Tallahassee, Florida, August 7, 2009—The Florida Insurance
Project of the Competitive Enterprise Institute today questioned state
insurance regulators’ decision to deny State Farm’s request to reduce mandatory
discounts for mitigation.
“State Farm’s request to reduce government-mandated
mitigation discounts may seem severe,” said Christian Cámara, director
of CEI’s Florida Insurance Project, “but it’s unlikely the company would have
arrived at that decision—and dealt with the bad PR—if it didn’t really feel it
was necessary to protect its finances and policyholders.”
Cámara maintains that although well
mandatory mitigation discounts are poorly designed. “A property well inland may
become much less risky to insure if the owner adds simple roof tie-downs,
whereas a property right on the beach may be so poorly situated that no amount
of mitigation will make it much safer,” he says.
By specifying minimum discounts with almost no regard to
property location and other factors, the State of Florida has made it impossible for insurers
to take these very real differences into account, which often amounts to
government forcing companies to charge less than they should be charging. This
puts insurers’ finances, and by extension, their policyholders in jeopardy. An
insurer allowed to set its prices in response to market forces will almost
always include mitigation discounts: well-mitigated properties are less risky
and thus cheaper to insure than poorly built ones, and companies that don’t
take that into account will give up business to competitors that do.
But companies should also be able to set their rates freely and without
political interference. The Consumer Choice Insurance bill, which Governor
Crist vetoed despite overwhelming legislative support, could have improved
things and brought new, much needed capital and competition to the state.
best promote mitigation by discouraging building in high-risk places, helping
low-income people reinforce their homes, and allowing insurers to charge rates
based on risk. Florida’s
mandated mitigation discount system needs an overhaul,” says Cámara.
CEI is a non-profit, non-partisan
public interest group that studies the intersection of regulation, risk, and