Tuesday, September 05, 2006

Insurance Politics

Connecticut is the historic home of the insurance industry in the United States. Yet Attorney General Richard Blumenthal and a few state representatives seem to have little concept of how insurance works.

Connecticut borders Long Island Sound, and recently, Andover Cos. began requiring policyholders who live within 3/4 of a mile from the Sound to install storm shutters.

Why would Andover require storm shutters? They don't own a storm shutter company, so won't profit directly. Rather, Andover will reduce its risk exposure. According to Wikipedia, storm shutters prevent windows from being broken, and also prevent air pressure from building up in a house, which can ultimately cause structural collapse.

However, politicans don't like the fact that homeowners may have to install these shutters.

But Attorney General Richard Blumenthal and Speaker of the House James Amann are calling for a reversal of the new practice, saying it unfairly punishes homeowners. They fear that other insurance companies will copy Andover's requirement, forcing more coastal homeowners to install expensive shutters.

"This standard is unfair, unreasonable and unprecedented," Blumenthal said Thursday.

While this standard is apparently unprecedented in Connecticut, I fail to see how Andover's new policy is unfair or unreasonable (obviously, Andover would have to honor all existing claims on existing policies which terms have not yet expired). Insurance companies require all sorts of things all the time to qualify for lower priced insurance: we need to wear seat belts, not smoke, etc. to get lower rates.

We live in a competitive society, and somewhere out there, an insurance company should be willing to sell you insurance for the right price. If someone is convinced that storm shutters are not necessary, then they don't have to install them, and they can purchase insurance from one of the many other companies that sell insurance. Andover's market share is less than 1%.

There's talk of the economic hardship this would cause, and says it could cost up to $100,000 per house to install these shutters. Yet the same article quotes one contractor as saying they cost between $12 and $45 per square foot. At $45 per square foot, the upper range, that would cover 2,222 square feet of windows. Even if you have large 2 foot by 3 foot windows, you'd need 370 windows to hit $100,000.

Let the insurance companies decide what to require or not require in their policies. With competition, people will be able to choose among the various companies, and will be able to do their own cost-benefit analysis of installing shutters, wearing seatbelts, or quit smoking. And if they'd prefer not to do these things, they'll still be able to find insurance from someone. Just please don't get Mr. Blumenthal involved. But there doesn't seem to be any insurance against that...

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