Saturday, April 22, 2006

"Smoke and Mirrors" Insurance

Less than 40 days before the start of the 2006 hurricane season, Florida state officials are busy covering up the true financial condition of three financially shaky insurance companies, Paige St. John reports in the Gannett-owned Tallahassee Democrat.

Regulators supposedly over-seeing the privately owned insurance companies in the public interest are using "smoke and mirrors" to hide the troubled companies' true financial condition, according to state senator J.D. Alexander (R-Lake Mills). The cover-up follows a surge of "169 new complaints filed against Poe's three insurance companies, Atlantic Preferred, Florida Preferred and Southern Family Insurance."

All three insurance companies are wholly-owned subsidiaries of Poe Financial Group. Together, they --
cover the second-largest number of homes in South Florida [and] had already racked up 3,045 complaints through April 5 related to Wilma, which smacked the region last October.

That's more than any other insurer operating in Florida, including Citizens Property Insurance, the state-run insurer that is the largest insurer of homes in Florida with more than 829,000 policies.

The complaints include issues with policy coverage, claims adjusters and settlements.
Poe Financial Group, the parent corporation, claims on its web site that its subsidiaries are rated "A-". Even so, reports St. John, as of the close of 2005 all three "failed to meet Florida's financial standards."

St. John also discloses that Florida regulators have placed the insurers "under capital management plans." However, officials "refuse to acknowledge" the special plans even exist.

The reason? Florida officials want "to prevent bad publicity from sinking the struggling insurers."

What about preventing bad insurance companies from "sinking" struggling families? Sorry. That's just not consistent with Jeb Bush's "privatization" ideology. In his world, good government protects corporations, not families.

We've said as much before, we'll be saying it again: Every community has certain high priority needs which are best met through a common pool run without regard to private profit. Police and fire protection, roads, armies, wars, veteran's benefits, Social Security for the elderly, etc. etc. Good government requires identifying which of those functions can be performed reliably, honestly, and efficiently by government itself and which can be safely left to the competitive market.

In some areas and in some time periods, common community needs may include a city owner water plant, or county run sanitation services, or beach renourishment, or even a state-owned railway to get grain to market, as for a time a very conservative South Dakota legislature realized.

In Florida, community needs for the forseeable future include reliable hurricane insurance policies covering homes and businesses.

It's past time for the Governor and the legislature to drop the dogma. Yes, Citizens Property Insurance is dysfunctional. And why not? From the outset, the legislature hobbled it with mandatory privatization policies that require it to charge more than private companies and to pay a cash premium to just about any private insurance corporation that asks, even if it exists only on paper and owns no more than the paper clip attached to its application.

In place of Citizens, the state should create a single agency to directly provide hurricane insurance coverage for all in the most cost-effective, prudent manner. It might not make private sector buddies of ambitious politicians and corrupt bureaucrats rich, but it's the most reliable and least expensive way of protecting Florida homeowners, businesses -- and taxpayers -- over the coming decade of hyperactive hurricane activity.


pissed off patricia said...

That's a very good post and it's packed full of common sense. For that reason your ideas will never happen because well, common sense is something the bush family has not ever been aware of or used. The dollar trumps common sense every time.

Bryan said...

There's plenty of opportunity for private companies in the the re-insurance side of the business. People have to be able to get insurance to buy a house, and the private companies aren't interested.

It's time for a single-payer system that protects everyone, including the taxpayers, from un-insured losses.

phinky said...

Corporations only like the free market when they make a profit, but they want welfare when they lose money. I guess they don't like the risk that capitalism entails. I have no problem with providing a safety net to corporations when they post a loss, but when they are making a profit, they don't need it.
And insurance companies need to get a clue about what their business actually is. Someone pays into an insurance policy to provide themselves a safety net in the event a disaster. Now if insurance companies are losing money because hurricanes are becoming more frequent and intense due to global warming, then maybe they could increase premiums on customers whose carbon footprint is larger. They do give discounts to policyholders who install home security systems. Why not penalize policy holders who drive SUVs or use wood burning stoves for heat?