Archive for July 2nd, 2009

GOP politicans in Washington spent most of this decade expanding the burden of government, which turned out to both economically and politically misguided. But it is worth noting that Republicans at the state and local level are also capable of awful ideas. The Wall Street Journal savages Florida’s governor for the Fannie-Mae-style insurance system he has created for property owners. Low-cost insurance sounds great, but only until a bad hurricane strikes. This would wipe out Governor Crist’s collectivist insurance scheme. The only question would be whether Florida taxpayers dealt with the disaster or whether the politicans in Washington would try to stick all of us with the bill:

…two years ago Mr. Crist gave a big gift to coastal property owners by converting the state of Florida into one of the world’s largest property insurers. The Citizens Property Insurance Corporation provides below market-rate insurance policies directly to homeowners. Meanwhile, the Florida Hurricane Catastrophe Fund (CAT) regulates how much private insurers can charge homeowners and requires companies to purchase low-cost reinsurance from the government. Mr. Crist didn’t invent these programs, but he vastly expanded their reach — to about one million policies today. He transformed Citizens from insurer of last to first resort. Here’s the problem: This system isn’t even within a coastal mile of being actuarially sound. The state government acknowledges that in many high-storm risk areas the premiums are from 35% to 65% below what is needed to cover potential claims. That subsidy has made Mr. Crist popular with many coastal residents even as the state plays Russian roulette with the weather. …the Governor claims people can’t afford “large and unpredictable” increases in premiums. The truth is large increases are precisely what is sometimes needed to cover the risk of living on coastal property. Mr. Crist’s program makes the long-term losses much more severe because cut-rate insurance has encouraged overbuilding in coastal areas that are historically in the path of hurricanes. “We are one major hurricane away from an economic disaster in this state,” says House bill sponsor William Proctor. Mr. Crist is also pushing a federal disaster-insurance fund, probably because he knows the risks he’s taking and wants all American taxpayers to bail out his Florida schemes when future hurricanes hit. Meantime, he continues to perpetuate the myth that Florida property owners can have billions of dollars of subsidized insurance at little expense or risk. It’s this kind of something-for-nothing economics that gave us the debacle of Fannie Mae. With that philosophy, Mr. Crist would feel right at home in Washington.

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