Letter from Washington: Florida, auto rates, and Tide as a currency
At a conference on insurance near Jacksonville, Fla. this past week, I spoke a bit about Heartland’s 2011 insurance report card— OOTS Managing Editor R.J. Lehmann is taking it over from me this year—and listened to a lot of presentations about the state of the Florida and national insurance markets. Here are three major things I picked up (mostly over cocktails rather than in sessions):
- The reforms to Citizens’ assessments are creating new and genuine optimism in the Florida domestic insurance market, but that optimism has limits. Under the old rules even a well-capitalized, well-run Florida domestic insurer that took a decent market share could have found itself swamped with un-payable Citizens’ assessments. The new rules make that unlikely, although not impossible, and will get more capital into the market. They aren’t a fix of any sort or a cure-all for the market. It’s still a tough enough market that the CEO of one startup insurer that I spoke with said that his “competitors” were actively helping him get set up because they still didn’t want “too much” of the market themselves.
- The reinsurance market in Florida is genuinely tightening. Previews of June 1 renewals show that prices are going to be higher. This isn’t at all surprising given that share buybacks have reduced the excess capital that was washing around the reinsurance market. Prices aren’t going to return to 2007-2008 levels for a long time and, maybe, never. But they’re going up and will probably continue to do so.
- Legislative redistricting is going to have an impact on a lot of Florida insurance matters next year. For a variety of reasons—partisan, personal and otherwise—a number of key players are in new districts or running for new seats that they didn’t have before. The result, when the dust settles, is going to be a new cast of characters to deal with in the Legislature. And the Legislature, as always, is going to be the deciding body.
Insure.com’s new 2011 auto insurance price survey is out. The website’s methodologies differ from the NAIC’s. Insure.com looks at actual quotes rather than premiums paid to companies, which don’t reflect the experience of those who go uninsured but do include multi-line, loyalty and other discounts that have nothing to do with auto insurance per se. In that sense, they are a lot more telling. Two quick observations:
First, while culture and geography certainly impact auto insurance rates, they don’t do so in an obvious way. The three states with the highest insurance premiums—Louisiana, Michigan, and Oklahoma are about as culturally different as three states could be. The three states with the lowest ones—Wisconsin, Iowa, and Maine—do have a fair amount in common (all are reasonably sparsely populated and two are in the middle of he country.) But even there, real differences exist. Wisconsin has a major metropolitan center whereas neither of the other states has a city larger than 200,000.
Second, non-regulation of auto insurance prices certainly doesn’t make them rise. Illinois, South Carolina, Ohio, Wisconsin, and Vermont –none of which typically disapproves rates for reasons of excessiveness—are all among the ten cheapest places to buy auto insurance. On the other hand, only one state with a pure rate bureau system for auto, North Carolina, also ranks among the lowest-cost states for auto insurance.
The bottom line: auto insurance is complicated.
Ok, this doesn’t have much to with insurance but it’s sort of a finance topic. Anyway. . .
An article in The Daily Caller talks about how Tide laundry detergent has become a common currency for drug dealers and other lowlifes who plague inner-city neighborhoods. It’s not immediately obvious as to why. Unlike the cigarettes that used to be currency in many prisons, it’s not a highly portable store of wealth. But there are some reasons.
Tide is almost certainly the most popular grocery store brand around. Tide’s market share of around 45% is, by far, the largest of any laundry detergent and larger than almost anything else. (By comparison, regular and diet Coke combined make up a little more than a quarter of carbonated soft drink sales.) While there are products like Microsoft Windows and the iPad that have higher market shares than Tide, they are items that people buy, at most, once every few years rather than once every few weeks.
Furthermore, if you’re going to steal something from a grocery store, Tide is a pretty good target. A big bottle costs about $20 in a typical grocery store and most other common items that, individually, cost that much are either much harder to sell on the street at a decent price (a bottle of Cakebread Chardonnay probably won’t command any more than a bottle of MD 20/20 among people who buy their liquor on street corners) or would be highly perishable (expensive cuts of meat.) Tide keeps, basically, forever and is worth something to everyone.
Furthermore, since it does seem to clean objectively better than any other laundry detergent I’ve tried, I’d suspect that even people who don’t buy it will generally find it pretty useful. Until our nanny forced us to start doing so, in fact, we never bought Tide at home but, now that we do, I don’t think we’ll switch. As such, Tide does make for a pretty decent alternate currency.