Local Government In Business

Allstate announced late last year that they were no longer going to write home insurance policies for Connecticut, existing policies (like mine) would remain. According to their actuarial tables, CT is due for a hurricane and they don't want to feel the pain. Allstate already bailed on Florida. One has to wonder, why the hell is Allstate even in the insurance business if they're not going to insure homes in high risk areas. I mean, isn't that the point of insurance?

I've never been much of a fan of the whole concept of insurance. I blame it the high car insurance premiums I had to pay in my teens and twenties. My first car was a 73 Mercury Marquis. The insurance was over four times what I paid for the car itself! What was the point? I could understand having personal liability in case of injury to myself or someone else, but anything for the car itself was pointless.

Insurance companies are legally permitted to charge whatever they want based on risk of the insured. Car insurance companies are able to screw over young men because they're the most likely to get in a car accident. Living in Florida I could've sword it was old people. Anyway, the same principles apply to life and house insurance. Health insurance companies usually deal with pools of employees. If the company has a young workforce, they're going to have a lower rate than a company with lots of middle aged workers, especially ones that smoke.

For insurance companies that deal with insuring valuable properties, there's re-insurance. Think of it as insurance company insurance. This way when catastrophe strikes, an insurance company can get re-imbursed for its losses. But sometimes, even that's not enough. For example, in the aftermath of Hurricane Andrew, Florida created the Florida Hurricane Catastrophe Fund as an incentive for insurance companies to keep insuring homes in the state. It worked and the fund last until 2005 when it was depleted.

But now a Connecticut legislator wants to do the same thing. Allstate already has re-insurance in case its current CT clientele get hit. For any named storm causing at least $114 million in damage in Connecticut, Allstate is eligible to recoup losses on every dollar thereafter, up to a total of $200 million. But with CT's coastline valued at $405 billion, Allstate feels that they've got enough marketshare.

Now one might think that this is a good idea. I don't. "The pool would be funded through property insurance premiums, and one-third of any interest earned on the trust would be rolled over to police and emergency services." So does that mean my current policy goes up because Allstate is getting weak in the knees? And I'm not sure that some tax dollars or money from CT's "rainy day fund" won't find their way in. Let Allstate go. CT is the insurance capital of the country, right? Someone's gonna come in and fill the void. They might charge an arm and a leg but eventually the marketplace will work its way through. I think that CT's state government has more important things to worry about, like disaster preparedness. Apparently 9/11 and Katrina didn't sink in.

I'm not a fan of the government using taxpayer money to bail out businesses. I was fine with letting the airlines go under after 9/11. They did anyway. Those that have come out of bankruptcy are looking pretty good, at least as far as Wall Street is concerned. American Airlines' parent company, AMR, has a stock price in the 40's!

While businesses don't mind being bailed out by the government, they certainly object to the government stepping in to do the jobs they won't. For example, a couple years ago the city of Philadelphia thought that it would be a good idea to provide low cost wireless internet access to residents in areas that network providers won't go to. But the Verizon and Comcast objected. If you're interested, you can read the debate here.

Now this doesn't bother me so much. The city is stepping in to fill a void that will greatly benefit its citizens. And Philadelphia is partnering with Earthlink, who will bear the network installation costs so the cost burden on its tax payers is minimal. Yes, this really isn't a pure government as business play, but that's a good thing. The city found a solution that appears to work for everyone.

So how are these two situations different? In the first example, government is offering to bail out a business at their customers' expense (but hopefully not taxpayer expense). In the second example, government is offering a service to its citizens that businesses won't provide, and a business is picking up the tab. Which sounds ok to you?

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