06 March 2011

Free market idea raises insurance rates

Free market idea raises insurance rates ; Friday's column took at look at bills being sponsored or co-sponsored by state Sen. Alan Hays, the Umatilla Republican who represents much of Lake County.

After serving six years in the state House of Representatives, where each legislator can file only six bills, Hays has been turned loose in the Senate, where there is no bill limit. The senator has introduced some good bills that will help the average person. Others won't.

Either way, the trend in Hays' bills is easy to spot. He's part of a movement toward "streamlining government," doing away with regulation and "enhancing the business climate."

Last week, Hays remarked that the state should be working to "make life good" for businesses already here.

The strategy used by Gov. Rick Scott — and now by Hays — is to keep it stupidly simple by constantly repeating small, upbeat sound bites to describe their goals. 'Streamlining government,' for example, leaves the image of a slick operation working so efficiently and smoothly that it slides noiselessly by in a blur and doesn't try to pick your pocket.

Who wouldn't want to streamline government? How could anyone possibly think that's a bad idea? For the lazy voter, the sound bite is the answer to a dilemma — he or she can appear to be on the right side of every issue without having to bother looking at the pesky specifics of what's being proposed.

'Deregulating' insurance business

But beware of the bites. They have teeth.

What, exactly, does "streamline" mean in practical terms for the average resident? And why, for example, has 'less government regulation' become by definition "good" in every imaginable situation, regardless of the consequences?

Thinking people should study individual proposals behind the sound bites and ask who would benefit and at whose expense. People unable or unwilling to think past stock phrases to examine specifics should do the rest of us a favor and shut up.

Hays, a retired dentist and long time conservative, is predictable — his bills all fit neatly into the sound-bite goals he described and merge seamlessly into the government-slashing, pro-business agenda set by the governor. Layer on a dollop of urgency, and almost anything can be justified by the slumped American economy.

But let's look behind Hays' bills and see precisely who would be the big winners and why.

Among the senator's most dramatic proposals is one he describes as "deregulating" the residential insurance business, the folks who provide your homeowner policy. What Hays actually is proposing is allowing companies to sell insurance that would be only slightly regulated.

For the uninitiated, Florida has an Office of Insurance Regulation, which keeps tabs on what is widely regarded as one of the most slimy industries in the state. Insurers all are required to file with the department the rates they want to charge homeowners and have those approved. If they want to raise rates, they have to ask.

A request triggers the insurance office to analyze the insurer's plea and decide whether the company is trying to fleece consumers or the asked-for rates are justified when balanced against the company's risk and other factors.

The reason such regulation exists goes back more than a century. Since the late 1800s, this country has recognized insurance regulation as public policy that not only is in their best interest but is necessary to protect consumers.

Hays' bill proposes to require insurance companies to continue filing rates with the state. However, the companies could raise the price whenever they want — without the Florida Office of Insurance determining whether the new cost would be "excessive."

The bill would allow the insurance companies to jack up premiums an average of 15 percent a year, but not more than 30 percent a year for any single homeowner. Let's say you're paying $1,000 a year now to insure your home. Your company could increase that to $1,300 next year. The following year, it could go to $1,690; the year after that, $2,197. No caps.

There would be nothing you could do about it — except change companies.

That's where Hays' free-market argument comes in. The theory is that the prices eventually would drop and the market would seek its own level if insurance companies had to truly compete.

However, the senator, a spokesman for the state insurance office and another for the industry association, the Florida Insurance Council, all agree with near certainty that rates immediately would rise. They also say that a number of insurance companies that don't currently sell homeowner policies in Florida would stampede to get into the market if the rates weren't tightly regulated.

After that? It's all theory. No one knows for sure.

"It's called supply and demand," Hays said. "Who is to object except the purist that thinks government has to have its hand in everything?

"This bill will put control back in the hands of the public."

'Less government regulation'

Yes, indeedy. That it will. Homeowners would get to choose from a very wide field which company they want to gouge them.

Plenty of markets function at their peak without government interference — Hays is right about that. But insurance isn't one of them. The industry time and again has proven its greed and has come to be regarded as one of the most slippery in Florida.

While many property-casualty companies are whining and threatening to leave the state, nearly every private insurer that does business here has created a series of companies and subsidiaries into which money is channeled to keep it out of the reach of regulators.

After all, if these insurers are so broke, how were they able to hand out more than $149 million in executive bonuses, perks and dividends to their holding companies between 2006 and '08?

The answer is simple: They increased rates to Floridians by an average of 35 percent over the same period, the Sarasota Herald-Tribune found.

Last year alone, the state insurance office forced companies to give consumers $39 million back in rebates — essentially, overcharges.

So, because "less government regulation" is always better, should Florida let insurers run roughshod over consumers?

And what about the many folks who wouldn't be able to afford homeowner insurance from a private company under the new scenario?

Wouldn't that push more people into the already tragically underfunded, state-run Citizens Property Insurance Corporation?

Permanently higher premiums

Hays' bill offers a "carrot" to legislators who are less single-minded about the glories of abolishing government regulation than Hays. It's this: The bill would require companies to purchase large amounts of what is called "reinsurance" — insurance that the State Farms and Allstates of the world buy to be certain that they can pay 100 percent of their claims in the event of widespread disaster. However, that's slim enticement. The Florida Office of Insurance Regulation already examines companies for financial stability.

Hays said he believes "many people would much rather go ahead and pay a higher premium, knowing that they'll be buying from a company that they can count on to be there to pay their claim."

So, dear homeowner, do you agree with your senator? Are you willing to pay what almost certainly would be permanently higher premiums for homeowner insurance for the sake of a free market? Are you lying awake at night now worrying so much that Nationwide won't be able to come through with a check if your kitchen catches fire?

And Tea Party members — you champions of free markets — are you willing to help Hays, who says the bill has a 60 percent chance of passage, get it through the land mine of the Legislature?

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