The Consequences Of Overregulation

Dang, RiskProf sure has been eating his Wheaties lately.  Check out this great post on how insurance regulation in Florida constitutes an effort to create a subsidy for Florida consumers at the expense of those in other states.  It is often difficult for people to tell the difference between legislation or regulation that has the effect of making an insurance contract more like one entered into with equal bargaining power, and laws that simply ignore human nature and mask market behavior. 

For example, every state has a statute or common law precedent that ambiguities in an insurance contract will be interpreted against the insurer (this is a broader contract law principle, but it is of course applied with particular vehemence against insurance companies).  This rule is designed to somewhat lessen the reality of insurance policies as contracts of adhesion.  On the other hand, laws such as those that say insurers have to provide health care insurance even after someone is diagnosed with illness only jack up the price for other consumers and actually have the effect of encouraging people to remain uninsured to avoid high premiums.  After all, they can always sign up later, when they actually get sick.  Here’s more information on this effect, often referred to as "community rating," meaning dissimilar risks are grouped together. 

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