We completely agree on the what but not so much on who's to blame. You want to blame the government-insurance company relationship exclusively and I want to blame the fact that government regulates them. I believe this because it is by those regulations that a small business becomes certified as qualifying for certain benefits.
The big benefit that you just referred to but missed is that insurance pools can cross state lines whereas insurance companies cannot. How that works is through holding companies. State Farm Holdings can easily shift pool money from State Farm North Dakota to State Farm Louisiana to pay increased costs of a major event. But they can also claim that State Farm Louisiana doesn't have the pool large enough to pay off a Katrina. They get the best of both worlds.
But it gets better for them... (which is why they lobbied for that law in the first place) Because it takes a significant sized company to cover all the states under a holding company, small competitive start-up companies cannot compete on the state level (which they are bound to by the law). There is simply not enough market share in one state to create the pool that's required to average a profit. In this way, the majors who are effectively an oligopoly will always remain so. And it is by government rules and certifications that this has happened. They didn't need to be in bed with Congress regarding Katrina for it to happen because their industry got the rules put in place long ago.
In both your case and mine, ending all government interaction and special status would decimate the oligopoly and bring in lots of new competition.
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