- June 11, 2010
Walsh: Talk about an insurance disaster
Our new governor and speaker just want to be liked. Their prescription: 'make,' 'mandate,' 'require.' And this will help?
They just can't help themselves.
Compelled to prove to voters they are "get-it-done" politicians, new Florida Gov. Charlie Crist and House Speaker Marco Rubio are pandering to the populace with fast action on insurance.
But as House Insurance Committee Chairman Ron Reagan, R-Bradenton, puts it, this is not about insurance. It's all about being liked by the voters. It's all about emotion, not brains.
Being liked has always been been Charlie Crist's weakness as a politician. In spite of his supposed belief in a limited government, Crist always has portrayed himself as a politician for the little guy, for the consumer David fighting the big, bad corporate Goliaths. That's the way he was when he was Florida's attorney general. His favorite targets were easy ones - the insurance, telephone and power companies, all industries whose livelihoods the government controlled.
For the most part, this sheriff-on-a-white-horse routine wasn't too harmful. Crist wasn't all that involved in drafting legislation, and legislators let him work on his resume as the people's guy. But now, Crist's "I want to be liked" approach can do some real damage.
And he's on track to do just that with this latest rush to provide "rate relief."
If you step back and take in Crist's six-point priorities on property insurance, it should be clear where all this will go. (See the accompanying box above.)
It's almost comical. None of these priorities reduces government's role in the insurance market. It's just the opposite. Surely you zeroed in on the words "mandate," "make" and "require."
Says Crist: "We can't provide these tools to the insurance companies and just rely on a hope and a prayer that they will cut rates. We must mandate (emphasis added) meaningful and broad-based rate cuts into law."
He can't be serious.
One by one, the six priorities:
• Mandating rate cuts: One of the methods in play in Tallahassee is to cap insurers' exposure after a hurricane at, say, $24 billion. That would be the maximum amount insurers would pay out in the event of another Andrew or Katrina. Beyond that amount, Crist wantst to shift the burden to all Florida taxpayers via an increased sales tax.
As some have put it, we can pay now in higher rates and allow insurers to build up surpluses and capital for the storm to come, or as Crist, Rubio and Co. see it, lawmakers can mandate premiums they know are too low, with the expectation that everyone will be taxed and penalized later.
By capping the amount of damages insurers would have to cover, their cost of reinsurance would become less, thus allowing them to reduce their rates.
You can understand, then, the governor's comment about providing "tools." His view is if Florida taxpayers are going to shoulder future hurricane costs through a sales tax increase, then insurers must give something as well - lower premiums today.
The whole thought process here is faulty - on several counts. But we'll focus on one: Imagine the insurance market as a seesaw, with consumers on one end and insurers on the other. Left alone, the two participants try to reach a perfect balance - a price that consumers and insurers both find acceptable.
But in this case, Florida's government is now a third-party bully, disrupting the game and making the rules. The seesaw game becomes unpleasant for the players. Neither wins, both lose.
Get the bully out of the game.
• Eliminate "pup companies" and "cherry picking": This means more regulation is on the way.
It frosts lawmakers that insurers based in, say, Illinois or Minnesota or New York, set up stand-alone subsidiaries in Florida and avoid having their capital and earnings generated from their non-Florida operations included as part of their Florida "pup" companies.
Lawmakers contend that an insurer's rates should be based on its entire risk pool. Lawmakers think Floridians would pay lower premiums if, say, Allstate included in its risk pool the premiums paid by people in low-risk states. As lawmakers say, spread the risk; that's how insurance works. Or, put another way, make Iowans pay for some of Floridians' risk.
Iowans wouldn't think this idea fair. Why should they pay for people who want to live in the path of hurricanes?
But here's another reality: Insurers wouldn't create these "pups" if Florida's price regulations and liability laws were not so onerous.
Florida lawmakers also hate it when insurers only want to cover low-risk properties - just pick the good cherries. Duh. Wouldn't you? If Florida laws did not govern insurers the way they do and instead let market forces work, there would be a lot more cherry pickers - those to pick the good and bad cherries.
This whole controversy over "pup" companies and "cherry picking" always brings to mind "shoes."
Consumers have nearly unlimited choices of shoes - from $1,000 women's designer shoes to $10 children's sneakers. Consumers can buy whatever type of foot protection they want, and the simple reason is there are no government regulations mandating the size, kinds and prices of shoes. The market determines everything.
Likewise, there are a seemingly endless number of outlets from which to buy shoes, with all of them competing in whatever niche their owners find most rewarding. Some are independently owned, some are national chains, some are franchises, some are high priced, some low priced. But unlike Florida's insurance industry, when a franchise shoe operator goes broke, none of the other shoe sellers in Florida is assessed to pay the bad operator's debts. Nor must taxpayers pay those debts either.
And lawmakers wonder why the number of Florida's property insurers has shrunk in the past few years from more than 220 to about 150.
• Make Citizens Property Insurance more competitive. This is an oxymoron: The Legislature will legislate a government-owned insurance provider into becoming more competitive. When that happens, that will become the eighth wonder of the world.
• Require uniform state building codes. The insurance industry favors this. It rightly says if Florida homes were built better, there would be less storm damage. But here's what will happen: The adoption of uniform state building codes will beget a new state government bureaucracy. Whatever consumers save in their insurance premiums, they will pay to homebuilders who will pass along the costs of supporting another ever-expanding government agency.
• Improve and enhance mitigation programs. This means Crist wants to give more tax-supported subsidies to Floridians to upgrade their homes and reduce insurance losses. Kind of like food stamps and disability pay, two fraud-free government programs. Right.
• Create a national catastrophe fund. Great. We already have the money-losing national flood insurance program. Just what we need - another federal disaster.
If Florida lawmakers were statesmen, they would wouldn't adopt anything in the special session. They would evaluate the ideas that have been proposed and then go home and think.
And then we'd hope for miracles - that Gov. Crist and his legislative colleagues would come to their senses and realize the best steps they could take would be these:
Sunset all Florida property and casualty laws and open the market to the natural forces of laissez-faire competition.
Think "shoes," governor. Think shoes.