Nature is a fickle host. Between hurricanes, earthquakes, tornadoes, tsunamis and other natural disasters, she throws plenty of challenges at mankind. I’ve written previously about the false belief that a public option in health care reform won’t quickly crowd out private companies from the insurance market. I present to you a cautionary tale from the other side of the fence… a Republican Governor (and possible Presidential candidate in 2012) who is playing pickle with nature.
Fake Market Solutions
Florida, being a coastal state, constantly finds itself in the path of hurricanes. It’s geographic location straddled between the Atlantic Ocean and the Gulf of Mexico leaves it more exposed to hurricanes than most other states. The fact that hurricanes hit the state at a frequent pace means that homeowner’s insurance rates in coastal areas of the state were previously expensive. Market forces dictate risky areas have higher rates.
Enter the Florida Hurricane Catastrophe Fund, a state government run reinsurance fund and the Citizens Property Insurance Corporation, a state government run insurance program. The Catastrophe fund is of course a mandatory reinsurance fund in Florida. The Insurance Corporation offers subsidized rates to Floridians (and the state has final say on private company rates), because Governor Charlie Crist believes that the free market sets rates too high.
More Unintended consequences
- Charlie Crist. Governor. Actuary. From Mel Silvers.
Sounds great, right? The government enters the private insurance market to compete with private companies which seem to be fleecing their customers. If they realisticly compete, they can coexist, right? Wrong. Running up unfunded liabilities of $18 billion by undercharging coastal residents 35% to 65% on their premiums has driven much of the private insurance market from the state.
What happens if another large hurricane hits? Either the costs will be borne by the taxpayers of the state of Florida (including taxpayers not in the hurricane zone) or by a federal bailout. Crist is treading dangerous waters currently. Insurance is the business of pricing risk. Now that Florida’s government has entered the game, what’s your wager that they can price risk as well as Allstate, State Farm or Progressive?
Overriding the Free Market
Democrat, Republican, or whatever you label yourself as, you need to recognize that certain things lend themselves to pricing by the free market. Insurance, which is just the pricing of a risk, is one of those. Companies should be allowed to set market prices for Florida Homeowner’s Insurance. Insurance meddling could be disasterous in Florida if a storm hits, and could (read: would) be disastrous on a federal scale with ‘public option’ health insurance as well. Tell me what you think.
Florida thumbnail sourced from www.flickr.com/photos/45467976@N00/110282391, shot by Rick Flores.
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