Economic Redline Ghetto Blues

Are you a good customer, or are you a high-maintenance nuisance that's cutting into your service providers' bottom lines? If so, you can expect a growing number of them to decide they just don't want or need your business anymore, which could put you in a very precarious situation.

For instance, suppose you're a businessperson trying to reestablish yourself in New Orleans. Unfortunately for you, St. Paul Travelers Cos. Inc., the largest commercial insurer in Louisiana, is pulling its operations out of New Orleans and area entirely. Rumour has that other insurers will follow suit in the NOLA area early next year, when the government-mandated period of Katrina-related insurance coverage lapses. Authorities in New Orleans are asking St. Paul Travelers Cos. Inc. to turn over most of its policies to the "Louisiana Citizens Property Insurance Corp. but to continue handling policies valued at more than $5 million rather than pulling out of South Louisiana commercial property markets completely." As of this writing, negotiations are ongoing. (Hat tip to First Draft for Katrina-related insurance articles.)

If you think that's probably par for the course, what if you're a homeowner in New Jersey? Allstate has announced that it is pulling out of the home insurance market in New Jersey, over fears of massive payouts incurred should a hurricane hit the state. Is it only a matter of time before all areas on the southeast and eastern Atlantic coast of the US have similar problems? Anecdotal reports suggest that in coastal Texas, it's getting hard to buy or sell an existing home because of problems with water and mould damage claims.

As the LA Times reports, companies like Risk Management Solutions, Inc. are using sophisticated data-mining techniques to first compile, and then slice and dice demographic information like some kind of actuarial Vegematic.

RMS runs its disasters through your community — and sometimes right through your home — to see how you'd fare in a hurricane, hailstorm, earthquake, epidemic or terrorist attack. The firm sells its knowledge to insurance companies to help them decide whom to cover and how much to charge.

Since Hurricane Katrina last year, those decisions have been running pretty much in one direction.

Based in part on RMS' predictions, companies like Allstate Corp., the nation's second-largest property insurer, have gotten out of some lines of coverage altogether. It and other companies have spent the year dropping or paring back policies from Oregon to New York.

Figures from state regulators show that more than 1 million homeowners nationwide have had to scramble to land new insurers or learn to live with weakened policies. Tens of millions are likely to face rate increases between 20% and more than 100%, according to regulators. And this may only be the beginning.

Of course, the insurance industry is very quick to put the blame right on the victims:

Allstate Chief Executive Edward M. Liddy made a similar point in a San Francisco speech a few months earlier, saying, "The risks keep rising because … people continue to flock to places that are exposed to catastrophe. Population in earthquake-prone and coastal areas is growing faster than the rest of the country, and the increase is by a wide margin."

The LA Times points out that the facts don't seem to support that argument, stating that "[c]ensus figures, for example, show that the population of coastal and earthquake counties grew at an annual average rate of 1.56% between 1980 and last year. But they show that the U.S. population overall grew at a reasonably close pace of 1.24%. Other growth measures show a similar pattern."

Surely I'm not alone in thinking the recent epidemic of insurance-industry victim-blaming and responsibility-abrogating (shared responsibility is what risk pools are for) is related to other disturbing trends in the services sector, such as ING Direct's "firing" its customers. According to Bank Technology News, quoting ING CEO Arkadi Kuhlmann, "the company 'weeds out' up to five percent of its customers each month, for violations like asking for statements via mail, contacting the call-center too often or demanding a better deal because they have a large sum of money to deposit." This seems similar to redlining, except made using individual statistics rather than aggregates based on geography or income. There has already been a lot of attention given to the problems of banking access in low-income neigbourhoods, leading to the proliferation of cheque-cashers and payday lenders, which are oftentimes no better than legal loansharks.

The Anecdote Part: When I mentioned to a friend that I was planning on writing on this topic, he said, "Be sure to mention the trouble I've had with Verizon." My friend had a calling plan to Canada so he could call me, and the people at Verizon switched it off without notifying him or getting his authorisation (a practice that could be quaintly described as "slamming and cramming"). Verizon now claims he owes them $3000 for long-distance calls to Canada. This most recent go-round he's had with Verizon is actually the second or third time they've tried this on him. The first time, they demanded $5000, but he got the issue resolved in his favour. Apparently he gets this extra-special treatment because he's a high-demand customer who lives in a bad neighbourhood in New York, is low-income, and has a name that might lead people to assume he's black (even though he isn't).

