Uninsured

State Farm, the largest home insurer in Mississippi, has announced that it will not write new policies in that state. The company, which recently got hit with a $1 million punitive-damage verdict (reduced by a judge from the jury's $2.5 million), calls the legal situation in Mississippi, "untenable," which is insurance-ese for begin limited in the ability to bilk policy holders.

For some years I have championed what I call--for lack of a better name--the Full Line Insurance Act. Such a law would require that insurers offer their entire range of insurance if they want to do business in a particular state. State Farm, for instance, would have stop offering automobile insurance in Mississippi if it chooses to stop writing policies on homes. A company would not have to offer all kinds of insurance--it would not have to write policies for jewelers, for instance--but if it should have to offer in all states the lines that it sells in some. No selling of home-owners' insurance in one state and auto insurance--but not home owners'--in another. Such provisions would reduce the opportunity for insurers to cherry-pick, offering insurance on which they expect relatively few claims, while refusing to protect people who really need it. They would also work to increase competition in the insurance market.

Insurance companies routinely establish subsidiaries and sister companies to offer specialized lines, but the Securities and Exchange Commission long ago solved the problem of deciding what the real reach of a corporation is when it devised the concept of "affiliates," now well rooted in the law. The same idea would be applied to insurers to keep them from avoiding the intent of the full-line law.

If a few large states like New York and California adopted full-line laws, it would force insurers into a new way of doing business, one that considers the needs of policy holders as much as the desires of stockholders.