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Transcripts

April 23, 2003

Host: Michael Grant
Topics:
U.S. Senator John Kyl discusses state and national issues;
a report on how some Arizona homeowners are struggling with issues concerning their homeowners insurance
In-Studio Guests:
U.S. Senator Jon Kyl;
Phyliss Rowe, the president of the Arizona's Consumer Council;
Jim Fredrickson, Executive Director of the Arizona Insurance Information Association;
Tom Farley, Vice President of Government Affairs for the Arizona Realtors Association

>> Michael: Tonight on "Horizon," Senator Jon Kyl in town from Washington. He joins me here in the studio to talk about state and national issues.

>>> Michael: And homeowners insurance, it's something most people who own a home want to have, but are consumers having problems getting coverage?

>>> Michael: Good evening, I'm Michael Grant. The U.N.'s role in constructing Iraq, immigration, border security issues, President Bush's tax cut package, all discussions in which U.S. Senator Jon Kyl is participating in Washington with Arizona citizens in mind. The Senator is the chair of the Senate Judiciary Subcommittee on Terrorism, Technology and Homeland Security and holds other key offices. Senator Kyl, joins me now. Jon, good to see you again.

>> Jon Kyl: Thank you, Michael. Good to be with you.

>> Michael: The military campaign in Iraq, obviously was incredibly impressive. I still wonder how well the exit strategy is going to go.

>> Jon Kyl: Well, that's the key question. We did succeed militarily. The question now is will we have the will and staying power to finish the job. And finishing the job means getting the country of Iraq going again, developing the infrastructure to sell the oil, return those monies to the Iraqi people so they can get back to normal, but also creating a political infrastructure in which eventually the Iraqi people can decide for themselves what kind of government they want to have.

>> Michael: Can you export democracy? Can you fly in someplace as if you had a smart weapon that has "democracy" on it and say now you've got it?

>> Jon Kyl: No, and in fact, in that region of the world, so few of the people have ever enjoyed real democracy, that it takes time to establish the conditions under which real democracy can exist. We know that just having elections is not the same as having a democracy. Saddam Hussein got elected with 100% of the vote. What you have to have is a rule of law established, free speech, free press, so that the conditions for people to make wise decisions and abide by those decisions will be created before you have the elections. Then you have the elections and see how it goes. What we're trying to do right now is keep the some of the more powerful groups filling the vacuum that was created by the removal of Saddam Hussein. You've seen the Shi'ites and some of the clerics -- in fact, some people from Iran infiltrating into Iraq and pushing the Shi'ites into positions of power. We want to be sure that all of the minorities are protected, that nobody moves into those power centers until the conditions for free choice are established.

>> Michael: One of the arguments that I have heard that perhaps favors the smart weapon labeled "democracy" and ultimately the blooming there, is that Iraq does have something of a middle class in contrast to some other countries in the region. And a middle class is normally thought of to be one of the key elements to that kind of form of government. Accurate or no?

>> Jon Kyl: Yes, that's very true. Iraq is a relatively well educated country. It has a lot of potential wealth. It has the second largest oil reserves in the world be -- behind Saudi Arabia. There is no reason why once we help them get their oil refinery, and transportation and drilling process back to normal, that they can't begin making money and plowing that back into infrastructure and into the things that the citizens need for the country to function well. They should be able within a couple of years to be doing very well.

>> Michael: How long do we stay?

>> Jon Kyl: Nobody can say. I think the president is wise not to put a timetable on that. We want to get out as quickly as we can. But we don't want to get out before there is a real opportunity for Iraqis to express themselves freely and in a way that will be accepted.

>> Michael: And I understand you've got the same problem the president does, but I mean, is this months? Is this years to do that?

>> Jon Kyl: Well, I think it's a phased process. First of all, we will be withdrawing many of the military forces. We're already doing that. We'll leave some there to maintain the peace. We'll probably help move police-type instructors and forces in, some of the other countries have already volunteered some police to help the Iraqi police get reestablished. Then maybe we can withdraw more military troops. We'll bring in various industry people to help their industry get started, but the governing group that General Garner represents will stick around for quite sometime. I don't think he'll leave until he's fairly certain that once he leaves that they'll have a stable government and stable country.

>> Michael: In your opinion, what's the appropriate role for the United Nations in this process?

