Better off with less competition?

The Miami Herald reported last Tuesday that State Farm is pulling out of the Florida property insurance market. Why would State Farm pull out of a state where it has been writing property insurance for more than 60 years? Because of heavy regulation by the Florida Office of Insurance Regulation.

Some people seem fine with this. For instance, Florida Governor Charlie Crist said, “‘They probably charge the highest rates in the state anyway. Floridians will be much better off without them.”

But it is hard to square Crist’s statement with what the consumers will experience. Marisel Sanchez Walston, whose mother lives in Miami-Dade County, may be out of luck. If she can’t find another insurer, “I don’t see any other option for my mother other than selling the house when the real estate market gets a little better.”

Here in Texas, the Texas Department of Insurance is under sunset review. One of the questions the Foundation has raised is whether TDI should have the authority to reject rates that it deems excessive. “Consumer advocates” claim that regulation is important because it stabilizes rates and keeps them low. Yet nothing could be farther from the truth.

Ask Texas homeowners insurance consumers who paid an extra $900 million in premiums during the mold crisis due to forms regulation-and lawsuit abuse. Or ask Texas electricity consumers who saw bills skyrocket under the last year of price regulation in 2006.

Markets-not regulation-bring stability to prices because companies know customers value stability. Customers also value product quality, good customer service, and familiarity with their retailer. Markets provide customers a way to achieve all of these goals, along with the lowest prices possible given all the other factors involved in their decisions-consumers don’t always choose the lowest price. A regulatory focus on “excessive” prices ignores all these factors and denies consumers the ability to choose products that best meet their needs. As a result, customers are dissatisfied, companies lose money and leave the state, and the economy suffers.

Texas can avoid this fate by changing its homeowners’ insurance laws to remove regulation of excessive rates and fully implement the state’s file and use system. The Foundation has made several recommendations on how to do this and otherwise improve the Texas homeowners’ insurance market-and our economy.

– Bill Peacock