Finance, Banking, and Insurance Chair Dr. David Marlett recently presented at the Florida Chamber of Commerce Insurance Summit in Orlando, Florida.
The summit took place October 27, 2015 and provided attendees an opportunity to engage with legislative leaders, insurance executives, and political insiders to address the most significant issues facing insurers, business leaders and consumers.
Dr. Marlett served on a panel discussing government regulation and pros/cons of market based model.
Whether insurance policy prices should be set through government regulation or left to market forces was the hot topic during Dr. Marlett's panel.
"When you look at the program of protecting coastal properties, it's been an absolute failure," explained Steven Pociask during the panel. Pociask runs the American Consumer Institute for Citizen Research. "It subsidizes second and third homes and people [who] live in Monaco. I don't see the point." Pociask went on to say artificially low rates through state-backed insurer Citizen's Property Insurance Co. aren't just bad for competition, but unfair to the consumers who cover the brunt of the cost of subsidizing coastal properties. "The average household income of someone in Gainesville is one-20th of the household income on Fisher Island. That person has to pay for their insurance and subsidize the coverage of someone else."
He also stated it was unfair for Floridians to subsidize policies for out-of-state or international homeowners. In 2013, Citizens said about one out of every six of its policyholders have an out-of-state address, with most of those policies for coastal properties.
Dr. Marlett gave insight on how there is some value in programs such as Citizen's, though. Marlett was already in the insurance business when Hurricane Andrew hit Florida and said that event, as well as the "fairly unprecedented" 2004 and 2005 hurricane seasons, showed homeowners need an insurer of last resort.
"Those houses were already built and those people already lived there," he explained.
The panel's views were murkier on price optimization and predictive analytics, the complex data sets insurers use to price policies. Some states don't allow certain analytics, which can range from gender and age through to the contents of a policyholder's credit report, but without them it can be difficult for insurers to price their offerings.
"Just because the state says something doesn't exist doesn't make it so," said Derek Freihaut, a panelist who is a consulting actuary for Pinnacle Actuarial Resources. "The cost is there and the company is aware of it."
Even so, Marlett stated that the main problem with price optimization and certain analytics is that consumers see the practice as an insurer saying "how much can I charge this person before they leave and shop around," even though some optimization practices can lead to drastically lower rates.
For more information on the summit, other panel dicussions, or the Florida Chamber of Commerce, visit the website.
Dr. David Marlett on a panel addressing the Florida Chamber of Commerce
