Devilish Insurance Hikes

"The devil made me do it."

Flip Wilson's character, Geraldine, always had the same lame excuse for her hair-brained excesses. "The devil made me do it," she would cry.

As the audience knew, however, the devil lay in the details; and those details inevitably showed that Geraldine, herself, was responsible. Blaming it on someone else was just a laughable distraction.

Geraldine popped into our thoughts last week as we were reading "State Farm Wants More" by Paige St. John and Scott Blake in the Gannett paper Florida Today. In May, State Farm Insurance Co. of Florida asked regulators to approve a 79 percent increase in annual property insurance premiums for homeowners. Now, it has announced it will be upping the request even more, claiming "its costs have risen significantly since the original request was made... ."

Nationwide Insurance Company of Florida, with its home address in Columbus, Ohio, is following the very same template as it seeks comparably higher premiums. To be sure, Nationwide claims it "has paid more than $1 billion in claims in Florida since 2004." But in the same period it also recorded record-high profits.

As St. John and Blake remind us, "[T]he Florida subsidiary's parent company, reported profits of $612 million last year, up 15 percent from 2004."

The claims of these insurance companies that reinsurance rate hikes require even higher hikes in Florida homeowner insurance are almost as silly as Geraldine blaming the devil. As St. John and Blake point out --

Both State Farm and Nationwide attempt to protect themselves from hurricane losses in Florida by buying their own catastrophe coverage to protect it from huge storm claims.

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However, both State Farm and Nationwide seek to buy most of their reinsurance from their parent companies, at rates triple what they paid in 2004. If the year is without major storms, the national companies keep that as profit.

In other words, the devil made them them do it. State Farm of Florida has to hike rates because its parent corporation, State Farm headquartered in Indiana, is charging more. Nationwide of Florida has to increase rates because its Columbus, Ohio, parent is doing the same.

Companies like State Farm and Nationwide are using the artifice of splitting themselves into multiple personalities, known in the business world as "parent" and "wholly owned subsidiary" corporations. Then, one "personality" claims that the other personality is charging too much.

And, according to Florida Insurance Commissioner Kevin McCarty, there's nothing Florida regulators can do about it. The state doesn't "have regulatory authority over what these reinsurers charge." Moreover, it's a certainty that if Florida were to try for that kind of jurisdiction, the corporate parents would be screaming that their constitutional rights as "persons" with a "citizenship" located in another state have been violated.

Behavior like this gives credence to the theory of Canadian law professor Joel Bakan, which is expounded upon in the fascinating documentary titled The Corporation. A synopsis of the documentary's thesis is available in review form within the pages of The Economist:

It begins with a ... history of the company's legal form in America, noting the key 19th-century legal innovation that led to treating companies as persons under law. By bestowing on them the rights and protections that people enjoy, this legal innovation gave the company the freedom to flourish. So if the corporation is a person, ask the film's three Canadian co-creators, Mark Achbar, Joel Bakan and Jennifer Abbott, what sort of person is it?

The answer, elicited over two-and-a-half hours of interviews with left-wing intellectuals, right-wing captains of industry, economists, psychologists and philosophers, is that the corporation is a psychopath.

Bakan argues, with considerable logic and ample examples to back it up, that the status of "personhood" conferred by law on corporations is at war with legally-imposed obligation of corporations to maximize profits without regard to any other social, economic, personal, environmental, or other costs. In any other "person" whose rights are protected by the Constitution, the goal of maximizing wealth without regard, whatsoever, for others would be considered amoral.

That would be a person who, as Balkan wrote in his path-breaking book with the same title, is "singularly self-interested and unable to feel genuine concern for others in any context." In other words, a sociopath.

We have no doubt that because of the last two hurricane seasons and mounting evidence of climate change the "parent" corporation of State Farm can come up with numbers justifying some sort of increase in the cost of reinsurance. But triple? And, why hide the data from Florida regulators? Why allow the retention of excess profits after a year "without major storms?"

Bakan's thesis goes well beyond the misbehavior of insurance companies, of course. But the prescriptions he offers are for the most part easily within the reach of state legislatures and the national Congress, if only they had the will.

Some may find it hard to swallow Bakan's notion that "through their psychopathic pursuit of profit" corporations "make good people do bad things." If you're among the doubters, just try spanking State Farm, Inc. -- or sending it to jail -- the next time it misbehaves.