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Big Dogs Won’t Come to Florida—They send Their Pups


In most states, insurance departments regulate “big dogs”, but in Florida, our insurance commissioner is forced by law to regulate only “pups”. It is a scam of monumental proportions permitted by Florida law and it is the citizens of our great state that pay for it.

What are “big dogs” and what are “pups”? For example, State Farm Mutual is a “big dog” and State Farm Florida is its “pup”; Allstate is a “big dog” and Allstate Floridian is its “pup”; you get the idea.

When I first moved to Florida 25 years ago, I heard the saying about folks down here not caring how “you do it up north” and, frankly, I mostly agree with that notion. In the case of insurance companies maintaining “pretend” insurance companies just for Florida business, we might take a lesson from our northern brethren. “Pup” carriers are simply a way for insurance companies to enhance profits and create basis for regularly asking for rate increases from Floridians.

But we have big, bad hurricanes here, right? So, State Farm’s exposure in Florida is probably more, right? Well, let’s look at it. The whole gulf coast, the whole southeastern coast and California are all exposed to hurricanes on a regular basis. I mean poor South Carolinians have largely been taking the brunt of most of our hurricanes of late. The Midwest records tornadoes like we record rainfall. The north has freezing roads that sometimes results in hundreds of vehicles in a single accident. Nearly every portion of the country is exposed to one exceptional disaster or another.

If the whole country has its share of disaster, how does each insurance company handle it? It is called the law of large numbers. If 100,000 cars are insured, the probability that more than 10,200 (or less than 9,800) will be stolen is only about 1%. This is an example of the operation of the ‘law of large numbers’. In other words, the more cars insured, the more accurately can be predicted the percentage of cars likely to be stolen. It is this aspect of probability theory that enables the insurer to cope with variations in the pattern of actual losses. Underwriters and actuaries may also consider various measures of dispersion; that is the difference between the actual losses and average losses, when setting premiums or assessing liabilities.

Now, magnify those numbers by millions of risks; both commercial and residential risks. Add to that the various other lines of insurance written by the “big dogs” and that, in a nutshell, is the law of large numbers. So, the more risks an insurance company insures, the better, right? Well, yes, that is the basis for the law of large numbers. That is not, however, the basis for the “pups”.

Pups are there so that the “big dogs” (think State Farm Mutual, Allstate, etc) can cook the books. The “big dogs” create a very limited microcosm to which they apply the law of large numbers (think Florida) and they base their rate increases on the experience in the microcosm rather than applying the math against the experience for the “big dog” in the whole country. So, even though the “big dog” may be rolling in profits nationally, the pup can be made to look underfed and a rate increase is requested based solely on the experience in the microcosm (again, think Florida).

What to do? Read—educate yourself! Read Randy Schultz’s editorial in Sunday’s Palm Beach Post. Read the St. Petersburg Times article about Judge Manby denying State Farm’s puppies’ request for a rate increase.

Write! Write to Governor Chiles (currently busy running for senator); write to Secretary of Finance, Alex Sink; write to your legislators.

Shout! Complain at the top of your lungs. If you are a Floridian you have every right to be mad. Some of the most powerful, wealthy companies in the country have been and continue to be permitted to victimize you.

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