>> Jon Kyl: None, unless they are willing to help us in the way that we want to run the operation. United Nations showed itself to be not only ineffective, Michael, but actually antagonistic to the United States, and there is no reason why you would want to bring somebody like that the French and the Russians was a veto in the Security Council into a position of power in the reconstruction of Iraq, when their interests are to undermine the United States and the success of our effort there. The United Nations has been skimming off hundreds of millions of dollars, maybe billions of dollars from the Food for Peace Program run by Kofi Annan. The auditing of the books is done by a team of three countries; France leads that team. We're finding that France and Russia in particular had a lot of contracts with Iraqis, apparently, they were trying to protect. They didn't want us going in there and upsetting their little apple cart. Well, we've done that now. It doesn't seem to me that there is a role for those people to play as the United Nations. Remember, France has no more power. The only place it has power is as a member of the Security Council where they have a veto. So if you give the authority to the Security Council, you've just given the authority to France to veto anything we want to do.

>> Michael: Are we taking that position in retaliation for what the United Nations did or did not do or because we consider them to be an ineffective and ineffectual organization.

>> Jon Kyl: The latter. It's just a practical matter. We don't want them gumming up the works again. We're afraid that's what would happen if we turn this back over to the U.N. Now, if they are willing to do what we want to do and help us, we would welcome their help, because after all, the French and Russians have great contacts with the Iraqis. They've been doing business with them all these years. They have been selling military equipment within the last year or two. So they could help if they wanted to, but I haven't seen the evidence yet that they are willing to help.

>> Michael: How far do we press Syria, if in fact -- and I don't know that it's one of life's great mysteries -- but if in fact key Iraqi leaders, perhaps including Saddam Hussein are there, if they've got chemical weapons, those kinds of things?

>> Jon Kyl: Yeah, we have to press them all the way, not military, I'm not talking about a military invasion, but they may be harboring Iraqi officials. We want them. They may be harboring terrorists. We want them. They may be developing -- we know they have -- we believe they have chemical weapons, and we want them under the chemical weapons convention to get rid of those weapons. They are not supposed to have them. We also want them to get out of Lebanon. They are occupying the country of Lebanon. They have for over 20 years. They shouldn't be there. Finally, they've got to stop supporting Hezbollah and Hamas and to some extent Islamic Jihad, the three terrorist organizations that cause all the trouble for Israel, and Hezbollah has caused trouble for the U.S. as well.

>> Michael: Let me shift to domestic issues. President Bush's tax cut, if I recall correctly, the senate has passed $350 billion of it. The House has passed $550 billion of it. Where do you think this is ultimately going to land?

>> Jon Kyl: Well, we've passed the budget which accommodates that much tax relief. We now will actually have to pass the tax relief, and it'll depend upon what the package consists of. We want to eliminate the unfair double taxation of dividends, we want to accelerate the marginal income tax rate reductions that we passed two years ago. We want to eliminate the marriage penalty. We'd like to double the child tax credit. We'd like to help small business. Not all of that have will fit within $350 billion. So we'll try to get as much as we can within the $350 billion that the budget allows, and maybe add some of those other pieces to pass outside of that, which is permitted, and hopefully it'll be somewhere in between $350 and $550, closer to the latter number if we can. That's a 10-year number, by the way. So we're really talking about maybe $35 billion to $40 billion a year.

>> Michael: Are you convinced of the soundness as an economic stimulus of the package, particularly when it comes to the double taxation of dividends, placing its fairness increment to one side? There is a lot of people who offer the opinion that, yes, that's a problem, but if you really want to economically stimulate, you could bet much better bang for the buck, for example in lowering the capital gains tax rate or other mechanism?

>> Jon Kyl: If we had a lot of gains right now, lowering the capital gains rate would be -- would make a lot of sense, and over the longer term, it does make a lot of sense to reduce that rate. Accelerating the marginal rate relief helps, too. Probably, under the current circumstances, elimination of that double taxation of dividends would do most to immediately provide more investment in business, therefore, more new jobs, therefore economic growth. And, of course, that then produces more tax revenues which helps you get around the problem of an increasing deficit and the need to finance the war. This is the way to help the economy grow. And it's the way that we can eliminate, eventually, but at least reduce for the time being our deficit, and have enough money to pay for the things we need to pay for.

>> Michael: Even closer to home, border security, immigration issues. You've been spending a lot of time working and talking about those. Are we making any progress?

