Friday, January 30, 2009

Drunk on Socialism

For years I’ve held the belief that insurance companies are running a con game that should be illegal. My reasoning is that insurance companies aren’t in business to pay claims, they’re in the business of not paying claims. The holy grail of the industry is to collect premiums and avoid the obligation of providing the services they sell.

Even an insurance company with noble goals must compete in the market against other insurance companies that are far less noble. They abuse the trust of their policy holders by fraudulently rejecting claims, or throwing up needless roadblocks in the claim process to compel customers to abandon legitimate claims. Because such practices increase profitability, those unscrupulous companies force others to adopt the same tactics.

Florida is a hotbed of insurance drama, due to the regular appearance of hurricanes. These horrible storms wreak havoc in coastal communities, and insurance companies scream bloody murder whenever they do. It’s all amateur theatrics, designed to convince legislators that the insurance industry truly thought hurricanes would never appear in Florida again.

The Florida Office of Insurance Regulation attempts to prevent insurance companies from jacking up homeowner policy rates to recover their payouts (note that I didn’t say “losses”), while expensive insurance industry lobbyists throw lavish Superbowl parties for our legislators, who run the Florida Office of Insurance Regulation. And the wheels go round and round.

Recently, State Farm submitted a request to increase insurance rates by 47% in the state of Florida. They were turned down of course, whereupon they informed the state government of their intention to cancel the 1.2 million policies they hold in the state and cease doing business here. In effect, they’re saying that they can’t compete as a business in a state where people make so many damn claims. To be completely fair, the state of Florida has done precious little to alleviate the problem, with inadequate building codes, trailer parks, and rampant beachfront development.

But we can’t make insurance illegal, because people need it. This forces me to consider the dreaded “S” word: Socialism. Thanks to the brutal totalitarian tactics of Soviet Russia during the 50’s and 60’s, Socialism in the United States has a frightening association with Communism. Knee-jerk conservatives consider any form of Socialism to be the end of a free democratic society.

I don’t see Socialism as black and white. I see it as a reasonable solution to certain problems. In an industry where competition is not in the interest of the consumer, nationalize the industry.

Turn it into a government agency (don’t force insurance companies to close – they can try to compete if they want), and fund it from pro-rated property taxes. Florida and Gulf-coast homeowners will experience the biggest property tax hit (particularly in coastal communities), but Montana homeowners will be required to pay a few pennies towards such disasters wherever they might strike in the country. There’s no incentive to not pay claims, because as a government agency funded by taxes, they won’t have a profit motive. I suspect insurance fraud will be as much of a problem as it is today, but it will become a federal crime, punishable by hard time.

There is historical precedent for this kind of Socialism: The U.S. Postal System, public education, and New Hampshire Liquor stores. FedEx, UPS and others compete directly with the U.S. Postal System, and I don’t hear conservative politicians screaming to have it abolished as an example of creeping Socialism. Our public school system competes directly with private schools, but no one will deny that it’s in the public interest.

However, New Hampshire has State-owned liquor stores. In this case, I think New Hampshire stepped over the line, squashing competition in an industry that served a legitimate public need. Anybody in New Hampshire can open a liquor store, but they have a hard time competing with the buying power of the entire state.

Worse, insurance industry lobbyists from Maine, Massachusetts, Vermont and Canada are driving towards the New Hampshire border at the time I’m writing this, to stock up on Socialist booze for Superbowl parties at rock-bottom prices. Do you know where your state legislators are going to be spending the weekend?

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