California Property Rights Journal

In late January 2009 State Farm Insurance in Florida announced it was entirely withdrawing from providing homeowners’ insurance in the state of Florida.  The decision to withdraw from that market came roughly two weeks after the state’s “insurance commissioner” denied a request for a rate increase.  The insurance company, presumably after analyzing its exposure and rate structure, determined that the liability exposure and cost of doing business in Florida was not warranted by the potential (premiums) revenue to be obtained.

 Insurance commissioners and “rate structures” have been adopted in a number of jurisdictions, including, for example, California.  While all of us have observed that so-called “predatory” pricing may occur in certain circumstances the overall concept and theory for doing business in the United States is the ability to set prices for your product or service.  If no one wants to pay that price, they shop elsewhere.  This is what has made Walmart and Rolls Royce cultural icons.  When the right to set prices at what the market will pay is removed through price fixing or other regulation the incentive to remain in a business can be largely eliminated.  The homeowners in Florida will, in all probability, be the single biggest “losers” as a result of a government agency decision that is purportedly justified on behalf of consumers.  The repeated weather and forest fire related emergencies in Florida, Louisiana and California impact the cost of doing business.  That fact cannot be escaped.  Will California suffer a similar fate for homeowners’ insurance, auto insurance, commercial liability insurance?  Time will tell.

 Regulations frequently lead to unanticipated results.  Enacting legislation without a thorough analysis of its probable impact, intended and otherwise, leads to bizarre results.  Unwinding the maze of regulation can have unintended consequences. The collapse of Enron in the national economy arose, in large part, out of the deregulation of portions of a utility that as much as invited nefarious activity by persons with a criminal mindset.  Price regulation, whether for Mobilehome spaces (rent control) or for services like insurance always leads to additional collateral damage.