The New York Times today detailed New York regulators’ plan to “help” insurers meet their obligations. By forcing them to take less profit and instead pool their money into an untouchable fund to be used only after catastrophic losses from a hurricane.
With an eye towards the crisis in Florida, NY regulators hope that their plan will prevent insurers from raising premiums after a major hurricane.
It’s a nice thought, but it’s more likely to cause insurers to raise premiums before the major hurricane.
For insurers, it is essential to be able to spread their risk so that it is unlikely that two catastrophic events (i.e. a category 4 hurricane in Florida and Earthquakes in California) happen at the same time. This way, when one occurs, they can use funds from the rest of the nation. Regulation of this nature is a disaster waiting to happen. By binding the hands of insurers so that they cannot freely determine the safest and most profitable way to write their policies and use their funds creates more risk for everyone. Insurers may try to compensate for the loss-of-use of NY hurricane funds by either raising premiums in NY or in another state.
NY lawmakers should take a lesson from the disastrous attempts by Florida regulators to correct the state’s insurance problems and butt-out.