From Dr. Alvin Wolfe:
I wrote (fax and email) to Gus Bilirakis on January 17 about Insurance Problems in Florida. I have received no response from him as of January 29.
Below is my letter:
January 17, 2007
The Honorable Gus M. Bilirakis
1630 Longworth Washington, D.C. 20515
Tel. (202) 225-5755 Fax (202)225-4085
Dear Congressman Bilirakis:
Although you are now in Washington, I am sure that you have not forgotten Florida's homeowners' insurance problems. They have become even more critical following the legislature's actions of last spring.
My analysis of this complex situation has led me to the conclusion that our problems cannot be resolved at the state level. Having been elected to represent us at the federal level, you are now in an even better position to help Florida. Only Congress can repeal the anti-trust exemption that was given to the insurance industry, years ago, in the mistaken belief that unfettered communication among the companies would somehow be helpful to consumers.
Much, probably most, of the public discussion begins from a premise that market forces should operate in the insurance industry as they do in so many other parts of our economic life. A Tampa Tribune editorial entitled "Market Forces Blown Away By Sky-High Insurance Premiums"(Jan 14, 2007) is typical in expressing that belief.
Actually, market forces produce an optimal or fair price only where buyers and sellers all have equivalent information. That balance is almost never achieved in any market, and it certainly does not exist in the insurance market.
Even the average local insurance company knows much more about risks, etc., than the average homeowner. The re-insurers, the parent companies at the national level and international levels, have a lot more information than anybody else has. Even the states, who are expected in our system to "regulate" the industry, cannot get access to all the information that those collaborating insurance firms have.
Because the federal McCarran-Ferguson Act of 1945 exempted the insurance industry from anti-trust regulation, the major firms that handle reinsurance can and do collude on risk assessment and rate-setting in ways that would be illegal in any other industry.
That is why, as the Los Angeles Times reported, "The companies that provide Americans with their homeowners and auto insurance made a record $44.8-billion profit last year even after accounting for the claims of policyholders wiped out by Hurricane Katrina and the other big storms of 2005, according to the firms' filings with state regulators(Los Angeles Times, 4/5/06).
A 2006 report of the insurance industry financial situation states, "Over the past seven years, 1999 through 2005, the insurance industry has seen its profits nearly double, while adding almost $100 million to its surplus reserves. According to data provided by the Insurance Information Institute, industry profits increased from $22.2 billion in 1999 to $43 billion in 2005. The data also indicates that the insurance industry has seen its surpluses grow by a third – from $336.30 billion in 1999 to $427.1 billion in 2005" (p.11, in Pattern of Greed: How Insurance Companies put Profits over Policyholders, available at
Instead of trying to correct the natural imbalance in the insurance market to protect consumers and local governments, the United States government years ago came down on the side of the insurance companies. Our state legislators cannot fix that, but you, as our representatives in congress ought to at least make a start by repealing the unique exemption of the insurance industry from antitrust laws.
Alvin W Wolfe, Ph.D.