A bill that would rewrite the State of Texas’ absurd insurance non-renewal laws is pending before the state legislature. Essentially, the bill (H.B. 1368) would revise the state’s absurdly burdensome non-renewal laws to allow companies to non-renew up to 2 percent of their business each year for just about any legitimate, business-related reason.
On its merits, the bill has a lot to recommend it: so long as it isn’t done in a way that, say, violates civil rights laws, companies obviously should be able to decide who they serve. Property and casualty insurers that rely on managing risk across broad pools need to be able to balance these pools as they see fit. In the P&C space, restricting companies’ abilities to non-renew policies leads to less efficient risk portfolios, higher average rates (since the companies have to make up for the money-losing policies somewhere) and subsidies for risky/careless behavior. But, of course, most insurance companies will agree with the above.
I think there’s a good argument, indeed, that the biggest beneficiaries of restrictions on non-renewal are insurers that are inefficient at managing their own risks. Consumers obviously don’t benefit in the long run and, for the most part, I’m not sure if they benefit in the short run either: a company that wants to non-renew a customer but can’t will naturally do everything it can to hike that customers’ rate and skimp on service to get them to leave. In some markets, where the only alternative is a publically run or mandated entity—some of which have bad service and high rates—this may still be preferable. But in most markets, most of the time, there’s either another company or, even if there isn’t that, a public entity that’s decent in terms of service if not price.
Smaller market players with less sophisticated underwriting criteria, however, may get the best overall deal: if big players can’t balance their portfolios and need to charge higher prices to good customers, then price competition becomes harder overall. That’s the theory at least; I’d love to understand better why these laws emerged in the first place other than people angry at the inconvenience of being non-renewed.
I had a pretty good and productive meeting with Florida’s Office of Insurance Regulation during a trip to Tallahassee last week. I’m hoping that Heartland will be able to get together a bunch of people—OIR included—to support some efforts to restrict subsidized insurance in environmentally sensitive coastal areas. I’ve had more than a few criticisms of the way OIR regulates (particularly their practice of “secret administrative supervision”) although, for the most part, the real problems with Florida’s former governor Charlie Crist and the legislature rather than the people running OIR.
In fact, I’m even willing to (sorta) defend the OIR action that’s most despised in the industry: the practice of mandatory mitigation credits. In Florida, insurers are mandated to give discounts off of base rates for people who do things like install roof tie-downs and change garage door openings. Ideally, of course, risk-based rates, by themselves, should provide decent support for mitigation. In Florida, however, the progress of actual mitigation policy was a lot slower than it should have been: in part because of the possibilities for fraud, lots of insurers were really giving discounts only for newer houses rather than older ones that had been retrofitted. Flawed and problematic as they are, Florida’s mandatory property mitigation credits did give the industry a “kick in the behind” to wake up the possibilities of mitigation. The credits weren’t free market moves at all but, relative to other ways a regulator might interfere with the market, they were reasonably good and certainly well intentioned.
Rising food prices, some sources have it, contributed to Arab unrest. If the prices come to impact the U.S.—and I’m still seeing more deflation than inflation myself—I doubt it’s likely to be that big a deal.
Americans spend the lowest percentage of their income on food of the residents of any country in the world (despite eating way too much) and that percentage has actually declined over the years. Even more interesting, the decline has happened even as the percentage of meals eaten out has gone up.
Bottom line: contrary to some apocalyptic fears, food riots in the U.S. are, to say the least, really unlikely. Solyent Green isn’t going to happen.
Until next week,
Eli Lehrer, Vice President, Washington, D.C. Operations