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Insurance scam

Posted by Richard on February 20, 2007

I’m no insurance expert, but I know that flood insurance is a special case. Some time back, the feds effectively preempted the field, and if you want flood insurance, you get it at a federally subsidized rate. Because of that situation, no ordinary property insurance policy covers flood-water damage. You’d think people who live in a highly flood-prone area, such as a Gulf Coast state subject to hurricanes, would know this and gratefully avail themselves of the subsidized, low-cost flood insurance, right? And you’d think those who didn’t bother could expect little sympathy from the courts and public officials, right?

Wrong. And wrong again. In Mississippi, the courts and Attorney General Jim Hood have fallen all over themselves with sympathy for the (voluntarily) uninsured victims of Katrina’s flood waters. As a consequence of some jury awards and coerced settlements negotiated with the AG, State Farm has decided the climate in Mississippi is so hostile that they can’t continue offering homeowner insurance in the state. The future risk is too great.

Attorney General Hood objected to this business decision, and he’s proposed a law to force insurance companies who sell auto insurance in the state to also sell homeowner insurance. Dan Melson took umbrage at this anti-capitalist move:

State Farm is not a charitable organization. They are entitled to charge enough to make a profit – otherwise there is no reason to be in business. If they decide they cannot do that within the environment in a given state, they are entitled to decide to leave. If they can’t do it at all, the correct decision is to go out of business.

Add hefty punitive fines for not wanting to pay out claims for things which weren’t insured, and it’s a miracle that anyone is willing to issue homeowner’s insurance in Mississippi. Make them write homeowner’s insurance in order to write automobile insurance, and some insurers might do it – but others will cancel their policies of automobile insurance. Exactly how bad does the state of Mississippi want their insurance situation to get?

Dan’s right, of course. Hood’s populist grandstanding is both immoral and stupid. The state’s deputy insurance commissioner noted that a similar, but less onerous, law in Florida is driving insurers out of the state already, even though it won’t take effect until 2008. Robert Hartwig, chief economist for the Insurance Institute, doesn’t think such a law will have the desired effect:

Automobile insurance isn’t profitable enough to offset losses in the sale of homeowner insurance in a hurricane-vulnerable region so the company may be inclined to stop selling auto policies if they also must sell homeowner policies there, Hartwig said.

"The only losers in this situation are consumers facing fewer options for automobile insurance," Hartwig said.

I’m pleasantly surprised that Republican Governor Haley Barbour, despite an upcoming re-election campaign, resisted the urge to pander or cave and rejected Democrat Jim Hood’s call for an executive order:

"Having considered my statutory and constitutional emergency powers including the statute you cited in your letter, I have no authority to force a private company to sell its products in the State of Mississippi," Barbour responded in a letter to Hood.

After the epidemic of invertebrateness among Republicans recently, that statement — as cautious as it is — is a breath of fresh air. Bravo, Gov. Barbour!

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7 Responses to “Insurance scam”

  1. Nick Kasoff - The Thug Report said

    Scam, indeed. My house, in St. Louis, sits next to a creek, which runs through the middle of our neighborhood. Because of this, my mortgage company forces me to get flood insurance, despite the fact that the creek hasn’t flooded since the house was built in 1946.

    The price of flood insurance is double the price of my homeowner’s policy. This is because FEMA’s flood rating system has much fewer allowances for risk variation than the private insurance market. As a result, my flood rating is the same as the “houses on stilts” erected next to large rivers around here which flood every year. And, for that matter, the same as New Orleans.

    Nick Kasoff – The Thug Report

  2. Anonymous said

    Nick, I knew the feds were subsidizing (and thus encouraging) high-risk behavior. I didn’t realize that their ham-handed methods ended up penalizing people who are, in effect, innocent bystanders. My sympathies.

  3. Donevon Murrell said

    We purchased our house, built in 1976, in 1999. The two previous owners were not required to have flood insurance, but at closing we were caught by surprise when informed our mortgage company was requiring it because we were in “X” rated flood zone. That means we have less than 1% chance of flooding in the 100 year flood plan. We weren’t happy, but $317 a year was do-able so we didn’t argue. In October of 2008 we received a letter from our lender that we were in arrears in our escrow account for our flood insurance. The informed us our escrow payment was going to increase by $200 a month (that’s 260%!!) to cover the “new” flood insurance premimum of $1485 a year. Upon research, we determined FEMA had revised the flood zones (after Katrina, what a surprise), and our property had be redetermined to be in the highest ranking flood zone, “AE”. We didn’t move our property. There has NEVER been a flood in this area. The closest water to us is a tiny creek a couple of miles away with approx. 10′ banks. It’s normally dry, and in the wettest of years in gets a trickle of water in the bottom. I can find no one who can help. FEMA is law. Oh, to add insult to injury, I have polled my neighbors and none of them are required by their mortgage companies to have flood insurance. HELP!!

  4. rgcombs said

    Donevon, it sure sounds like you’re being screwed. I suspect FEMA’s lousy flood rating system, as mentioned by Nick, is to blame. Your mortgage company probably has no choice — the law requires fed-backed lenders to make you get flood insurance.

    Google to the rescue? Blog-City emails me comments. When I viewed your comment in my Gmail account, the context-sensitive ad it displayed was for a company that helps people appeal the FEMA flood zone rating. I can’t vouch for them, of course (and I’m sure there are other firms that do this, so you may want to research and comparison-shop). But check them out — maybe you can get out from under this stupid burden: Dry Land, LLC

  5. Donevon Murrell said

    Thanks. I will check them out & let you know how it turns out. Anything is better than what we’ve found so far. We really appreciate this.

  6. Donna Didonato said

    I live in a duplex next to a creek that dries up in summer. Even after a very rainy summer here in the northeast this creek never filled up with enough water to climb up and over a 20ft incline. MY mortgage co is forcing flood insurance on my half of the duplex which is furthest from the creek. The other side of the duplex has not been forced to do so and I feel I am being scammed. I will certainly inquire to DRY LAND CO in hopes that they can help me.

  7. rgcombs said

    I wish you luck, Donna!

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