Tuesday, October 13, 2009

Hoffman misses the point

Wayne Hoffman argues here that insurance companies ought to be able to sell across state lines without all the horrible regulations preventing them from doing so. He marshalls a couple arguments to try to establish it would be cheaper for insurance companies and for purchasers.

But, he either misses or ignores the most salient point. If insurance companies are allowed to operate in every state, they will simply pick the state with the least regulation and move there. Credit card companies (including banks issuing credit cards) did this back when they were deregulated, and the result was an explosion of fees and charges on consumers, along with a general jacking up of the interest charged. Oh, and profits went up for the credit card companies we well.

Insurance companies don't want the federal government regulating them; look at health care, for example. They always try to kill federal legislation. They prefer state regulation because so often they exercise extensive influence on the state government and regulators. It's cheaper to buy a few state legislators than it is a slew of Washington congressmen and women.

Letting insurance companies cross state lines is a bad idea.


fortboise said...

Your concern is valid, but I'm not convinced your conclusion follows.

Federal regulation is one way out.

Another is to have states preempt the worst abuses by saying we accept other states' regulations "as long as..."

I'm not saying the credit card business (or corporate registration in Delaware) is a fully positive example, but if you look at the fine print of your CC agreement, you'll almost certainly note specific state callouts for some of the parameters and provisions.

The parochial position that only Idaho is capable of regulating insurance for Idahoans (etc.) is a recipe for a suboptimal system.

Alan said...

Different states have different ideas of what's important. Deductables, uninsured motorists, that kind of thing.

If you allow an insurance company to pick one state, and expect all other states to follow the law of that state, with call-outs, what you're doing is shifting the burden of figuring out what other states require onto state regulators.

I don't know know many insurance companies are licensed to insure in Idaho, but it's at least dozens and possibly in the hundreds. Your plan would require the state regulators to know the laws of many states, and to interpret them consistently with how regulators do in the home state. This would essentially place the power of knowledge with the insurance companies, and would hinder enforcement.

fortboise said...

"I don't know know many insurance companies are licensed to insure in Idaho..."

Me neither, but if you go shop for health insurance (as I did 2-1/2 years ago), you won't find "dozens" of viable choices. I had the impression that it came down to two, but I might have misinferred from what the agent provided.

The Idaho Department of Insurance tells me there are eight, total, at the moment.

Alan said...

8 licensed to offer health insurance, bunches licensed to do property, casualty or work comp.

I think you're probably right about it being only two "real" choices. Blue Cross, and Regence.

If you get the Dept of Ins back on the line, how about asking them how much in premium each writes. That'll tell us who the players are.