"Big insurance has a new day coming"
From the Palm Beach Post's S.V. Date:
For a decade and a half, [Florida] has offered massive subsidies and other carrots with the hope of enticing the private insurance industry to continue writing hurricane coverage.
This week, [Gov. Charlie] Crist is ready to use a big stick instead to force the industry to lower its rates, and, if it doesn't, to have the state-run insurer prepared to step in as a backstop.
"They can be the most competitive, even, if that works for the advantage of our people," Crist said. "Let's understand: We're already in this business. We're here. So let's acknowledge what the current reality is and work as best we can within it to help the people."
The state-run insurer, Citizens Property Insurance Corporation, is Florida's largest property insurer, with State Farm for the moment a close second. Whether that will remain so following this week's special session of the state legislature, or whether a state is on its way to becoming its citizens' only property insurance choice, is the question.
The legislature will meet to consider requiring both rate cuts of at least 25 percent (mine from State Farm more than doubled last year) and policy offerings that must include property insurance in order to sell automobile insurance in Florida. Reinsurance, which private insurers received from the state's Hurricane Catastrophe Fund at a more-than $2 billion discount from what they would have charged consumers, would remain available via the state in greater amounts and below market level.
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5 comments:
Once again, government to the rescue with a short term solution that creates long term problems. Why isn't the government putting a cap on the value of homes since they are getting too expensive for some people to afford?
Insurance is one of two great economic mysteries, the other being health care. The problem is that neither market is set up to behave in accordance with capitalism.
Insurance companies are there to provide protection against a feared reality (bad crop year, tornado, accident, fire, meteor, etc). You put money in, if the feared bad happens, you get money out. Problem is, Insurance companies make money by not paying out. Rather than being cooperative like most other buyer/seller agreements (this car is worth $5,000, I paid you $5,000 - we're both happy), insurance is more along the lines of this house is worth $250,000, I've insured it for $250,000, pay me my $250,000 and the insurance company says...no, to the profit of the insurance company. I don't fault the insurance company, their job is to make money, and one way to make money is to not pay out on claims (again, not evil. There's lots and lots and lots of language in a contract giving them lots and lots and lots of outs). The problem is that buyer and seller are adversarial.
Unfortunately there's no easy fix. Insurance fraud is a big deal, as is not paying out. Again, you have a long term contract between two entities that do not trust each other (and one prospers by not holding up its perceived end of the deal).
Also, one (the insurance company) is both helped (you have to have insurance to drive) and hurt (they have to issue insurance to unprofitable groups) by the government.
My solution (hint hint, I'm a free market libertarian) is to get the government out of the way. If I'm scared that someone will plow into my car and send me to the hospital, I should buy insurance. If I'm scared that I'll plow into someone and be sued for their medical bills I should buy insurance. If I don't feel like buying it in either case, I shouldn't have to buy it. If I want to live in a flood zone along the Mighty Mississip and insurance is too expensive then I can elect not to move there or take the risk, but neither decision need be subsidized.
I've also pondered the idea of making insurance a non-profit entity (as was the case originally).
I spent a little time Sunday trying to read up on the origins of insurance regulation in America, and didn't come up with much more than it initially was created to determine whether companies were solvent. Along the way, I suspect, it's crept on the heels of a broader consumer protection movement to what seems to be dangerously close to socialized property insurance, in which a heavily regulated market is a devastating hurricane away from a huge tax hike to keep the one company that's left--the state's solvent.
I suspect it won't come to that, and there's a compromise that the major companies will be willing to make to operate in Florida, since Citizens-only would be unthinkable. But again, too close a possibility for comfort.
What's keeping the market here uncompetitive? High solvency requirements? Too many big players? Too much wind?
Government control of prices is why the market is uncompetative. Insurers have been trying to pull out of homeowners markets for years and governments have been forcing them to stay in. Homeowners insurance is not a profitable business, if it were you would have lots of competition and the cheapest possible prices.
UBlo is dead solid perfect. Insurers buy risk from customers. If a customer wants to own their own risk they should be allowed to. If you live in New Orleans and decided you didn't want flood insurance and lost your house...guess whose problem that is? Yours. Your choice, your consequence. Being a grown up can be rough.
"UBlo is dead solid perfect." No qualifiers, not "but's," nothing. Just Stalin agreeing with me. It brings a tear to my eyes.
Maybe there's hope for this crazy world after all. Maybe the Palestinians and the Israelis can get along.
Maybe.
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