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First Reads
Nationwide Not On Your Side

Not quite

Insurers drop sick people or people with pre-existing conditions when covering them risks being too unprofitable. It’s unconscionable. It defeats the purpose of insurance. But that’s why the health care system is broken: when insurance companies are allowed to cherry-cut coverage, they make bigger profits, but people suffer.

It’s clear enough in health-insurance schemes. What Floridians may not realize is that insurers do the same in property insurance. If your home becomes too risky to cover, you’ll be dropped. Several insurance companies have dropped coverage in vast swaths of the state. Nationwide this week became the latest to do so. The Columbus, Ohio-based company is dropping 60,000 policies out of the 129,000 it covers. So much for “Nationwide is on your side” (that’s the company logo, in case you missed it.) The company will keep 230,000 auto, commercial and boat policies.

“This is a difficult business decision, but Nationwide must make tough choices now to make sure they can be here for our customers in the future,” is how Nationwide’s release put it. Of course the company can’t be here for customers it dropped, so “making sure they can be here” is a lie enabled by Florida law, which allows insurers to cherry-pick what services they’ll provide, even if it means leaving large segments of the population uncovered.

First Reads: Oct. 8

Nationwide’s “business decision” is bunk, too. The 108 th biggest corporation (on the Fortune 500) is the 4th largest homeowner insurer in the country. It averaged $2 billion in aftertax profits in 2006 and 2007. It went private in 2009, but it’s still raking it in despite the recession. For the first six months of 2009, it had revenue of $2.2 billion (up 9.8 percent over the same period in 2008, which is more than you can say for most homeowners in the country) and profits of $74 million. But hey: Nationwide is donating $50,000 ($50,000!) to the Red Cross to help Georgia flood victims. Talk about generosity.

For Floridians, the alternative will be Citizens Property Insurance Corp., the state-backed insurer. But here’s what J.D. Alexander, the state senator (R-Winter Haven) says about Citizens and its sister Florida Hurricane Catastrophe Fund, which provides back-up insurance to private insurers, at least those that still write policies in the state: “Combined, these two entities could wind up $14 billion short of the cash they will need to pay claims if a strong hurricane hits a metropolitan area. How would Florida pay for this? The answer is that you — the insurance policyholder — would be asked to foot the bill, through assessments on your home, auto, boat and business policies.”

Two solutions: First, state law can and should be changed to forbid private insurers from choosing what to cover or whom to cover. If federal law is about to change to forbid insurers from dropping sick people or people with pre-existing conditions, homeowner insurers should be forbidden from dropping clients with properties pre-existing, say, on beaches. Second, no state can have an individual catastrophic fund and survive. Only a national catastrophic fund can be the insurer of last resort. It doesn’t have to be the federal government, as it is now. It should be a required collective among all private insurers, with the federal government as last-resort rescuer.

The system is nowhere near any of this. So a company like Nationwide can decide overnight to ditch 60,000 customers.

 

 

 

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