Florida newspaper stories exposing the recent insurance rate hike requests should not come as a surprise to anyone. This is just the latest example of why the public needs regulation of the insurance industry. It is a business built upon future promises that are routinely broken when the return performance is due. Why the Florida legislature seemed convinced that by shifting the risk of catastrophic loss to its citizens would actually result in lower premiums is bewildering. It is an unrealistic to expect that an industry, which lives by the sharp letter of the law and fineprint of contract, will follow through on promised rate reductions in the absence of legal or contractual enforcement; this laissez-faire approach suggests that the industry still has a strong lobby in Tallahassee.
Even the staunchest advocate of "free markets" would blush that the insurance industry should be freed from regulation. Insurance company regulation was first needed to keep the insurance management from bankruptcy. When large fires would sweep through major cities in the late nineteenth century, it was not uncommon for claims to go unpaid because the insurance company coffers were empty. The first duty of most state insurance departments require that insurance companies conducting business open their books and prove that they have the capacity to underwrite the risks they assume.
Perhaps our Florida legislators have not been reading the national news. While Floridians have cozily worked with the insurance lobby in Florida to lower the risk burden of carriers, our Federal representatives have been holding hearings and investigations regarding various wrongful activities of the property insurance industry. Fraudulent engineering reports, misprrepresentation of flood loss claims to FEMA, and other shady claims practices have our Federal lawmakers filing bills (S. 618 and H.R. 1081) calling for the repeal of the long existing anti-trust exemptions given to the insurance industry by McCarran-Ferguson Act, and advocating the creation of a federal insurance regulator (S. 40).
Were our State legislators fooled by the promise of more affordable insurance rates in exchange for Floridians taking on a much larger risk of catastrophic loss? Maybe so. But most of us know these "slick" political leaders were not born yesterday. The bottom line is that Florida is in the middle of hurricane season. We are a Hurricane Katrina away from financial calamity because we, rather than insurance companies are on the hook for the "big one." And, insurance rate hike requests are at extraordinary levels—even after one year (2006) of no hurricanes. Hard to see how the laws passed in that special legislative session are helping right now. Possibly, our legislators will learn the same lesson many claimants do after the loss happens–you are in a very financially vulnerable position if you rely on future promises from an industry so eager for up front payment and action today.