Final answer:
Insurance premiums are influenced by government regulations, but maintaining artificially low premiums can lead insurers to avoid high-risk clients or leave the market, as seen with companies in New Jersey and State Farm's exit in Florida. The cost of overly low premiums may ultimately fall on taxpayers or other policyholders.
Step-by-step explanation:
The question pertains to the dynamics of insurance premiums and how they are affected by government regulations aimed at keeping them low. State insurance regulators often set rules to lower premiums for the benefit of the public. However, if these premiums are kept below an actuarially fair level, insurance companies may face financial losses. As a result, they may either refrain from insuring high-risk individuals or exit the market entirely.
Notably, a historical example includes the withdrawal of more than 20 insurance companies from New Jersey due to such regulations, and State Farm's withdrawal from the property insurance market in Florida in 2009. When premiums are artificially kept low, and the insurance company cannot operate sustainably, the outcome might end up being counterproductive, with high-risk customers facing a lack of available coverage or taxpayers and other insurance buyers having to absorb the costs.
Ultimately, the fundamental law of insurance will prevail, whereby the average amount received by individuals in claims cannot exceed the amount collected through premiums. Companies cannot be forced to maintain high coverage levels with low premiums indefinitely, without either experiencing financial strain or shifting the cost burden to other groups.