be linked to one Victor Navasky, both of whom, in any case, have been known to hold left-leaning views at one time or another.
Actually, yucks, aside, I’m a Katrina Media Fellow for the Soros-funded and chaired Open Society Institute, covering the insurance industry’s response to Hurricane Katrina. As such, I have had the opportunity both to read extensively of the insurance trade and mainstream press and compare it to what I found while reporting from New Orleans and environs, and coastal Mississippi.
Regular business-press readers are probably aware of ongoing disputes between some policyholders and their insurers, particularly State Farm Insurance and Allstate Insurance Co., which together control more than half of the Louisiana and Mississippi homeowners’ markets, along with Nationwide, USAA, and others.
Many of you may be under the impression—because of stories like the one in The Wall Street Journal I’ll mention below, and others in The New York Times and elsewhere that I’ll get to in succeeding posts—that:
1. The insurance industry suffered terrible financial setbacks in 2005—the year of Katrina—the worst annual losses in the recorded history of insurance.
2. Triple-digit premium increases, while regrettable because of the additional burden they represent to struggling homeowners and their job-killing effects on the regional economy, were necessary to offset the risk from future hurricanes.
3. With their solvency at risk, insurers must also curtail coastal coverage, leaving the worst risks to inefficient, bureaucratic state-owned insurers.
4. Policyholders who chose to live near the coast and yet failed to purchase flood insurance from the National Flood Insurance Program are banking on public sympathy, tort lawyers, and demagoguing politicians to force insurers to pay for flood damage explicitly excluded from insurance contracts.
5. Insurance is a particularly risky business.
Audit Readers, all five notions are not only false, but demonstrably so, and while a couple of points are in dispute in some quarters, they shouldn’t be. Despite the fact that each of those assumptions lack support, my friends in the business media repeat them ad nauseam , distorting the insurance debate beyond all recognition.
This is about how arguments are framed in the tug-of-war between industries and the business media. Industries and companies have public-relations strategies, and there’s nothing wrong with that. Insurers, for instance, always say they had a terrible, horrible year, having “suffered” “catastrophic” “losses,” from man-made and natural “disasters” of one kind or another; and when that becomes impossible, as in 2006, when profits were over the moon, they say they will have a terrible year soon.
Why? Don’t most businesses want to talk about how well they’re doing? Yes, but with insurance, it’s better to say you had a bad year because “suffering losses” means you get to do two things: raise premiums and off-load risks, such as covering wind damage, onto the government in the form of state-owned insurance companies known as “wind pools” or FAIR plans. Believe me, Wall Street understands the game and knows not to listen.
Business-press readers don’t generally know this, nor, for that matter, do most business writers and editors. But insurance reporters do, or should.
The point: just because insurers say something doesn’t make it so. The Audit only asks that industry assumptions be examined critically. This goes double for the so-called “wind-water” debate in which insurers, who don’t cover flood damage, assert in thousands of cases that rising water did all the damage while hurricane-force winds did none. Zero. As policyholders ruefully joke, Katrina must then have been history’s first windless hurricane. Spend 15 minutes down there and you realize the assertion is ludicrous.