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In this proceeding, the Institute comments for the purpose of assisting the FIO in formulating its recommendations to Congress as they pertain to insurance institutions and regulation of these institutions.  Our comments focus solely on the intersection of issues involving the cost and benefit of state property and casualty insurance regulation, systemic risk and consumer protection.  Solvency oversight is the single most important justification for insurance regulation.  Yet, a number of states impose price regulations on property insurance services that result in undesirable market and consumer outcomes – outcomes that directly conflict with the goal of solvency protection.  As will be discussed extensively in these comments, in Florida and other states, price regulation of homeowners insurance has led to artificially low prices that are depleting policyholder surplus and the ability of insurers to cover consumer claims.  If state regulators set insurance prices too low, under-capitalized insurers and state funds can financially collapse when faced with a major storm.  If that happens, who will bail them out?  Our conclusion is that some states are undermining their regulatory responsibility – solvency oversight – thereby exposing consumers to more risk and potentially higher costs, as these comments will explain. The FIO should be concerned with the negative impact that price controls can have on consumers and insurers.  

In the remaining portion of our comments, we cite empirical evidence and economic studies to address: 1) whether price regulation on property insurance serves any legitimate economic role for state regulators; and 2) the extent to which price regulation undermines the proper role of solvency protection.  To summarize our research, we find no evidence of market failures to justify state price insurance regulation in the states, and find no studies showing that price regulation produces more benefits for consumers than costs.  Based on these findings, we ask the FIO to discourage excessive price regulations by state regulators, particularly price regulations that often directly conflict with sound solvency oversight, and urge the FIO to recommend modernization efforts to address the negative impacts of these continuing price regulations.