Zach Scruggs’ Two Year Commemoration of Katrina

While I was away on vacation the two-year anniversary of Katrina passed. In recognition of the anniversary, Zach Scruggs issued a call for things to “ensure that Katrina will never happen again”:

(1) Thousands of remaining cases filed by policyholders who were shortchanged by their insurers await resolution;

(2) Congress must repeal the “anti-trust” exemption given to the insurance industry (the only industry that has such an exemption) so that in the future Big Insurance Companies cannot conspire to raise premiums, deny claims after catastrophes, and cancel or boycott Mississippi or the coastal regions of the United States;

It should be noted that the industry’s anti-trust exemption is limited. We can pool information to facilitate ratemaking, for example, which provides additional credibility when it comes to assessing the risk of certain lines of business, opening the door to safer participation by smaller insurers, and lowering the threshold of internal data required to feel comfortable working with certain lines of business.

While the industry could live without that ability, it would add risk, discourage competition, and the like…but it wouldn’t be the end of the world.

(3) Legislation must allow people in coastal regions to purchase federal catastrophe insurance to cover ALL hurricane damage - both wind and storm surge. Katrina proved that the Big Insurance Companies will not cover ANY hurricane damage, even though they charge premiums for it;

I’m actually OK with the concept that there could stand to be some clarification when it comes to wind versus water issues. However, I suspect there’s an issue of folks not possibly wanting to pay for what insurers will need to charge to be commensurate to the level of risk. But let’s not mention that in this wish list, shall we?

Oh wait, you want the feds to provide cat coverage, and you presumably want the rates to be affordable. Shall we take care of that by inland folks subsidizing the risk of folks living in harm’s way, by additional deficit spending, or by simply printing more money?

(4) The federal government must exercise more control over the insurance industry. The current system whereby each state has a separate insurance commissioner to regulate Big Insurance is ineffective in protecting the public. It has allowed the companies to “divide and conquer” smaller states (and even big states like Florida) by coercing commissioners into approving massive premiums through threats of cancellation of coverage or boycott. It has also allowed them to get away with mass denials after catastrophes like Katrina through the same coercive methods.[...]

I’ll admit that the idea of federal regulation, in lieu of regulation by the the states has some appeal to me, although I suppose I should toe the industry party line and advocate a optional dual regulatory structure. Given the shifting of the balance of power towards the Dems, I suspect that federal regulation wouldn’t be quite as lassiez-faire as the concept was originally envisioned, but political risk is a fact of life when dealing with regulation.

Of course, I’m writing this message offline during my cruise (don’t yell at me, I do this recreationally), where I’m being treated to a couple of instances of “intelligent” bureaucracy courtesy of the federal government. For example, we have the trivia I encountered in San Juan, where the only building with central heat is the main post office, because federal regulations at the time specified that all such buildings have central heat…even though central heat doesn’t make sense in Puerto Rico. Or the immigration check we went through when we docked at St. Thomas, where we were paraded past three surly federal officers who casually glanced at our passports, even if we were staying on the ship.

The advantage cited most commonly with state regulation is that it enables insurance regulations to be tailored to local needs. Frankly, I’m skeptical that the feds would be able to be as flexible and responsive as the current regulatory structure permits…unless federal regulation actually implied a certain level of deregulation, and I doubt that’s what Scruggs is hoping for.