‘Sending billions overseas’ (October 24)

The following is an analysis that is part of a graduate thesis. Learn more.

St. John returned six months after her last article with a lengthy investigation into reinsurance, an industry that provides insurance for insurers in case of a catastrophe beyond their means. The issue she addressed was, “What is the importance and influence of the reinsurance industry for Florida residents?”

St. John offered three conclusions in the story, each of them descriptive. First, she said that “two-thirds of property insurance premiums now leave Florida as unregulated payments” to reinsurers, which she characterized as a “dramatic shift” (3). This conclusion was the most clearly stated of the three, as it was introduced as being part of “a Herald-Tribune investigation.”

Her second conclusion regarded the influence of the reinsurers. She said that “they, more than state insurers and state regulators, determine how much Floridians must pay to live in the state, and whether property insurance is available at all” (4). Her third conclusion addressed a second effect of the reinsurance business: “Florida’s growing reliance on this profit-driven market is eroding its ability to withstand the inevitable disaster” (5). These conclusions were not explicitly tied to the “investigation” mentioned above, but it seemed reasonable to consider them conclusions, based on the introduction to the story that contrasted the “little benefit” that Floridians received in return for record spending on insurance (1–2).

But returning to the first conclusion, what reasons and evidence did St. John offer to support her claim that “two-thirds of property insurance” left Florida? Although the claim was straightforward, its backing was not. St. John presented only one datum that indicated the investigation leading her to her conclusion:

The portion of homeowners’ premium devoted to reinsurance [from 2004 to 2009] increased from 37 percent to 64 percent, according to the newspaper’s analysis of 70 Florida-only property insurers. The national average is only 19 percent. (34)

Readers were not told exactly what sort of “investigation” the newspaper conducted, or how it came to the number it did, but even assuming that both would check out, the statistic still presented problems for readers. Firstly, it said reinsurance premiums increased to 64 percent, which, to be somewhat petty about the matter, is not “two-thirds,” as the lede promised. Secondly, the initial statement of the conclusion omitted that the investigation apparently comprised only “Florida-only property insurers.” No explanation was given for why the statistics differed, what the effect of adding non-Florida-only insurers was, or whether St. John meant to be claiming both facts to be true (which they could be).

St. John offered other scattered statistics throughout the story, but none were particularly dispositive toward her original claim. For example, she quoted statistics regarding total spending on reinusrance by Florida carriers’ (33), but without citing insurers’ total spending, which she did not, it was impossible to try to view the reinsurance spending as two-thirds of anything. Later, she said that “more than 28 Florida insurers devote more than half their premium to external coverage” (39), but this statistic was once again far less than “two-thirds” and was not inclusive of all insurers, as the initial statement of the conclusion was.

So Floridians did not encounter much reason or evidence to accept that two-thirds of their premiums went toward reinsurers. If they wanted to accept that figure, they could only on the basis of an appeal to St. John’s authority.

The second conclusion was surprisingly bold: That reinsurers determined the availability and cost of property insurance more than did state regulators and insurers themselves. Bold, but also ambiguous: On what sort of scale was she measuring determination? Did she take the total cost of insurance for a homeowner and divide into how much money goes where? Did she mean in the legal sense?

Without clear guidance, it was up to the evidence offered to clue readers in to what she meant. Unfortunately, that evidence itself bounced among meanings, making it difficult for any one piece of it to put the claim into the territory of easy acceptance.

Perhaps the strongest evidence St. John had came from seemingly fresh revelations that former Florida Governor Jeb Bush “set aside his free-market ideology to conclude Florida could not ‘be at the mercy of people who hope for catastrophes to keep their rates high’” (14). Governor Bush “secretly spent part of his last year in office seeking an alternative, lobbying his brother in the White House and fellow governors of catastrophe-prone states to create a government substitute” (15). Later, apparently in an interview with St. John, “a leader of state insurance agents reached a similar conclusion,” comparing the insurance industry’s dependence on reinsurance to that of a “crack addict” (18).

“Dependence” seemed to be the proper word for describing the kind of evidence St. John presented with these paraphrases of Bush and the insurance “leader,” Jeff Grady. Bush spoke of being “at the mercy” of reinsurers; Grady was quoted that “a large part of Florida’s marketplace problems are due to its over-reliance on reinsurance” (17). With some definitional jujitsu — e.g., that “reliance” entails “necessity” — these quotes went toward demonstrating that reinsurers had more power than did government and insurers in determining whether Floridians had property insurance available at all. But there was not a clear line between the quotes and the determining-cost claim. There was nothing immediately obvious in Bush’s concern that speaks to cost, not dependence; it was difficult to tell what “marketplace problems” meant according to Grady.

Much later, St. John relayed a quote comparing the relationship between insurers and reinsurers as “like a game of poker” (65) — only, according to St. John, “the game is uneven” (66). “Florida insurers are particularly needy buyers, hence they have little choice to refuse what reinsurers demand to be paid,” she says (67). “Determining” here is again taken to mean some sort of dependence, as in insurers were dependent (“needy”) on reinsurers. But for what? And, more directly to St. John’s second conclusion, how did the fact that insurers are dependent on reinsurers help demonstrate that the cost and availability of insurance for homeowners is dependent on reinsurers? There are steps between what the insurer pays the reinsurer and what the consumer must pay — for example, rate limits placed on insurers.

In sum, then, the reasons and evidence offered by St. John in support of her second claim were somewhat apropos, but also potentially misleading and incomplete. There was some distance to go before readers could accept, based on what was presented, her specific claim about reinsurers’ influence.

St. John’s support for her third claim, that reliance on reinsurers was eroding Florida’s ability to withstand disaster, hinged on a discussion of the fact that the state’s insurers “have less money to set aside for future storms,” known as policyholder surplus (79).

“To the alarm of industry watchers, it is weakening,” she wrote (81).

The surplus held by Florida-based insurers in 2003 was $2 billion. It is now about $2.4 billion – an increase that has not kept pace with the amount of property these companies insure.

In 2003, Florida insurers had 65 cents in the bank to back every dollar of brick and shingle they insured.

Now it is 42 cents. (82–84)

It was unclear how these and other similar statistics demonstrated, by themselves, that the state’s “ability to withstand the inevitable disaster” was declining. As this very article demonstrated, Florida’s mechanisms for facing disaster encompassed more than insurance companies — they included reinsurers, for example. It might or might not have been the case that reinsurers could help Florida recover from a nasty hurricane. St. John previously noted that no major hurricane had tested the new system, so it was difficult for anyone to say which case it would be. But knowing the role and effect of non-insurers in recovery efforts was essential to being able to decipher the meaning of St. John’s statistics unto themselves.

Not able to provide that context, however, St. John seemed to be saying that the statistics were worth nothing only because of the “alarm of industry watchers.”[1] This appeal to authority by St. John was difficult for readers to accept simply because of the lack of information given about these “industry watchers.” Who were they? Why did the numbers alarm them, and were their reasons the same as St. John’s? What were their reasons? Without this information — and St. John said nothing about who she was referring to — readers had no reason to find the numbers “alarming.” They could only assume that “down” or “under-pace” meant “bad,” and there was not much available reason to assume as much.

  1. Here, then, is some support for the “burglar alarm” objection noted in the Discussion chapter.  ↩


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