State Farm is announcing that they are pulling out of the commercial and home-owner insurance markets in Mississippi. Why? They are getting sued and regulated to death. The money quote:
“State Farm, the largest homeowners insurer in Mississippi with more than 30 percent of the market, agreed to settle hundreds of lawsuits by policyholders and reopen and pay thousands of other disputed claims. The landmark deal is potentially worth hundreds of millions of dollars for Mississippi homeowners devastated by Katrina.”
My emphasis added. Maybe this deal will put money in the pockets of affected citizens. But is it something to celebrate when an insurance company pulls out of a state because of the regulatory environment? Look at how well it worked in the Massachusetts auto insurance market. And think about the road we are traveling down in the health insurance market as well. Community rating mandates, guaranteed issue policies, mandated minimum coverage, etc. have caused insurance rates in regulated states to soar above those in unregulated states. New Jersey and Massachusetts are the most regulated states and premiums for individual health insrance average over $5,000 per year – well over double the rates in the least regulated states such as California and Michigan (less than $2,000 per year). I view regulation and liability lawsuits with the same lens.
When insurance companies are forced to abandon the actuarial tables, it is no longer insurance but rather extorted charity. I don’t know exactly what happened in Mississippi, but I bet you will see State Farm taking the heat in the press on this one.
UPDATE: Now Mississippi is proposing to make it illegal for State Farm NOT to do business there! That’s right – they are calling them a robber barron for thinking they cannot make money insuring homeowners in Mississippi. This is like making it illegal for me to sell rocking chairs in a state because I refuse to sell dining room tables (because I think I will lose money on tables). Is this like forced charity? Perhaps. I actually believe it to be very close to this.
