Friday, October 27, 2006

Jeb's Hooverville Insurance Proposal

Gannett Corp.'s media outlets this week are making an important contribution to the debate that Floridians should be having with their public officials (many of whom are up for reelection in 11 days) about the State's failure to properly regulate the property insurance industry and reform state-owned Citizens Property Insurance Co.

The four-day series of closely-connected articles is appearing in several Gannett-owned media outlets, including Florida Today and the Pensacola News Journal. Overall, the series as it is unfolding paints a very ugly picture of --
  • private insurance company price-gouging
  • state regulators rendered impotent by our elected politicians
  • politicians in the legislature and Governor's mansion who have sold out to the insurance industry
  • "glaring disparities" among the premium rates being charged by the largest insurance companies, and
  • a Florida population faced with the prospect of enduring ruinous premium increases or fleeing the state like refugees from a war zone.
One shocker, for those who haven't been paying attention to details, is this from the principal series author, Matt Reed:
"Most of the cost increase reflects higher profit demands by U.S. and foreign insurers, not higher storm risk."
Reed started the series off yesterday with this lede: "Florida's hurricane insurance market is all but out of control." In today's Pensacola News Journal, the local headline for the second installment cuts to the heart of another problem: "One State, Many Rates."

Every article, so far, begins with the obligatory personal story to dramatically illustrate the problem from the readers' perspective. Here's today's tale:
"Herman Allday has lived in his Cordova Park home in Pensacola for 30 years. And for all that time, it has been insured by State Farm. Allday recently found out that his next State Farm premium will be $5,400, up from $1,400."
Vivid and interesting as these anecdotes are, the more important information comes from insights into state policy-maker positions which can be gleaned here and there by a careful reading. For instance, in one sidebar titled "Five Things You Should Know About Insurance" we learn the one thing about Governor Jeb Bush (and his legislative supporters) that you really should know:
"The rate increases approved for private insurers exceed Citizens own rates. State law requires Citizens to have rates higher than the top 20 private insurance companies in any county, ratcheting up rates all around. Gov. Jeb Bush is discussing with regulators the possibility of making those Citizens increases frequent and automatic."
Once again, Jeb Bush's reflexive 'privatizing' ideology trumps common sense. Bush's proposal would worsen the insurance crisis, not ease it.

Rather than forcing the state-owned Citizens Property Insurance Company to increase its rates every time a privately-owned insurance corporation decides to gouge another slice out of the hide of homeowners, the governor ought to be leading the charge to eliminate the requirement of current law that Citizens charge higher premiums than the private market demands.

We've said before that we've-said-it-before:
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.
If the private, for-profit insurance market can't or won't provide wind insurance coverage at reasonable and competitive rates in Florida, then hurricane insurance should be treated like any other public necessity such as law enforcement, water and sewer service, interstate highways, or homeland security.

Every sign we have in Florida suggests the private capital market simply is not able or interested in providing adequate hurricane coverage at reasonable and competitive rates. The increasingly consolidated insurance industry is not satisfied with respectable profits; it's bought enough of our state politicians, now, that it expects to reap excessive profits.

As part of the series, Gannett created a statewide data base that enables a comparison of rate quotes via an interactive map where you can see rates by zip code. For Pensacola Beach, what that data base shows for zip code 32561 in Escambia County is this current range of quotes:
Allstate $1,518
State Farm $7,792
Nationwide $1,841
USAA $1,105
Citizens $3,937


That's the picture of a broken market, not a competitive one. Jeb Bush's plan to force Citizens Property Insurance to charge more and hike rates faster in such a market is as irrational as would have been a Depression-era bill to require that Hoovervilles charge hobos higher rents to protect the interests of slumlords.

2 comments:

Bryan said...

Setting insurance rates is not magic, it's a matter of keeping records and crunching numbers. You charge what you need to cover losses, operate the business, and make a profit.

This is gouging, pure and simple with political collusion.

mikemay said...

It is well known that insurance companies make their money by investing long-term in stocks and bonds, not on the premiums we pay. State Farm and others had record profits even in '04 and '05. Some increase in premiums might be needed to offset increased risks of storms but NOTHING like what they are shoving down our throat.