Sunday, December 03, 2006

Travelers Abandons New Orleans (Is It Time to Trust-Bust?)

Travelers has apparently decided to take the money and run, at a time when their policyholders need them most. This move by Travelers, Louisiana’s largest commercial insurance provider, could severely hamper already stalled rebuilding efforts, hitting New Orleans while it's already down.

The lede from the Times-Picayune:

St. Paul Travelers Cos. Inc., Louisiana's largest commercial insurance provider, plans to cancel all its commercial property policies in the New Orleans area next year, sparking fears that other insurers will follow and slow the region's economic recovery.

While the St. Paul, Minn., company refused to say how many commercial policies will be affected or specify where the cuts will be in South Louisiana, two insurance brokers who were briefed by the company this week say Travelers will not renew any property insurance for businesses in Orleans, Jefferson, Plaquemines, St. Bernard and eastern St. Tammany parishes. Cuts will also affect individual businesses in other parts of South Louisiana, including St. Charles and St. John the Baptist parishes.

"I said, 'May I tell anybody who asks that Travelers is withdrawing from the commercial property insurance market in southeast Louisiana?' " said Anderson Baker, president of the New Orleans agency Gillis, Ellis & Baker, who met with the company Wednesday. "The answer was, 'Yes.' "
As scout prime explained at First Draft, “The importance of this can not be overstated. If there is no insurance there is no rebuilding. George Bush can claim the levees are hunky dory but NOLA residents do not have faith in them and now we see neither does the insurance industry."

Will the rest of the insurance industry abandon an American city? What will the federal, state and local government do?

The insurance industry is a monopolistic trust, with fifty different state markets and state regulators. It is an anti-competitive nineteenth-century relic, with businesses allowed to share information, strategy, pricing and policy language in ways that would be illegal for almost any other type of business. There is no real reason that insurers should be permitted exceptions to the anti-trust laws if they are simply going to hold cities (New Orleans), states (Florida) and entire regions hostage whenever the very events that justify their existence (disasters) occur. An insurance company should not be allowed to simply insure low-risk states and abandon those with higher risks. The very purpose of insurance is to spread the risks around a large market, not skim the easiest profits off the top.

Perhaps it's time for some good old fashioned trust-busting, for the federal government to destroy the insurance monopoly and begin regulating the market to protect against an industry willing to abandon entire states.


Anonymous FERGUS O'ROURKE said...

Luke, I am interested to learn that the U.S. insurance industry is exempt from the anti-trust laws. Can you refer me to a source on that ?

You might be interested to know that the Irish courts rejected the idea that the industry was a cartel in case called Carna Foods about 10 years ago. If you need the full citation, I will supply it.

As to your more general point, I must say that I find it difficult to understand why a profit-seeking company should be expected to insure places like New Orleans.

10:17 AM, December 04, 2006  
Blogger Luke said...


Here's a quote from

"The McCarran-Ferguson Act Adopted by Congress in 1945, the McCarran-Ferguson Act (cited as 15 USC 1011, et seq.) clarifies the power of individual States to regulate insurance and limits the application of many federal statutes to that industry. Section 1012(b) of the Act states that the Sherman, Clayton, and Federal Trade Commission Acts are only 'applicable to the business of insurance to the extent that such business is not regulated by State Law.' However, Sec. 1013(b) continues the applicability of the Sherman Act 'to any agreement to boycott, coerce, or intimidate, or act of boycott, coercion, or intimidation.'"

A profit-seeking company should be expected to insure places like New Orleans, and Florida, and California, and any other coastal region, because it can pool high risks there with lower risks elsewhere, and still turn an enormous profit. See here:

The industry is forecast to earn a $60 billion profit for 2006; it has plenty of incentive to continue its business, even if forced to insure the New Orleans, Florida, California and the rest of the coasts as a cost of continuing to do business.

10:32 AM, December 04, 2006  
Anonymous Fergus O'Rourke said...

Luke, thanks for that.

FWIW, I was not impressed by the Carna Foods decision; I tend to your apparent view that the industry operates as a unit, here as elsewhere.

I risk being inaccurately perceived as an advocate for the insurance industry, but I really do not see that high profits elsewhere create any obligation to insure what are not really insurable risks, but seem to more closely resemble certainties.

5:10 PM, December 04, 2006  

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