Citizens not the best option for consumers
By Steve Pociask
April 1, 2010
Imagine state government setting up a company to compete against private businesses. Suppose this government company begins selling products and services below cost, driving companies out of the market and leading to layoffs. Now, imagine the government business, realizing its prices are too low, decides to recoup losses by taxing private citizens and the few remaining businesses. How would any of this be good for consumers, taxpayers or businesses?
The example may seem farfetched, but it’s exactly what’s been happening in Florida, where state-sponsored Citizens Property Insurance Corp. is now the biggest homeowners insurer in the state, sets prices at predatory levels, pushes insurers out of the market and has inadequate financial reserves to pay policyholders should a hurricane hit.
If a catastrophe does occur, Citizens, with the consent of the insurance ommissioner, can level taxes for any shortfalls upon the home, auto, boat and business insurance policies of all Floridians. Essentially, taxpayers are forced to subsidize a government enterprise that competes directly with private insurers and will ultimately force insurers to leave the market. Call it the public option.
It wasn’t always this way. In the early 1990s, Florida ranked 25th among states on average insurance premiums and 94 percent of the insurance market was comprised of large, well-known companies headquartered in other states.
Today, with the introduction of onerous insurance price regulations and the public option, Florida has the highest insurance rates in the country, and only 24 percent of its insurers are from outside the state, leaving dozens of small start-up insurance companies supported by a few million dollars of reserves, should a storm arrive.
Since insurance costs are reduced by spreading risk, relying on start-up firms and Citizens means putting “all of your eggs in one basket” and higher costs for consumers. An American Consumer Institute study found consumers pay $14 billion more in homeowners and auto insurance premiums due to excessive state regulations. In Florida, this amounts to about $300 per policy.
On a positive note, state Sen. Mike Bennett and state Rep. Bill Proctor have introduced legislation that would give consumers the freedom to shop for competitive rates among solvent companies. This bill will encourage competition, spread risk, bring rate stability and lower consumer premiums.
As for Citizens, policymakers need to “downsize” this disastrous public option. While there is a legitimate role for Citizens as a true “insurer of last resort,” it is currently decimating the private insurance market in Florida.
Steve Pociask is president of the American Consumer Institute, a nonprofit educational and research institute in Washington, D.C.