Opinion-Editorial: "Politics is no substitute for market's policy"

Galveston County Daily News
By Beaman Floyd
July 12, 2006

Since the insurance reforms passed by the Legislature in 2003 and implemented in December 2004, most insurers, policymakers, regulators, consumer groups and the media have agreed that a competitive marketplace is the best solution to the chronic insurance problems that have plagued Texas for decades.

Unfortunately, some who continue to comment on the "competitive" market have not stopped to consider what competition really is.

Decisions in a competitive marketplace are based on the realities of the marketplace, where insurers compete for business and where consumers have a variety of choices for the insurance products they buy and the prices they pay.

The continued call for insurers to make "politically savvy" decisions regardless of the realities of the marketplace is a dangerous precedent.

A competitive marketplace is about insurers making responsible decisions and providing good value to consumers while ensuring their companies' ability to pay out on claims.

Insurers are required to build rates that are actuarially justifiable. Some try to aggressively lower rates in the hope of expanding market share, while others may at times adopt more conservative rates to maintain or enhance financial strength and limit exposure to certain risks.

Some simply predict risk in different, but equally justifiable ways. Some budget more for service.

All of these concepts are reasonable, justifiable and provide diverse value in the market. They are not unlike the choices and comparisons consumers face when shopping for a car or television or computer.

Consumers are the best judges of that value. By shopping for insurance and choosing the products that best suit their needs, Texans collectively can shape the marketplace and ultimately the actions of insurance companies.

A healthy market includes shoppers seeking various levels of service, price, financial strength and coverage. Consumers should determine what constitutes value for them and have access to a true variety of products, provided by the underlying diversity in business models that should develop in a competitive marketplace.

The repeated call for insurers to base their decisions on some notion of politics rather than good business practices is highly destructive to competition.

The artificial influences of politics in the insurance markets inevitably lead to catastrophic results for Texas consumers.

One need only look to Florida as it tries to bring realism to its formerly political market by approving 100 percent rate increases.

Texans need only remember the crisis of four years ago, brought about in large part by flawed regulation. Other states' and Texas' experiences show that if insurers are made to feed some political beast, consumers will ultimately feel the bite.

All parties commenting on the insurance marketplace and claiming to support competition must be responsible for understanding the realities, responsibilities, costs and the diverse variables in a truly competitive environment.

In such a market, rates will move up and down for different companies at different times. Cost factors will change. Value will be reflected in a variety of products. Stability will be a key attribute.

Good policy will trump politics. Consumers will have choices and find real, lasting value to fit their needs.

Texans don't deserve to be fooled by artificial political decisions in the marketplace or to pay for these actions later. Texans deserve the facts.

Beaman Floyd is executive director of Texas Coalition for Affordable Insurance Solutions.