SMI Visitor's Blog       

Welcome to the SMI Visitor's Blog where you'll find selected excerpts from our Member's Blog, plus occasional posts created especially for our visitors.

For SMI Web Members, click here to go to the SMI Member Blog.

« Blog Home

"This is not something any business can afford to do"

CNN reports that State Farm is getting out of the homeowners' insurance business in Florida.

The reason? The company is losing money in the Sunshine State, having paid out $1.21 in claims for every dollar of premiums it has collected since 2000. Many of those payouts, of course, were hurricane related. Florida was hit by four major storms in 2004.

State Farm asked state insurance regulators to approve a rate hike, but was turned down. Without the prospect of being able to turn a profit, State Farm says it can't continue in business in Florida. "This is not something any business can afford to do," company president Jim Thompson said.

I don't have any great affection for insurance companies - sometimes they can be quite irritating - but there's a lesson here: a company cannot stay in business (or at least cannot continue all aspects of its business) if government, however well-intentioned, insists that the company follow an unprofitable business model.

The State Farm-Florida situation offers a cautionary tale regarding too much government involvement in the decision-making process of the private sector.

Indeed, it is a cautionary tale likely to have multiple sequels as we see government flexing its muscles via the TARP (Troubled Asset Relief Program). Business decisions will take second place to political considerations.

Is that good for the consumer and for the economy? Time will tell.

Meanwhile, the New York Times offers this helpful table showing where the TARP money has been going.

Powered by Movable Type  |   Subscribe  |   Email Updates