How Different is the Health Insurance Crisis From Property Insurance?
Paul Krugman wrote an editorial, Insurance Horror Stories, in the New York Times which shows remarkable similarity between the health insurance industry and the property insurance industry in Florida, Mississippi, Louisiana and Texas. He noted:
"Because everyone faces some risk of incurring huge medical costs, only the superrich can afford to be without health insurance. Yet private insurers try to refuse coverage to those most likely to need it, and deny payment whenever they can get away with it."
This scenario must seem pretty familiar to most of my clients.
Krugman makes the case that health insurance is becoming so expensive that common folks simply cannot afford it or have to go to the "Wal-Mart" version of health insurance with very limited coverage. Thus, a National Health Plan is all but inevitable because only the wealthy are going to be insured in the future.
Similarly, affordability and availability of property insurance is becoming an ever more significant topic. The larger and mature insurance oligopoly is leaving any geographic area where catastrophes occur on a repeat basis. They want to avoid the peaks and valley of profitability--unless they can get a rate which is simply too good to refuse.
The response to this is no surprise because it is just like the health insurance crisis---let the government sponsor a program because the free market is not working. In Florida and Louisiana, the public insurance companies are named Citizens. In Mississippi, it is the Mississippi Windstorm Underwriting Association (usually referred to as Mississippi Windpool). In Texas, it is the Texas Windstorm Insurance Association (TWIA). Congress is now sponsoring bills which call for a national program for property insurance. What will happen is anybody's guess, but there is a definite trend towards government involvement in insurance where the basic needs (demand) cannot be met by private industry at an affordable price.
In the long term, I am not certain that it is in anybody's best interest to let the government run a business so important. As we are currently witnessing in the economy, government cannot even regulate the shenanigans that go on in private business, much less be expected to run it. I thought we learned those lessons through Russia's experiment with socialism. Yet, if there is no alternative....
As a victim of Hurricane Katrina in South Mississippi I can attest first hand of the burden to homeowners that the wind pool has created. If you have a mortgage, you have no choice but to insure your property. I am also a Realtor and have seen the effect this has had on home sales. Fortunately, the downward trend of the economy has not affected South Mississippi to the extent of the rest of the United States. But the high cost of insurance is definately effecting first-time homebuyers and single parents. I am not sure that having the government step in is a bad solution. The have seemed to handle flood insurance fine. Why can't the insurance companies be regulated? I understand they are in the business of making money but to boast of the highest profits ever in the quarter following Katrina was a real slap in the face to Katrina victims. It appears that a multi-peril insurance would solve not just South Mississippi but other areas as well.
Sandy,
Your point about the government stepping in is one shared by quite a few people. Gene Taylor is the Congressman who has spearheaded this effort after his home was destroyed from Katrina.
President Obama has said he would support a Catastrophic Insurance Program to help in the event of a large disaster. The House of Representatives passed such a measure last year.
Thank you for bringing up this important point.