State Monopolies

By Author: Norris Rios
Total Articles: 572
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In the land of the free, it's perhaps strange to see capitalism run quite so wild. Yet the insurance industry has managed a neat trick. The insurers have run so far, they are off the reservation entirely. So what happened and why should we care? Well, there's always been a bit of warfare within the idea of capitalism. On the one hand, we have the folk who want a free and open market for goods and services. This is Darwin in action. When you have competition, the strong prevail and the weak are driven to extinction. In general, this works well, giving consumers a good choice between companies who must show their products or services represent good value for the price. On the other hand, we have the folk who like monopolies. Take patents, for example. Whoever creates a product gets the exclusive right to sell it for a fixed number of years. Without competition, the price can be higher and the manufacturer recovers the development costs more quickly.

The insurance industry managed to persuade Washington it deserved special treatment, so a deal was struck. So long as the individual states regulate the insurers who set up ...
... in each territory, those territories are monopolies. No insurer is allowed to sell a policy across state lines. This place you in a bind. Through the accident of where you are born or later choose to live, you are forced to buy from local insurance companies. There's no federal competition. So if your state only has a few companies, there's no pressure on the premium rates and you pay more. How much more? you ask.

Early in 2011, there was the latest in a long line of surveys to work out the highest and lowest average premium rates across the states. The results may surprise you. The most expensive was Louisiana and the least expensive was Maine. It was 2.5 times more expensive to insure in Louisiana! No matter how you try to slice and dice that fact, it's a remarkable difference and it's only possible because no insurance company based outside Louisiana can offer competition. Indeed, to be honest, given the chance, no one living in Louisiana would ever choose to buy their insurance locally.

It's been interesting to watch the debate about the Affordable Care Act. Many politicians have begun suggesting the state monopolies may be a bad thing and all that's needed to bring down the premiums for health plans is a little cross-border competition. Yet, if the monopoly goes for health insurance, it would have to go for all types of insurance. Insurers set up in Louisiana would go bust overnight. Except, you have to ask why the rates in Louisiana are so high. The answer has nothing to do with assessing the quality of the driving. It's a quirk of the rules in the local courts that encourages higher than average settlements. So reforming the insurance market is all about the laws regulating insurers and setting the environment for all local businesses. Since states are sovereign, they will resist any change that might reduce car insurance quotes. It would be the thin end of the wedge. So, while we wait for consumer protection to become a real issue, get as many car insurance quotes from local insurers and make the best of a bad job.