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Back to Home > Tuesday, Sep 05, 2006 Opinion Posted on Tue, Sep. 05, 2006 email this print this
The Aug. 23 Other Views column End private involvement by J. Robert Hunter and Joanne Doroshow presents an old insurance solution that will not serve Florida well. The National Flood Insurance Program (NFIP) is close in concept to the program suggested in the column, though on a larger scale.
The NFIP covers flood damage and is a government-run program. It also runs endless deficits. Because Congress fears voter backlash, it will not impose actuarially sound rates. Floridians who choose to buy flood insurance benefit from this subsidy. However, such a scheme merely encourages bad consumer decisions (i.e., locating one's home in a flood-prone area without having to face the negative economic consequences of the decision).
A state-chartered Florida windstorm insurer would become a political football in the Legislature despite its having a private operator. A better approach has two tracks -- one political and other market-based. The political option is for Florida to seek a compact among other disaster-prone states. The compact would bind state leadership to taking specific steps to encourage the federal government to address the insurance crisis.
Florida cannot carry its catastrophic windstorm load by itself. By nationally regulating catastrophic insurance, the federal government can employ the tax code to stimulate market participation. However, this federal intervention must follow earlier models that created market-based and profit-driven economic solutions, rather than new government-subsidized programs.
The second step is to deploy a lasting market-based solutions. This would be characterized by (1) a wider spread of risk among many market participants, (2) substantially reduced regulatory interference on the insurance-policy components and insurance-company business practices and (3) increased price competition. We accomplish this market-based solution by unleashing the world's financial markets to create new financial instruments and business practices.
Florida needs to take the lead in demanding a new regulatory framework that addresses the problem of catastrophic-risk insurance. We should not accept an answer that says we have to repeat the same regulatory mistakes.
This is cache, read story here
The Aug. 23 Other Views column End private involvement by J. Robert Hunter and Joanne Doroshow presents an old insurance solution that will not serve Florida well. The National Flood Insurance Program (NFIP) is close in concept to the program suggested in the column, though on a larger scale.
The NFIP covers flood damage and is a government-run program. It also runs endless deficits. Because Congress fears voter backlash, it will not impose actuarially sound rates. Floridians who choose to buy flood insurance benefit from this subsidy. However, such a scheme merely encourages bad consumer decisions (i.e., locating one's home in a flood-prone area without having to face the negative economic consequences of the decision).
A state-chartered Florida windstorm insurer would become a political football in the Legislature despite its having a private operator. A better approach has two tracks -- one political and other market-based. The political option is for Florida to seek a compact among other disaster-prone states. The compact would bind state leadership to taking specific steps to encourage the federal government to address the insurance crisis.
Florida cannot carry its catastrophic windstorm load by itself. By nationally regulating catastrophic insurance, the federal government can employ the tax code to stimulate market participation. However, this federal intervention must follow earlier models that created market-based and profit-driven economic solutions, rather than new government-subsidized programs.
The second step is to deploy a lasting market-based solutions. This would be characterized by (1) a wider spread of risk among many market participants, (2) substantially reduced regulatory interference on the insurance-policy components and insurance-company business practices and (3) increased price competition. We accomplish this market-based solution by unleashing the world's financial markets to create new financial instruments and business practices.
Florida needs to take the lead in demanding a new regulatory framework that addresses the problem of catastrophic-risk insurance. We should not accept an answer that says we have to repeat the same regulatory mistakes.
This is cache, read story here
