Regulation

Hurricanes Happen

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The first thing you should know about the homeowners' insurance bill recently approved by the Florida legislature is that it passed almost unanimously, with the governor's enthusiastic support. Naturally, it's a reckless boondoggle. After Florida was hit by eight hurricanes in 2004 and 2005, accompanied by forecasts of more to come, homeowners were hit by steep premium hikes. Legislators and Charlie Crist, now the governor, promised to Do Something, which turned out to be a guarantee that the state would help cover future losses coupled with a requirement that insurers cut their rates. The upshot is modest savings for policyholders now at the cost of big surcharges in the future, when the state's Hurricane Catastrophe Fund will be tapped out and everyone with insurance (any kind, not just homeowners' coverage) will be forced to cover the deficit. This is an even less artful scam than Social Security, since the winners and the losers will be, by and large, the same people. In the event of a really big disaster (or series of pretty big ones), the losers could include taxpayers throughout the country, since no president is likely to tell Florida to drop dead if its government appeals for federal help in covering property losses.

Not surprisingly, the president of the Insurance Information Institute is not keen on the new price controls. But he makes a lot more sense than the governor and the legislature when he suggests that, rather than look to the government to "legislate away the real, formidable risk of hurricanes in Florida," residents should stop building so much in areas that tend to get wiped out by hurricanes. This is the message high insurance premiums are sending, a warning the government is trying to mute.

[Thanks to Marc Roston for the tip.]