STRAIGHT TALK with newly elected
COMMISSIONER of INSURANCE
MIKE CHANEY

By Dr. Trevor Smith and Nick Cumberland

As Mississippi’s new insurance commissioner, Mike Chaney has assumed one of the most challenging jobs in the state. With a diverse background as a businessman and public servant, Chaney has a plan to bring affordable insurance to the Gulf Coast and restore Mississippian’s confidence in the insurance industry. Commissioner Chaney talked with Go To Places about what he hopes to accomplish.

Explain in layman’s terms the factors that are affecting the affordable insurance situation on the coast?

The increased premiums by the private companies were approved [by the state] two or three years ago, but were not implemented until after Katrina. Those approvals took place prior to me being here. There are several reasons why companies have raised prices. First, the risk factor of living on the coast is, of course, a key issue. Also, in my opinion, the lack of enforcement of building codes on the Gulf Coast is a serious problem. If you build on the coast, you must build to expect a storm. Many structures have not been built to withstand category three or stronger hurricanes, and that must change. Finally, the legal climate in the state of Mississippi has not been the best for insurance underwriters.

What steps are being taken by your office and the state to help make affordable insurance more available?

We have done a lot to try and bring more affordable, accountable, and available insurance to the coast. One way that the state has done this is the legislature passed HB 1500, known as the “Wind Pool Bill.” Essentially what we did was we infused money into the Mississippi Wind Underwriters Association [the wind pool]. In 2007 The Legislature agreed to put $20 million a year for four years into purchasing re-insurance, which lowered wind pool rates retroactively to October 2006 levels. Now in 2008 the Legislature has allowed me to move $25 million of the premium base to the wind pool, and this money has been used to buy more re-insurance. This has enabled us to lower rates an average of eleven percent in the lower six counties. If we had not taken these steps, rates would have gone up fifty-six percent. One caveat is that to receive these rates, structures must be built, or rebuilt as the case may be, to international business/residential code standards. Also, residents that live in a flood zone must purchase flood insurance.

What role should flood insurance play on the coast?

Flood insurance is incredibly important for coastal residents. After Katrina, the wind pool paid all claims without question, even to residents that were victims of flood. Many of these people should have had flood insurance but had chosen not to carry it. This is why flood insurance is now mandatory for participation in the wind pool for everyone that lives in a flood zone. In a larger sense, everyone that lives in a low area, or in an area that is questionable, should have flood insurance. See your insurance agent if you are not sure. Another point is that owners should clearly understand their policies, and should review their policies once per year. When Katrina hit many homeowners didn’t know whether or not they had flood insurance. Now I instruct all insurance agents to discuss this with their clients, and if clients choose not to have it, they should be required to initial their policies acknowledging this to eliminate any guesswork. Flood insurance is inexpensive, so getting it is common sense for people with even a modest risk.

Can we expect private wind coverage to return to areas where it is not being offered?

I approved a new wind underwriter a few days ago. It is one of the largest insurance carriers in the world. Three other carriers have applied and been approved to write policies on the Gulf Coast. Some companies are trying pull back from writing wind policies, and others are simply not writing new ones. I am negotiating with these companies to have them write policies with open market rates. They would be able to set their rates, but they would be required to write wind policies.

Is there a possibility of the state requiring companies to write wind policies, as is the case in other states?

I do not have the authority to force companies to write wind policies on the coast, but I am discussing changing this with members of the legislature. All I can do right now is regulate the rates. This is a complex issue because some companies only offer automobile insurance, and I can’t expect them to change their entire business model. What I am looking at doing is requiring multi-line companies to write homeowners policies, but allowing them to set their rates and let competition determine what the consumer pays. To do this, of course, would require legislative action.

What is the possibility of an all-perils program being implemented?

I have been a proponent of a government backed all-perils program for a long time. Unfortunately, I don’t think that it is going to happen. Bear in mind that I support the free market, and the best way to provide affordable and available insurance to the people of Mississippi is to have private companies offer policies, and for the Department of Insurance to make sure that consumers are treated fairly. Private companies could offer all-peril policies, and I think that they should.

What are the next steps that should be taken to improve insurance availability and affordability on the coast?

I firmly believe that we can solve the problem of insurance on the coast, and my plan centers around three steps. First, we need to have multi-state compacts. If several costal states worked together we could collectively require insurance companies to offer policies at fair rates. I have been working with the commissioners in the other southeastern states and we have put together some preliminary compacts. I hope to have these in place very soon. These compacts would include offering all-peril type policies. These compacts may require federal legislation before they can be put into place, and we are looking into that. Second, I want our congressional delegation to work for a federal disaster re-insurance act. A federal fund for disaster re-insurance would benefit the entire country. Finally, we are looking at requiring companies that are writing policies in the lower six counties to write wind insurance at open market rates for wind, but to also add national flood insurance on the policy. This way consumers could have one policy and one agent for homeowners, wind, and flood insurance. These would effectively be all-perils policies because one policy would cover everything. The by-product of this is that it would create competition, and rates would come down. This would also eliminate the wind verses water issue because holders of these policies would be covered regardless of what caused the damage.

Would companies be willing to offer these types of policies?

At this point I don’t know. Remember that right now I do not have the statutory authority from the legislature to require them, but I am going to ask for it. This is also true of the multi-state compacts. However, if enacted, these three steps would enable the consumer to have one adjuster and one policy that covers everything. This would eliminate most of the problems that the people on the coast experienced after Katrina. This plan would also enable competition to keep prices at a fair market rates. What we all must remember, however, is that living on the coast is riskier than living further inland. Thus, coastal insurance is going to be more expensive.

Do you think that the State Farm lawsuit has had an impact on insurance availability?

It absolutely has, but we have been able to bypass that issue with other companies that would like to come to the coast and write wind policies. Governor Barbour, members of the legislature, and myself have worked very hard to improve the legal environment. The companies that will soon come in and write wind policies are doing so largely because of the progress that has been made.

To what extent does the insurance issue affect the rebuilding process?

It is a major factor affecting the rebuilding process. Between fifteen and twenty thousand homes have not been rebuilt, and this is primarily due to problems getting insurance. Although some people have chosen not to rebuild in a high-risk area, my job is to try to bring available and affordable insurance to the coast so that people have a choice.

How informed do you believe the people of the Gulf Coast are when it comes to the insurance situation?

I don’t think that Gulf Coast residents are fully aware of what is happening, and this is largely due to the press. It frustrates me when the press on the Gulf Coast does not accurately report what we are doing. My office, the Governor, and the legislature are all working very hard to address these insurance challenges. Unfortunately the press often chooses to criticize rather than to report what is positive. I do believe, however, that once coastal residents see the changes that we have proposed they will be pleased.