I've experienced something similar personally. Years ago, when I was undergoing my first bout with being socially assisted in the jolly old Province of Ontario, my bank* instituted a (very short-lived) policy requiring anyone who wished to cash or deposit a welfare cheque to present ID along with their bank card or passbook. I wasn't about to let that sit, because I've known for many years that low-income people often have trouble coming up with ID, which is yet another way we get screwed out of access to things even lower-middle-class people take for granted. Fortunately, I had my driver's license with me at the time. I said, "So, what do you do if the person doesn't have ID." The teller said, "We tell them to go to their home branch [the branch at which the account was originally opened]." I said, "So, what happens if the person's home branch is in another city? That sounds like discrimination to me." The teller said, "I'll write up a memo and have someone review the policy," and that was the last I heard of it.

Now, if banks and other service providers can hassle and screw over a couple of old attitudinal punk rockers -- with a Master's degree and a patent and a couple major publications respectively, what chance has some uneducated schlub who's had the grind of poverty condition them into passivity against that kind of bullshit? A snowball's chance in Hell, as we say up here in the microclimate.

I worry about that kind of thing, too. When I told the same friend about the ING customer-firing deal (which, incidentally, memo to ING people, has convinced me not to get an ING savings account and to make sure others don't), he said, "Considering that I'm speaking on an unsecured VOIP line, this is all a hypothetical... (long pause) ...but that kind of thing makes me want to firebomb the motherfuckers. That's the kind of thing that creates violent Marxist revolutionaries." I should further point out that my friend is not exactly the fabled bomb-throwing anarchist type (and certainly not the very real bomb-throwing reactionary type); he's a guy with actually fairly solid Establishment credentials who used to self-identify as a Libertarian, though he's been drifting further left for as long as I've known him.

This is the stuff of which massive social instability is made. The more people who get left behind, locked out, and otherwise excluded from even the most commonplace trappings of "respectable" society (like having a bank account or being able to buy their own homes), the more people start to feel like even making it to the middle class (let alone getting rich) is a pipe dream, the more social problems there will be. Chris Clarke at Creek Running North points out that even in his most radical days of protest, all their organisation's "demonstrations and leaflets and such all had to include a demand for jobs. We demanded jobs and an end to draft registration, we demanded jobs and that the US end its aid to the murderous regime in Guatemala, we demanded that the Klan not hold a rally in Niagara Square and by the way we demand jobs." He says the point was that

What people want when they want jobs, I thought, is three-fold. People want to feel economically secure: they want to be able to eat and stay warm and have some privacy and see the doctor and buy a new jacket every once in a while. People want to feel useful, like what they do with their lives makes a difference to something outside of themselves, whether it’s curing cancer or making a really good hamburger. People want to not be bored, to divert themselves by talking to colleagues, by honing skills, by doing something that holds their interest.

Those kinds of feelings provide an investment in the machinery of society; without that feeling of investment amongst most people, society will suffer. The rich might be able to insulate themselves in their gated communities for a while, but they also don't generally like massive social upheaval, either (which was one of the reasons the New Deal was even as successful as it was -- lesson to modern neoconservatives).

Of course, there's the pro-business case to be made that alternate means of service delivery will arise to meet the needs of those who aren't being served, but I would direct the arguer's attention to the history of private fire brigades and the Rural Electrification Administration. In that hypothetical situation, assuming alternate service providers do come into existence, what's to stop a larger organisation from doing what Microsoft was famous for doing -- buying up the service provider and shutting it down, on the grounds that it presents a threat to the larger organisation's potential move into that sector? (The irony is further compounded, at least in the case of Microsoft, when one realises that in many cases, they never did move aggressively into those sectors after acquiring and EOLing the smaller company's software.)

I just don't think there's any way to put a gloss on this at all. It is. A. Bad. Thing. End of story. Is it time to consider dechartering corporations yet?

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*My bank, which shall remain nameless, because they knocked it off promptly. Score one for the good guys.