Letter from Washington: Cat fund reform, floor time for flood and Michigan registration fraud

by Eli Lehrer on October 25, 2011

With October drawing to a close, it appears Florida has, once again, managed to avoid a serious hurricane strike. Since it remains the most hurricane-prone piece of real estate on Earth (or, at least in the Western hemisphere), however, its luck won’t last forever. Eventually, a major hurricane will make landfall in Florida and do billions of dollars in damage.

Even amidst the longest period without a serious hurricane since the 1980s, the state’s insurance environment has not stabilized. The Citizens Property Insurance Corp. continues to grow, the Florida Hurricane Catastrophe Fund still doesn’t have nearly enough money to pay the bills that would come due after a major storm hit and many of the state’s domestic insurance carriers have very unstable finances. Moreover, since Florida’s legislature will have to deal with redistricting during its sixty-day session, many simply believe there’s no strong opportunity to move forward with property insurance reform in 2012.

I think this is wrong. In fact, there are two major things that indicate that 2012 is a good time to change property insurance.

First, Jack Nicholson, the cat fund’s chief operating officer, has a pretty good plan to remake the fund and reduce its liabilities. It’s not perfect and I would prefer something that went further. But it’s still something I think just about everyone, regardless of political leanings, ought to support since it’s simply an admission of fiscal reality. With the right support, it can pass.

Second, low interest rates, along with a sagging economy, mean that a flood of new business would actually lead to more price competition. There’s lots of excess capital both in reinsurers themselves and in the economy as a whole. (The reinsurers per se, because of share buybacks, probably have less capital than they did a year ago.)


Flood insurance reform legislation, which once seemed a sure thing—the House and Senate are closer together than ever before—appears to have stalled in the Senate. I’m bummed out. The real problem here seems to be dysfunctional politics—and Senate rules—rather than anything about the bill.

After a half-dozen conversations among Senate staff from both sides the aisle, it’s clear that there there’s no substantive disagreement on the bill. Just about everyone on both sides agrees that rates should rise, that mapping should improve, and that the National Flood Insurance Program’s finances should be stabilized.  It’s simply a matter of getting floor time, and, for now, Democratic leadership doesn’t seem to want to give that. In part, it’s due to fear that an open amendment process could either take up an inordinate amount of floor time or even cause a “consensus” bill to fail entirely.

As a former Senate staffer, I can understand why Senate Majority Leader Harry Reid, D-Nev., doesn’t want to spend a lot of floor time on the bill and therefore wants almost everything resolved before it comes up for a vote.  There’s also a possibility of passing it without floor debate. More than once, I saw moderately consequential bills passed by universal consensus at the 11th hour as members decided they wanted to have something to bring home to their constituents.

Given that all major points seem to be resolved, however, there doesn’t seem to be any good reason why the bill can’t move forward sooner rather than later and that a little time, at least, can’t be given to floor debate. It’s one of the few significant bills that can pass the House and Senate and be signed into law this Congress. It’s in everyone’s interest to move forward.


I borrowed my parents’ summer house for the weekend and, for whatever reason, I found that they hadn’t added their name to the national do-not-call list. The result: telemarketing calls from three auto insurers trying to sell me new policies.

Michigan has a unique and somewhat dysfunctional automobile insurance system that has no cap whatsoever on personal injury protection benefits, better known as “no fault” medical benefits. Because the state doesn’t unduly limit geographical rating and because its regions differ quite a lot in character and traffic density, rates differ radically. Some online quotes I got showed that rates in Berrien County, Mich., rates were lower than those in the City of Chicago for an auto policy that had a lot more benefits. (Not altogether surprising; rates are almost always lower in rural/semi-rural areas.)  A policy in Detroit, on the other hand, can run more than $5,000 a year; the highest in the country by far.

What interested me was that at least one of the salespeople seemed to know that he was reaching a second home and had a pitch about trying to switch a car’s registration to Michigan to take advantage of plusher benefits with a lower price tag.  I’m not intimately familiar with the laws and company procedures involved with where a car is kept. With a new six-times-per-day train run to the area, someone who worked in Chicago could probably get around without a car in the city and keep one only out here. Still, it seems to me that it can’t be a majority.

All auto policies that I’ve seen are based on state of registration and the place where the car is most often kept at night.  Thus, asking people with second homes to change their registrations seems pretty dubious.

The simple, most likely, and least interesting option, is that the insurance agent was simply violating company policy—and inducing consumers to make false statements—to earn higher commissions for himself. The more interesting option is that Michigan’s auto insurance environment is so dysfunctional that adding some relatively lower-risk polices (relative to Detroit) somehow balances a book of business in the state.

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