Monthly Archives: September 2009

Herald Editorial Page Compounds Errors on Home Insurance

The Miami Herald doubled down today on its failure to address the shortcomings of undercapitalized, undiversified newly minted under-regulated Florida home insurance companies. (See Citizens Insurance May Be Bad, But Consider the Alternatives for yesterday's installment.)

On the editorial page today, the Herald starts off well in Storm warning: Prop up insurance noting that “the system for insuring homes and businesses against disaster remains badly flawed.” And this is good too:

Neither Citizens nor the CAT fund has sufficient cash on hand — nor enough borrowing power — to meet the huge outlays required by the proverbial one-in-100-years storm. The result would be harsh rates on Florida homeowners to make up for the shortfall.

But then we go off the rails:

The picture isn't completely grim. Since the start of 2008, a record number of policies — 500,000 — have been taken out of Citizens by newly formed insurance companies. That's a good sign, but Citizens remains the largest state-run insurance pool in the country.

No, it's not a good sign at all if the companies writing those policies are not safe and sound. And there's no reason to think that most of them are anything like it.

Why is the Herald so badly missing the boat on this issue?

Posted in Econ & Money, Florida, The Media | 1 Comment

Advice to the Pre-Law Student

A college student writes asking for pre-law advice:

Hi. My name is —— ——- and I am a freshman at Framingham State College in Massachusetts. In my expository writing class we were assigned a paper in which we have to research our future career goals. A part of the requirement is a personal interview which can be done via email. At Framingham State I am an English major and I aspire to get my JD in law. I would like to be a criminal defense lawyer. If you have the time could you please respond to a few of my questions?

1. What are the most popular majors that apply to law school?
2. Which major do you feel would be the most useful/helpful?
3. What could I do in college that would help me get into the school?
4. What is the most challenging aspect of law school?
5. What would people be surprised to know about studying law or working in law?

I really appreciate if you could get back to me. The assignment is due October 1st.

Thank you,

—— ——-

So I replied. My answers are below; readers are invited to supply better answers so I can use them next time.

Continue reading

Posted in Law School | 9 Comments

Bar Pass Rates Posted

The 2009 July Florida Bar Pass Rates are out. In order to illustrate my point that Bar Pass Rates are Over-Rated As A Measure of Law School Quality, I thought I’d not only sort the results, but calculate the number failing (the bar reports test-takers and test-passers). The numbers are in most cases reasonably small…

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# failing Pass Rate
FSU 15 91.4
U. Florida 45 86.3
Nova 29 86.1
U.Miami 36 83.9
Florida Coastal 39 83.0
Stetson 38 81.8
FIU 17 80.9
Non-FL schools 178 75.2
St. Thomas U. 29 75.0
Barry U. 29 73.6
FL A&M 45 52.6

As I said before, “there certainly comes a point where a substantially lower bar pass rate than other schools in the state is a sign of a problem that a law school should work to fix.” FAMU’s score seems to suggest that, despite recent improvements, there’s still work to be done there.

Posted in Florida, Law School | 6 Comments

Finally, An iPhone App I Could Want

Mostly I've seen no reason to even want an iPhone. Expensive. Eats battery life. Wants to sell you things.

But this…this…I could actually imagine wanting if I had an iPhone: Brian Eno Releases Second iPhone App.

Posted in Sufficiently Advanced Technology | 1 Comment

Citizens Insurance May Be Bad, But Consider the Alternatives

Beatrice Garcia has an article in today’s Miami Herald about Citizens Insurance company, the state-sponsored home insurer of last resort for those of us in the hurricane belt. See Is Citizens Insurance ready for the big one?

Citizens is known for its high rates, DMV-quality service, and for being under-capitalized. It is not much fun to deal with, but then neither is my bank. (Which, come to think of it, is also state-capitalized these days.)

The article does a good job of noting some of the issues with Citizens:

Citizens is the largest insurer in Florida, covering 1,057,829 homes, condos and apartment buildings. The biggest chunk of its policies — $232.1 billion worth — are written on riskier, coastal properties.

Insurance regulators, legislators and critics of Citizens say the company's frozen rates aren't actuarially sound. In laymen's terms, that means the insurer is not bringing in enough money through premiums to cover the bulk of the potential losses it could face after a huge storm.

To get Citizens' rates back on course, a law passed in May requires the insurer to raise rates 10 percent a year over the next five years. The smaller annual increases soften the rate shock for homeowners. But eventually, rates could end up about 60 percent higher.

But Citizens isn't totally in dire straits. The insurer should have nearly $3.9 billion in cash in the bank by the end of the year, says Binnun.

Add in a guarantee from the State of Florida to buy $750 million of Citizens bonds, a bank credit line and proceeds from municipal bonds it has already sold and the total of available funds comes to $6.9 billion.

