To read his ConsumerGram, click here — nn-and-the-environment

What are you thoughts about the Digital TV Transition?

http://www.heartland.org:80/publications/infotech%20telecom/article/25408/Senators_Seek_Wireless_Spectrum_Inventory.html

2) On Casino Competition and the Economy, see Metro International at:

 http://www.metro.us:80/us/article/2009/05/28/03/3537-85/index.xml

3) On Casino Competition and the Economy, see Delaware County Daily Times:

http://www.delcotimes.com/articles/2009/05/29/business/doc4a1f66ae94357699001179.txt

4). Universal service, see Heartland at:

http://www.heartland.org:80/publications/infotech%20telecom/article/25412/Expansion_of_Universal_Service_Fund_Debated.html

There was a time when consumers regularly depended on private insurance coverage to protect our cars and homes against the unexpected occurrence of a major loss. But, there has been a growing threat to consumers. That consumer threat, however, is not posed by private insurance carriers, who are demonized as price-gougers, profiteers and goliaths; that threat comes from the very state watchdogs entrusted to regulate these carriers. Policymakers and regulators have created an illusion that insurance markets are failing and that state insurance monopolies would produce better outcomes than competition. But, nothing could be further from the truth.

The trend toward state monopoly is clear and consumers need to hold onto their wallets. Citizens Property Insurance Corporation (CPIC), the state-operated insurance company, has become the largest insurance company and is well on its way to capturing 50% of the market. This has been done by unprofitably providing insurance below cost. It is just one or two major storms away from picking taxpayers’ pockets in what will be a multi-billion dollar bailout.

The recent announcement by State Farm (Miami Herald, “State Farm Wants to Dump Home Insurance in Florida,” January 17, 2008), the largest private property insurer, to withdraw from Florida gives further evidence of regulatory malpractice in the state. A study by the American Consumer Institute (ACI) found that, after adjusting for hurricane exposure and other factors, Florida insurance consumers pay $300 more (annually per household) for insurance – just because of the excessive state insurance regulation. As regulatory costs go up, insurance carriers try to raise their prices. And, when price increases are denied, carriers exit the market, bequeathing its future losses to the unprofitable state-operated CPIC.

When the insurance commissioner decided to suspended Allstate, the state Governor called the decision “a beautiful thing” (Miami Herald, “Court Upholds Allstate Suspension,” May 15, 2008). But, beauty is in the eye of the beholder. As private insurers are driven out of the market, competition decreases, regulations increase and consumers lose, but Florida’s state-owned insurance monopoly grows, as does its losses. So, when the Florida insurance commissioner orders insurance companies to stop writing policies and others try to exit the market altogether, it is not looking out for consumers; it is looking out for its own monopoly interests. In the end, consumers will have higher insurance prices and less choice – not a “beautiful” picture.

So who’s watching the watchdog? As the state regulatory watchdog slowly monopolizes the insurance market, the end result will not be good for consumers. GMU Professors Bennett and Johnson, as well as other economists, have shown that government provision of private services comes at an immense price – usually twice the cost of private provision. That’s right. Empirical evidence shows that – if you have government enterprises run the airlines, provide electricity service, pick-up your trash or process your insurance claim – it will cost consumers twice as much, compared to private enterprise. The reason is simple – government enterprises are not subject to market pressures that lower costs and government enterprises are less sensitive to consumer needs. Finally, government monopolies also don’t go out of business, which is why Florida taxpayers will eventually be asked to pay the difference.

On the other hand, private enterprises need to be as efficient as possible in order to stay ahead of their competition and produce a profit for all of their efforts. If they can’t cover their costs, they will leave the market; and that, thanks to a stifling regulatory environment, is what has happened here with the exit of State Farm. Having an unprofitable government enterprise pick-up the pieces is a second-best solution.

Steve Pociask is president of ACI and Dr. Joseph Fuhr is a Senior Fellow at ACI, as well as professor of economics at Weidner University.
To read more about this subject, read our op-ed in the Orlando Sentinel.

With nearly 90 auto insurance providers in the state, Georgia consumers enjoy more competition and choice of auto insurance plans than they do for most other goods and services. Where else can Georgia shoppers find so many choices – food, housing, medical care, telephone service? The ability of consumers to shop, choose and switch will lead to overall competitive rate levels with no suggestion of monopoly profits.

The state’s auto insurance markets do not show characteristics of natural monopoly, unfair competition or other market infirmities traditionally indicative of a need for price regulation. Given the lack of evidence of current market failure, the absence of delay, uncertainty and regulatory arbitrariness for insurers and customers will create value for consumers. All one Georgian needed to do to get a lower rate, as the Atlanta Journal-Constitution’s James Salzer reported in a Dec. 7 article, “Rates up for Auto Insurance,” was switch insurance providers.

That rates were rising even before price regulation ended in October indicates that claim costs, rather than regulatory changes, are driving rate trends. This is reflected in the fact that some rates are going down (notably the largest Georgia provider) while others are going up. Competition is at work, bringing the structure of rates into line with the structure of claims and other costs, thereby ridding the system of implicit taxes on some Georgians to subsidize others.

If some drivers “deserve” a subsidy, the state should implement direct income transfers, not hidden taxes in the form of higher rates for “less deserving” Georgians, whoever they might be. Good drivers should not be forced to subsidize bad drivers; high-risk drivers should pay higher rates to offset the higher claims costs that they impose on the system. Such a policy should reduce the average premium of drivers and encourage safer driving.

Despite the presumption of innocence or lawfulness widely embedded in the U.S. legal standards, Georgia law previously put the burden of proof on insurers. Given the competitive nature of the industry, “filing costs” – the costs of delay, pricing inefficiencies, uncertainty, paperwork, administrative costs and compliance costs – are assured to be passed onto consumers in the form of higher rates. Rate regulation is not free. In that context, it should not be surprising that requests for rate changes increased after the law was implemented. These costs are avoided in the new environment; undoubtedly, many such requests were put on hold until the new law was enacted.

It is important to note that before the law was amended, insurers were reluctant to reduce rates, knowing that if they needed to raise rates these increases would be greater due to a lower rate base. Thus, the old rules very likely forced some insurers to charge higher prices to some consumers than they will be charging in the new environment.

Two months do not establish a long-term trend. However, the evidence in Georgia to date, combined with the experience of states with and without requirements for rate change approvals, indicates that rivalry among insurers will lead to normal profits, cost-based premiums and efforts by insurers to improve service quality as a means of increasing market share.

Competition among providers is sufficient to protect consumers from excessive and unfair rates, but it is not adequate to protect them from risks associated with provider insolvency or potentially abusive trade practices. Insurance by definition involves substantial risks. These are pooled, shared and managed by providers. Individual policy holders have no way to assess provider business methods or financial strength. They do not have sufficient information to make complex determinations of risk in comparison to price, other service attributes or fine contractual print and are generally exposed to providers’ refusal to honor claims, misrepresentations and other consumer abuses. The current national financial crisis in credit markets is, in significant measure, the result of failure of firms to manage risk. Here, there is a clear consumer protection role for government officials. As for determining price in Georgia, the evidence is clear: Competition favors the consumer.

(reprinted from the Georgia Public Policy Foundation at http://www.gppf.org)

http://www.delcotimes.com/articles/2008/12/19/news/doc494b2d710fa40774716310.txt
http://www.delcotimes.com/articles/2008/12/26/news/doc495450bbb6f52542045327.txt

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