Observations on Consumer Advocates II

While putting together the previous post, I noticed a report on the Americans for Insurance Reform Website (which appears defunct, but is part of the Center for Justice and Democracy website).  In a 2006 report, the AIR called for the removal of the private sector from the Florida Hurricane business.

While we haven't see full socialization of hurricane risk, we have seen partial socialization of the homeowners hurricane/wind market in both Louisiana and Florida.  I define socialization for the sake of argument as the government providing a good or service (in this case insurance) with the taxpayers being ultimately responsible for losses.

Note -- while this is not a random sample by any means, let's see how that has worked so far:

• Orleans Parish Civil District Court Judge Kern Reese ruled ...that the settlement brokered in a class action lawsuit against Louisiana Citizens Property Insurance Corp. should stand, finalizing a deal to award $1,000 apiece to policyholders whose 2005 hurricane claims were handled or paid slowly. Times Picayune 3/19/09.
• La. Citizens Citizens board OKs $35M lawsuit settlement 11/13/08 AP.
• The Florida Citizens company had so many problems with claims resolution the state had to set up a special task force to make recommendations which doesn't actually come out and say "pay claims faster."
• "State lawmakers are abandoning long-held promises to lower rates for hurricane policies -- even amid the prospect of stronger storms -- in favor of rapid hikes to rescue public insurance programs that could sink, financially speaking, during the looming cyclone season." The New York Times 5/9. Yowsa!
• (Fla.) Citizens' life expectancy in a storm: 'a few short hours' --The same NYTimes.  Ditto on the yowsa.
  
  "If we have a major hurricane that hits a major metropolitan area, neither one of [the state's programs --Citizens and the state owned reinsurer] would be able to pay their claims," said state Rep. Bill Proctor, a Republican who introduced a bill that would allow private insurers to charge whatever they want. "Frankly, we've just dug the hole deeper since 2005."

To be fair the above mentioned AIR report called for the complete elimination of the private market which has not yet occurred.  The private market companies were alleged to have kept the good risks for themselves and this is why we have to get rid of the private players, so we can spread the risk to everyone in the state.  Unfortunately that just makes the problem worse as the one of the benefits of having private insurers is that they can spread the risk to someone else.  Public insurers with bad credit ratings (like Florida after a really big storm) can't spread the risk much beyond the taxpayers.

The crazy thing is that this isn't economic rocket science and it has been known for some time that this could be a likely scenario.