>> Jon Kyl: Some, but not enough. John McCain and I invited Asa Hutchison, the homeland security person in charge of the border, and we traveled from the Yuma area by air, helicopter, all the way towards New Mexico. We stopped several places along the way and talked to people. And he announced, Hutchison announced, 139 new agents that would be coming to Arizona, new technology that's going to be employed. But what we saw was that it's still not enough. There is still vast stretches of the desert that we're not adequately covered. Smugglers are coming across, and these sophisticated smugglers are using weapons. They are smuggling contraband, drugs and so on. A lot of times they are using illegal immigrants and shields or decoys. It's a bad situation. What we need is more technology, and in addition to that, more people, but really, the technology can help to leverage an individual, and that's really where the future lies.

>> Michael: Does the guest worker program help?

>> Jon Kyl: Well, yes, a guest worker program properly structured and operated could help relieve the pressure for immigration illegally into the country, but that's not going to happen any time soon because of the great dispute between those who want to provide amnesty as a part of that program and those who don't, and also, to some extent, the uncertainty about whether people are willing to identify the workers in this program with a fraud proof document, a biometric Social Security card, for example. Those are the kind of things that'll have to be resolved for that kind of a program to work.

>> Michael: All right, Senator Jon Kyl, we appreciate your people.

>> Jon Kyl: Thank you, Michael.

>> Michael: Most people realize the importance of having homeowners insurance. You are indemnified on your dwelling, personal liability, loss of personal property and other legal liability associated with your home. According to the state Department of Insurance, insurance companies are imposing stricter underwriting standards, becoming increasingly more particular about the risks that they write. So consumer complaints about rate increases and nonrenewals are on the rise. Real estate transactions can be made or broken based on insurance coverage. In a moment, we'll talk about those and other insurance issues. First, Merry Lucero spoke to one homeowner who took his nonrenewal notice very seriously.

>> Reporter: It's no laughing matter to Hal Gillard of Mesa, along with his complaint, he sent a cartoon expressing his frustration at State Farm insurance.

>> Hal Gillard: I've put myself in the middle with a claim. I'm trying to get the claim adjustor to accept my claim, and the big wig of the insurance company is right behind me with a notice that he's going to drop my insurance if I make this claim. And that really sums up the way I felt about it at the time.

>> Reporter: The problem started in 2001 when the Gillards woke up to a soaked living room floor.

>> Hal Gillard: One morning we had gotten up and come out the bedroom and we walked into this sunken living room in here and the floor was all wet. The carpet was soaked and everything else. So we went outside and we found that the there was a lot of mud on the outside of the house. There was a pipe that had broken just right at the end of the foundation.

>> Reporter: Gillard called his insurance agent. The carpet was professionally dried and mildew proofed. Gillard fixed the pipe himself.

>> Hal Gillard: The insurance adjustor came out and said that he would replace the carpet. He needed to replace the carpet. I and the people that came out and blew out the carpet dried it out, felt like the carpet was fine, but he wanted to replace it. So we replaced it.

>> Reporter: The claim, $1770. In 2000, Gillard had a claim of $220 for rain damage around his chimney. In 1999, he had a $400 claim for property stolen from a car parked in his driveway. The year before, State Farm had given Gillard a discount for his low claims record.

>> Hal Gillard: We received a premium notice just in November of the previous year that, you know, we had a good record, and they reduced our premium by $81. Three, four months later this, main thing happened, and we got one saying we are not being renewed because of excessive claims.

>> Reporter: That nonrenewal was a shocker, especially to a person who had been playing premiums to a company for more than 50 years. Gillard contacted the state Department of Insurance Consumer Affairs Division, but State Farm was within its rights not to renew his policy.

>> Erin Klug: For an insurer to evaluate a policyholder that they've had for that long and still make the decision to nonrenew, that's -- I think that is indicative of how tight the marketplace is and how carefully insurers are evaluating their policy holders.

>> Reporter: Over the past year, the Department of Insurance has seen an increase of consumer complaints about rate increases and nonrenewals, with some people saying they wish they hadn't made a claim at all.

>> Erin Klug: This is really hard to swallow for consumers. It's -- I'm paying premium for a product. I've bought something, and I've bought it with the idea that I can use it. You know, and now you're being told, think carefully before you use it. It's a tough situation.

