Around the time you read this, I’ll be speaking in Minnesota at a property insurance summit that the local insurance trade is putting on. My topic is “The Florida Property Insurance Model and How to Avoid It.” If you want to hear everything I have to say. . .well, come to Minneapolis. But, for everyone else, I have three major points I want to share.
- Understand that people don’t care about P&C insurance (until they do.) This is pretty simple. Except during very brief periods when rates soar for one reason or another, hardly anybody outside of the industry wakes up in the morning thinking about P&C insurance. There are almost no street protests about insurance. Even well-informed people who may know a fair amount about, say, Iraq or health care policy know little or nothing about P&C insurance. Thus, educating the general public is probably futile, since they don’t care about it.
- Don’t be stupid. In hindsight, a large part of the industry in Florida was, well, pretty stupid. Many insurers got very greedy to grow auto insurance market share and cut rates on homeowners as a loss leader. This was unsustainable. In the wake of hurricanes, furthermore, a few “bad apples” played hardball with very sympathetic people who honestly thought they should be covered and had a legitimate case.
- Work together. A unified front that includes all or almost all insurance industry groups as well as others—environmentalists and free market groups most importantly—is going to be a lot more effective than atomized trades, companies, and citizens groups working against one another.
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Automobile insurance reform legislation is, at long last, moving forward in Michigan. There’s one big thing missing from the package under consideration: strong measures against fraud. Michigan almost certainly has the dubious distinction of being the state with the most auto insurance fraud per capita. The National Insurance Crime Bureau finds that it has more suspect claims (potential fraud) than either California or Texas even though it’s less than half the size of either of them.
Here’s my favorite fact: the average Personal Injury Protection (PIP) claim in Michigan is about $30,000. The next highest total, New Jersey, is about $16,000. There’s something fishy going on.
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Sometime later this week, Heartland, some other free-market groups, and some environmental groups are going to be sending a letter to the super-committee calling for cutbacks in the crop insurance program.
Not surprisingly, I expect a fair amount of pushback—some of it from individuals and groups who have the same opinions those of us at Heartland do about the National Flood Insurance Program. A few thoughts (ok, another list of three):
- It’s unlikely we’ll have a world without a flood program at all, but a world without a crop program is possible. Plenty of areas of the country—the City of New Orleans, for example—simply wouldn’t be habitable without some sort of flood subsidy. As a political matter, if nothing else, we’re going to have to have something to help out people of modest means in those areas for a long, long time. On the other hand, I believe we could continue to produce the same amount of food and have more or less the same sort of market prices even if no money at all were spent on crop insurance.
- The crop program is more expensive than the flood program—by a lot. The flood program has run up an $18 billion (give or take a little) debt over 40 years and benefited from about $3 billion in previous debt forgiveness. This comes out to about $500 million a year. The crop subsidy, on the other hand, is $6.5 billion per year.
- Withdrawing crop subsidies would have better, quicker environmental benefits than withdrawing flood subsidies. In the next decade, patterns of coastal development will remain almost identical with or without flood insurance. Nobody will pick up and move right away simply because flood rates go up 20%. On the other hand, since planting decisions are (largely) made year-to-year, erosion-prone and otherwise sensitive land will lie fallow (or remain wilderness) just as soon as crop subsidies are reduced.
