Insurance Quotes & Advice

With the start of hurricane season, Congress has been debating a measure to create a national catastrophe fund that would provide a cheaper reinsurance option to companies than the private market.

The proposal — backed by giant insurers Allstate Corp. and State Farm Mutual Automobile Insurance Co., as well as Florida lawmakers — focuses on “reinsurance,” the policies bought by insurers themselves to protect against catastrophic losses. The proposal envisions a taxpayer-financed reinsurance program covering all 50 states, which would essentially backstop the giant insurers in case of disaster.

Currently Florida is the only state with it’s own reinsurance fund.  Having some of the highest property insurance rates in the nation, the fund was supposed to save consumers money.  However, last year the state got locked into a bitter dispute with carriers over proposed rate increases after it’s legislature expanded the state’s Hurricane Catastrophe Fund.

So if that national fund is supposed to work the same way, how is that supposed to help consumers?  Insurance companies will probably save millions on reinsurance but will be reluctant to pass on those savings unless forced to by regulators.

This measure would pass on potential liabilities to taxpayers that should be rightly held by private entities.  While some would liken this to the National Flood Insurance Program which left taxpayers on the hook for $17 billion, there is one major difference.  Unlike flood insurance which pretty much nobody offers, insurance companies have numerous reinsurance options from the private marketplace.

If Congress wants to nationalize any kind of insurance they should start with healthcare, at least then everyone would benefit as oppossed to the few select coastal states with a national reinsurance fund.

Healthcare reform has been slow to take shape at the federal level.  For example, last year the President and Congress were unable to come to a compromise on the expansion of the State Children’s Healthcare Insurance Program, which provides affordable insurance for low income families with children.

The battle over the increased ”federalization” of healthcare is at a standstill, at least until the next administration takes office.  Thus the states have begun to try their hands at dealing with the issue of healthcare reform.

State approaches to reform vary considerably, often depending on the political and fiscal environment; demographic characteristics, insurance market dynamics, and other economic variables also affect a state’s capacity to act.

“More and more often we’re seeing states attempt to address health reform with a balance of coverage expansions, quality improvement efforts, and cost-containment strategies,” said Martinez-Vidal. “They continue to take the lead in addressing the problems of the uninsured.”

The number of uninsured continue to grow as the nation’s economy enters a difficult period.   The general decline in employer paid health coverage has also made a large impact.

For decades the focus of the nation’s healthcare policy was centered on the elderly but as the uninsured reached epic proportions that policy has shifted somewhat.  There is still the looming fiscal difficulties facing the Medicare program in the upcoming decade.

The problem with healthcare reform has always been the cost.  The healthcare system in this country is the most expensive in the world with the highest per capita cost.  Government dollars spent at all levels account for nearly half of the total money spent on healthcare in this country.

The states face a difficult challenge ahead of them and with the many different approaches being taken, the results I’m sure will vary considerably.

On Wednesday, congressional hearings were held on the insurance industry’s controversial use of credit scores in their risk models for calculating premiums.

At a lengthy congressional hearing in Washington on Wednesday, Florida Insurance Commissioner Kevin McCarty brought the state’s long-running battle with the insurance industry over these issues to the forefront. He argued that credit scores are not “fair and valid” criteria for setting insurance rates.

“Studies do show that credit scores can be predictors of future claim activity,” he noted in his prepared testimony. “But the same studies also show that the use of these scores disparately impacts certain classes of people.”

The auto and property insurance sectors have long used credit scoring as a basis for premiums, as it is allowed in much of the country.  The use of patient’s credit reports has also started to appear in the healthcare industry.

Consumer advocacy groups have been up in arms over the practice and claim that it is discriminatory.  The insurance industry meanwhile has fought strongly against any type regulation that would limit it’s use.

It wouldn’t surprise me if the bills banning the use of credit scores were passed.  The industry has faced a large public backlash ever since the aftermath of Hurricane Katrina over their claims paying practices.