Translation: State Farm didn't like covering flooding because Mississippi sits on the Gulf in hurricane alley so they started jumping up premiums. State residents began to complain so the state gov't tried to regulate insurance rates to keep them from going higher. State Farm responded by stopping its coverage of flooding in a state that sits on the Gulf and has hurricanes from time to time. That sure makes a lot of sense....NOT.
Your right. It doesn't make a lot of sense. But the part that doesn't make a lot of sense (at least in terms of economics, not in terms of the politics of getting re-elected) is the state government regulating the insurance rates to keep them from going higher. Put in a price ceiling, and if its high enough it will have little or no effect (either positive or negative). If its not that high it will cap or even eliminate supply.
Insurance companies are not charities. They are in business to make money. If they can't be profitable in a certain business then they will leave it. If you make them pay for liabilities they didn't contract to cover, then you are effectively just seizing money from them. If the state is going to do that, at least if it does it to a sufficient extent. It makes sense for the company to stop operating in that state.
So, facing a state government that, by fiat, forces their fees lower and their coverage higher, State Farm is trying to exit the property insurance business in Mississippi, and the state legislature is considering legislation to prevent them from leaving.
Translation: You either play it our way or we're taking our insurance policies and leaving the state.
An entirely reasonable policy, if playing it the state's way isn't profitable.
This kind of attitude on the part of insurance companies prevails in other parts of the country as well. There is roughly a 300 sq. miles portion of this country that is not effected by storms, earthquakes, flooding, tornadoes or icing, and that's the only area where insurance companies want to write policies these days.
Why should they want to write policies if they aren't allowed to raise rates so that they can make a profit.
In any case your 300 sq miles comment is just silly. You can get insurance in almost every part of the country. |