>> Hal Gillard: Now, what would I do, though? If I knew ahead of time that if I make one more claim, I'm going to be dropped, here I'm paying the guys. None of these things that happened to the house were my fault. What do you do? Say, well, I'll just have to eat it? And do it myself? Which there is a lot of people that can't do it themselves.

>> Reporter: The Department of Insurance offers information on shopping around. Little comfort to those like Gillard in fear of making a claim.

>> Hal Gillard: We finally went through a broker that got us an insurance policy with some limitations to it, and higher deductibles, for about twice the price of what we had been paying, but the brokerage firm told us if you are going to make claims, don't make any small claims, make -- make sure it's major damage, because your chances of being dropped again are pretty likely.

>> Michael: Joining me to talk about homeowners insurance, Phyliss Rowe, the president of the Arizona's Consumer Council, Jim Fredrickson, Executive Director of the Arizona Insurance Information Association. And Tom Farley, Vice President of Government Affairs for the Arizona Realtors Association. Thank you all for joining us. Jim, it doesn't seem fair, a guy pays premiums for 50 years, files three claims and gets jerked? What's the insurance company --

>> Jim Fredrickson: I think they did the right thing there. He went and found another insurer. Basically he fired his insurance company. In Arizona, we're fortunate in that there are over 100 companies that provide homeowners insurance. There is another -- well, there is 203 that are actually licensed but there are 100 that are actively soliciting business. The problems are twofold. One, insurers in Arizona are losing a bunch of money on homeowners insurance. The loss ratio last year was $1.01. For every dollar they took in premium, they paid out $1.01. Some companies it was as high as $1.31 paid out. The reasons for that are multiple. As you know, we've had a lot of catastrophes in recent years. In '96, we had the largest single catastrophe in the state's history, the windstorm in west Maricopa County, $160 million in insured losses. Rodeo-Chediski fire was $120 million loss. Shortly after that, there was a windstorm, the same year, on the eastern half of Maricopa County, which incurred $65 million in losses. Plus there were fires in Prescott and the Tucson area. These have been difficult times.

>> Michael: Those -- and I think people can understand that and perhaps that leads to the phenomena of gradually rising rates, but in this gentleman's case, I don't think he fired his insurance company, his insurance company fired him for doing something as the person from the Department of Insurance pointed out, is what you think you're buying insurance for.

>> Jim Fredrickson: Well, I think -- I think while this may sound a little cavalier, there are insurers that are in financial straits right now, because of their losses. They have a regulatory requirement to have a ratio of premiums to cash reserves of three to one. When they incur substantial losses, that ratio is jeopardized and the viability of their company is in jeopardy. So they have two options. Frankly, either tighten their underwriting criteria, which they did in this case, or raise their rates.

>> Michael: Phyliss, what sort of feedback are you getting from consumers in relation to this area? Are the complaints about this or similar situations on the rise?

>> Phyliss Rowe: A lot of consumers are concerned because their insurance rates are going up tremendously. In some cases, they are doubling. They don't understand why this should be. In some cases they have had no claims. And a lot of consumers who are buying houses in particular are having problems because they try -- they don't wait -- they do wait to get their insurance until just about the time that the house is going to close, and they find out that there are a lot of problems with getting insurance that will be effective when their house closes. And often it's higher than they had anticipated.

>> Michael: These are people who, for example, have homeowners insurance, perhaps, on the current home that they own, but they are having some difficulty getting a new policy on a place that they would like to buy?

>> Phyliss Rowe: Yes, that causes a problem. They need to get information about the house they are going to buy from the owner about the claims that they've had, and then they -- from that, the insurance -- they will determine what the insurance is, the underwriters will determine it then.

>> Michael: Tom, I take it that's where the realtors come in, some of your transactions are being impacted by this?

>> Tom Farley: Sure, we've actually heard from homeowners who are not looking to buy or sell as well as those stories from realtors and people -- buyers where they buy insurance, they think that they have everything sewn up, close of escrow comes, and then Arizona law, an insurance company can cancel an insurance policy for any reason 60 days after it's issued. It's issued at close of escrow. What we found was they were receiving letters about 10 to 30 days after close of escrow saying, Mr. New homeowner, we can no longer cover you, because of either a previous claim on the home that they purchased or maybe a claim that the new homeowner made either in this state or another state on another home. We've found that problematic and we introduced legislation this year.