Citizens also buys back-up insurance from the Florida Hurricane Catastrophe Fund to cover some of the losses it might face. This year, it purchased nearly $9.8 billion in coverage.

All that gives Citizens the ability to cover up to $16.8 billion in claims.

But even with all the funds it could tap, Citizens could fall short if “the big one'' — that one-in-100-years storm — hits the state. Such a storm could rack up claims totaling about $22 billion, Binnun says.

In other words, Citizens need to save up another $3.2 billion — about double what it will have in the bank by the end of the year — in order to be actuarially sound. That’s a lot of money, but if it could save that amount since its founding in 2002, it should be able to pile it up in a few more years. Unfortunately, it's going to do that by raising our already quite substantial insurance rates some 10% per year until the money pile is big enough.

The Herald article more or less assumes that private insurance would be better, although it notes that some private policies have coverage limitations.

As it happens, I have a Citizens policy. Over the last three years I’ve had two letters from private insurance companies announcing they were taking over my policy unless I opted out (this was a state plan to encourage people to leave Citizens). One look at the capitalization of those companies and I opted out. In addition, my insurance agent has sent me proposals from three or four private companies, all but one of them started recently under the new Florida law encouraging companies to enter the market. None has a track record. None has much capital either. They are not rated by any of the major rating agencies (except one, that had a not-so-great grade of BBB-). They have their own ratings bureau, one which says they are just fine thank you, but it's not one I feel any reason to believe.

Unfortunately, in this era of light regulation private insurance is not inevitably better than public; indeed, I think some of these new tiny companies may be worse. This is, in fact, the ironic implication of a new analysis of the state home insurance market from the Competitive Enterprise Institute which shows how poorly capitalized the new private insurers really are. (CEI is not a source I’d rely on uncritically, but it confirms what I’ve worked out myself from looking up reports on the new Florida-only insurance companies. For more see Florida insurance numbers deceive and Consumers cry foul over Citizens' shift to low-rated firms.)

From the point of view of the homeowner, private insurers also have a degree of political risk that Citizens lacks: If they go belly up, the state has no moral obligation to bail them out — on the other hand, we have good reason to believe that at the end of the day the state (or the taxpayers) will stand behind Citizens.

I turned down my insurance agent’s suggestion that I go private, even though the proposed rates were a few dollars lower than what Citizens charged. My agent was all for it, claiming the service would be better (no word on the relative commissions!). The risk seemed too great.

Posted in Econ & Money, Florida | 13 Comments

Google Mind-Powered Search Engine

I was recently directed to the Google Mentalplex, a way of searching for things by projecting mental images into the computer.

It's been around a while, but it's slow, and you have to remove your glasses for it to work, which is probably why it's not more popular.

Posted in Completely Different | 3 Comments

UM Tax LL.M Alum Nominated for Top Tax Post

They're crowing over there at the Tax LL.M and in the Dean's office, because President Obama has nominated Michael Mundaca, LL.M. ’97, to serve as Assistant Secretary of the Treasury for Tax Policy.

The official UM Law release says in part,

“This is the most important position in tax policy in the United States,” said Dean Patricia D. White, a tax scholar. “We are delighted to see a graduate of our LL.M. program succeed in this way.”

Reacting to the appointment, UM Law Professor George Mundstock, who taught Mundaca, said, “One of the great things about being at the University of Miami is that the city and university help us attract such interesting and talented students. Michael was a remarkable student who took advantage of all we have to offer. We are proud of his achievements.”

Before his appointment in the Treasury Department in 2007, Mundaca was a partner for five years in the International Tax Services group of Ernst and Young in Washington, D.C. Before joining Ernst and Young, Mundaca served for over five years in the Treasury's Office of the International Tax Counsel during the Clinton Administration.

He received a B.A. in philosophy and in physics from Columbia University in 1986, and an M.A. in philosophy from the University of Chicago in 1988. Mundaca also received a J.D. from the University of California, Berkeley, School of Law in 1992, and an LL.M. in taxation (international tax specialization) from the University of Miami.

Professor Frances Hill, the Director of the UM Graduate Program in Taxation, said, “Mr. Mundaca will play a critical role in the international tax reforms at the heart of the Obama Administration’s tax agenda. We are very proud of Mr. Mundaca’s professional accomplishments. He is an inspiration to our current students, many of whom are interested in public service.”

Mr. Mundaca replaces my former co-clerk Beth Garrett of USC as the Obama nominee for the job; Beth withdrew her name at some point as the confirmation process dragged on and on. Here's hoping that they manage to wrap things up more quickly this time.

Posted in U.Miami | Leave a comment