The Public Option is Here for Property Insurance


When someone knowingly sells property insurance, but has no financial backing to pay insurance claims, it is fraud.  But when state insurance commissioners, like those in Florida and most recently in Texas, encourage insolvent insurance operations, it is just politics, and taxpayers and consumers are left to pay the difference. 


A couple of weeks days ago, Texas Insurance Commissioner Geeslin rejected the government-sponsored Texas FAIR Plan board recommendation to increase rates to its high-risk homeowners.  While nobody wants to see an increase in premiums, the Texas FAIR Plan is so insolvent that had the increase been approved, it still would have left the plan more than 40% in the red. 


But the Commissioner’s decision to leave the Plan insolvent is not an aberration; it is a clear pattern and comes just months after rejecting a similar plan to stabilize the state-established and financially distressed Texas Wind Insurance Association fund, which insures high-risk coastal properties.  By rejecting increases that would have made a partial step toward solvency, in both cases, the Commissioner is jeopardizing the financial viability of the funds and imprudently pushing these costs to other consumers who will receive no benefit from the state-run funds – essentially making it a public option.  With the fund’s claims exceeding premiums, private insurance companies are assessed the difference, which they charge to their other policyholders.


Years of setting financially unsound rates have encouraged overdevelopment of coastal properties, which (over time) has put more lives and property at risk, reduced natural storm barriers and led to even much higher average insurance prices across the state.  When the government artificially sets low insurance rates, private insurers will NOT compete, they will leave the market, consumers will be worse off, and state risk pools like FAIR and TWIA will grow.  In fact, these higher costs have led to a 30% decrease in the number of homeowner insurance companies since 1995.  This has already happened in Florida, where insurance companies are leaving the state and the state-run insurance company now controls nearly 40% of the market. 


In the end, public provision of insurance has cost more than it saved — it has reduced price competition, pushed capital out of the state, put more lives and property at risk, increased costs, and left Florida and Texas with the highest property insurance premiums in the country.  For consumers, this means the end of competition and the beginning of the public option, and the result will be only higher premiums for consumers for years to come.  But, selling property insurance without adequate financial backing to pay claims is just consumer fraud perpetrated by state regulation.  Until there is “interstate competition” to unravel these harmful cross-subsidies, the situation will become worse and consumers will lose.  


(Steve Pociask is president of the American Consumer Institute Center for Citizen Research is a nonprofit educational and research institute)