>> Michael: I want to get back to that in just a second. Jim, is what we're seeing here a phenomena of what you were talking about that companies generally ratcheting down their underwriting criteria or is something else going on?

>> Jim Fredrickson: No, they are ratcheting down the underwriting criteria. One comment I did want to make, Phyliss mentioned the fact that insurance rates are going up. The principal cost driver is that homes are appreciating so much. In Arizona the homes have appreciated 35% to 40% in the last five years. So naturally that's more exposure for an insurance company, and that in and of itself is automatically going to raise the rates. So, I did want to make that point.

>> Michael: Okay. Tom, let me go back to the legislation that you have introduced. Tell me what it would do, what problems it attempts to address.

>> Tom Farley: Sure. When you file a claim, you call up your insurance company, whether it's possible damage, or an actual, let's say, water pipe leak. That phone call is recorded and a claims history database, the most famous is the Comprehensive Loss Underwriting Exchange that records where the claim occurred and the person who made the claim. What we said was, insurance companies, if you use this as a tool in your underwriting practices, you need to pull a copy of this claims history prior to issuing that policy or binder, so that's one step in Senate Bill 1265 that just passed the Senate that's on its way to the Governor's office.

>> Michael: Would this take away from the insurance company the ability to cancel for up to 60 days or not?

>> Tom Farley: On 1265, it only deals with CLUE. If they fail to pull a copy of CLUE, they can't use it as a reason to cancel a homeowner's policy. The second step is not only do you have to pull it prior to issuing the policy, but you have 30 days to review it, and then starting the 31st day, then you can't cancel because of a claims history.

>> Michael: Would that effectively shorten the 60-day cancellation window to 30 days?

>> Jim Fredrickson: The insurers have no problem with that, Michael. The existence of CLUE is designed to help realtors, insurers and home buyers, principally. It's a consumer friendly piece of information in that it can provide a potential buyer with information as to if the home, the largest single purchase they are about to make, has had any serious claims in the past. And if so, that potential buyer can look and see if the repairs were made appropriately, and then go forward with the purchase. If they haven't been made appropriately, then perhaps they might look at a different property to buy.

>> Michael: Phyliss, I think you see CLUE somewhat differently than that.

>> Phyliss Rowe: Yes, Consumer Federation of America did a study on CLUE records and found that they aren't always accurate, just as credit reports aren't always accurate. And it's hard for consumers to get copies of their CLUE report. They have to pay to get this. And then they really should check to see if there is an inaccuracy. It's very hard to check these and get them corrected. Also, if they've got a name that's a similar name to someone else, for example, Mary Brown, some of that -- some of the records for this other person might be put on their credit record and that would also be on their CLUE report. So there might be an inaccuracy in the CLUE report that consumers are having trouble correcting.

>> Michael: Tom, one other thing that occurs to me is if the homeowner waits too long to attempt to get insurance, some of these time frames may still not be very helpful before you close on your house.

>> Tom Farley: Absolutely. I mean, the insurance market has changed. The real estate market is trying to adapt to it and 1265 is attempting to focus or change the focuses when insurance companies should be doing due diligence. CLUE is only one part of it. Credit history is another. If they do inspections, a physical inspection on the property, that is another issue that we would like to see addressed, maybe in upcoming legislative session to tie into what 1265 has started.

>> Michael: Have these two bills passed, and if so, are they expected to be signed by the Governor?

>> Tom Farley: I don't want to speak on behalf of the Governor's office. We're hopeful that Senate Bill 1265 will be signed by the Governor. It has been transmitted to her office. Senate bill 1266 is another piece of legislation that is on the senate final read calendar.

>> Michael: Tom Farley, thank you very much for joining us. Phyliss Rowe, good to see you again. Jim Fredrickson, our thanks to you as well.

>> Jim Fredrickson: My pleasure.

>> Michael: For links related to tonight's "Horizon" program, go to www.kaet.asu.edu, click on "Horizon," you can see a transcript of "Horizon" programs and you can find out about upcoming topics. Tomorrow on "Horizon," ASU law professors Paul Bender and Kathy O'Grady will join me for a midterm review of the United States Supreme Court. And on Friday we'll talk about the week's developments on the statement budget and other issues on the Journalist Roundtable edition of "Horizon." Thanks very much for being here on this Wednesday evening. I'm Michael Grant. Have a great one, good night.

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