Friday, February 05, 2010

Restraint of Trade Rant

So State Farm goes to Florida and they sell homeowners insurance... and hurricanes show up and destroy the homes... and they go to the insurance board (that restricts the price State Farm is able to charge) and the board says 'you cant raise rates 50%' - so they say 'then we're not going to sell insurance to some people'... This seems reasonable. State Farm can't really make a profit selling insurance to people who insist on building villas on the beach... This is the market in action.

The rambling questions that derive from it are

1) is there a right to insurance for homes - no matter where they're built or what they're built of? Of course not. We have rules like 'fireproof shingles' and 'dont build in a floodplane' - and you would think these would be common sense but they are routinely ignored by developers (half the foundations in the town where i grew up cracked because they built the neighborhoods on soft non-compacted prairie land or fill poured into creeks people were unaware of - with developers taking the money, declaring bankruptcy to avoid liability, and starting new companies doing the same thing overnight). So the buyer has some responsibility to make sure they're not buying something crappy... the seller has some responsibility to insure that the product isn't crappy... and we generally have rules in place for things like 'appraisers' to examine things like properties to tell both sides exactly what's going on (and then we commonly find a way to abuse those safeguards - witness, the appraiser system was a huge accelerant for the housing bubble). The idea is that government regulation can act as an umpire in the process - make sure the developer isn't some chav taking a dive in the box in stoppage time.

2) if you have a law that says 'you must have insurance to build a home' - which we do... and people can no longer build villas on the beach... then is there a 'taking' when the insurance board rejects the interest rate rise? Some on our current cournt would say yes. Bob had a villa on the beach... Bob had insurance... the cost to insure Bob's villa had previously been borne by both Bob's premiums and the premiums paid by other people living in cement-block housing behind mountains far from the hurricanes. Because of the insurance board regulating rates - we dont have a pure market system - we've moved some of the fraud gaming up into an earlier stage of the process (instead of someone taking advantage of the system at the back at the expense of the insurers, they'd moved the fraud up into the front at the expense of other homeowners) - but that was part of the equation when Bob bought the land and built the villa...

this gets us to healthcare (which isnt the final stop)...

if a healthcare company can look at your well fed facebook friends and blog posts about food and tweets about how much you love cooking bacon, and through some simple heuristic analysis determine that you're likely to be overweight and suffer from cardiac disease... should they be allowed to say 'Bob is higher risk than Wendy - who's a member of a triathlon facebook group' and charge you a different rate? I know that many insurance plans offer either discounts if you are in a health club, or discounted memberships to health clubs on this basis - but that's the carrot, and this is a bit more invasive stick. In some ways - this means saying 'if someone insists on smoking cigarettes - should they bear the financial burden of that behavior, or should society attack the problem in a backdoor manner - ie we tax the cigarette makers and transfer the money to the entities that are going to have to cover the costs of treating the disease'. We use gas tax this way - the more gas you use, the more tax you pay because the more wear you put on the roads. Big Trucks are weighed at the border crossings to assess penalties if they are doing too much damage to the asphalt. If the answer to all this is no - then should they be allowed to say 'We dont want to insure Bob... people who like duck liver are a huge problem for us financially'... Bob has a right to eat whatever he wants - does he have a right to cheap insurance? or should Bob bear the brunt of the cost for Bob's lifestyle choices.

which we can take to banks...

if the govt, as umpire, make rules that say 'society isnt going to bear the brunt of your excess' that seems fair - but it's not a completely 'unfettered market'... does saying 'it's not our problem to sort out the fact that you've been trying to circumvent those rules' seem a reasonable response? There are some who would argue the only time we should have rules is when there's a demonstrable and dire impact to the system for everyone, not just the many who will be victims. This isn't a matter of a sports analogy like 'if the penalty for intentionally breaking Brett Favre's neck is 15 yards - but it wins you the game... wont you do it every time?' - because in that scenario there are two actors who can each break the necks of the opposing team's quarterback. This is more 'if greece refuses to sort out it's economic mess... then, well, does germany let it and the euro fail?

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オテモヤン said...
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