The Phantom Subsidy
In an effort to promote competition and encourage new insurers to enter the state, over the past 18 months the State of Florida has been providing up to $265 million in loans to private insurers willing to take policies from Citizens. (“Small companies dominate Florida insurance market,” August 4)
While the number of small insurers has increased with the subsidies, Florida could increase competition and lower rates to a greater degree by lowering regulatory barriers, rather than raising them. In its efforts to alleviate high insurance rates, the state is hindering the ability of insurers to react to market forces.
Those barriers may exacerbate the very problem legislators seek to solve: the inability of many insurers to adequately cover policyholders in the event of a natural disaster. After a major hurricane or flood, any deficits Citizens may accrue are recovered through fees and assessments paid by every policyholder across the state, placing an additional burden on individual homeowners and resulting in higher rates.
Any surplus Citizens generates should be returned to the people who paid the assessments and fees as part of their polices, not used as a government subsidy to entice private insurers to enter a shoddy insurance market. In our recent study, we found that both competition and product quality improved the most when regulatory barriers were minimized and rate controls lessened. Currently Florida ranks dead last among the 50 states in promoting a competitive insurance market, a ranking unlikely to improve even with the new heavily subsidized insurers entering the market.
Matthew Glans (firstname.lastname@example.org) is a legislative specialist for The Heartland Institute.