Why “insurance deregulation” are scary words
This time of year, prior to start of the Florida legislative session, various interest groups “circle the wagons” to discuss issues and concerns. I’ve attended two such meetings related to property insurance over the past two weeks and listened as insurers, academics, consultants and industry experts, government representatives and elected officials discussed what can be done to bring stability of the state’s volatile insurance marketplace. Over the next several posts, I will share insights, starting at the beginning – with the first speaker heard on the first day of a meeting co-sponsored by Property Casualty Insurers Association of America (PCI). Michael Malansky is the CEO of Luntz, Malansky Strategic Research and conducted a public opinion poll for PCI in 2007. In that poll, people were asked what frustrated them most about their insurance – and 36 percent said they were most frustrated over a feeling that they lacked control. Malansky said that feeling is little changed from 2007, and it may be fair to say it has escalated with the U.S. financial crisis. And, herein is the insurance industry challenge: How do you talk about deregulating insurance rates when Floridians equate deregulation with out-of-control costs?
Another bill (HB 447) is being introduced to deregulate rates, and it may be that the word “deregulation” in and of itself scares the heck out of people. Malansky said we need to redefine deregulation with another word, and I guess that’s been done, in some manner, by labeling HB 447 the “Consumer Choice Bill.” My view: It doesn’t matter what words we use. Insurance in Florida is such an emotional issue that facts have little sway over a loud rant. And, we’ve had plenty of ranting on all sides in recent years – and frankly, not a lot of needed progress. People want proof of the consumer benefits of deregulation, and absent that, it would be hard to get on board. So, I went in search of deregulation benefits and found this: A report on Insurance Deregulation and the Public Interest authored in 2000 by Scott E. Harrington of the AEI-Brookings Joint Center for Regulatory Study. Harrington writes at the end of his overview that most consumers benefit from deregulation – and he outlines why and how in his 60+ page report. You can read the entire report to learn that:
· Details of rate regulation are so complex that they vary from state to state and within a state by line of business.
· Rate regulation has high direct and indirect costs for insurance companies, and those costs get passed down to consumers. The benefits of regulation should outweigh these costs.
· A rate cap on state-run insurers of last resort, such as Citizens Property Insurance, can crowd out the voluntary market.
· Competition creates a strong incentive for insurers to improve their pricing, underwriting, and forecasting.
Harrington’s report may be 10 years old, and yet the information appears timeless. In fact, it seemed to squeeze the fear factor encased in that deregulation word.