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Making Coastal Properties Safer Will Help Cut State's Cost

August 6, 2008

Sarasota Herald Tribun

Eli Lehrer and Steve Pociask

Tropical Storm Edouard hit the Texas Gulf coast east of Galveston on Tuesday with strong winds and heavy rain, giving Floridians reason to think about their own state's hurricane risk.

Indeed, Hurricane Dolly's recent landfall in Texas should have provided a sufficient reminder that a major storm might hit Florida before hurricane season wraps up. If this happens, the state's entire property insurance system could well collapse.

Consider the facts: The Florida Citizens' Property Insurance Corp. -- a government agency that sells more Florida property insurance than any private company -- relies almost entirely on the state's Hurricane Catastrophe Fund to pay major claims. The Cat Fund has some reserves, but not even the funds' overseers at the state board of administration can promise that it will actually sell the more than $32 billion in bonds the state has promised to issue following a catastrophe. (No state has ever sold more than $11 billion in bonds at one time.)

If a big storm hits the state, at best Florida will need to muddle through with some combination of federal handouts and vastly higher state taxes. At worst, the state could end up in bankruptcy court.

To date, Florida's policymakers have focused on Washington lobbying efforts for a variety of schemes intended to fix this situation through pre-funded federal aid. Whatever proponents call them -- "backstops," "federal wind insurance," "national catastrophe funds" -- these proposals promise to reduce costs for insurance companies, secure the state's finances, and, in theory, pass on the savings to consumers.

This would work about as well as the Cat Fund, which hasn't reduced rates much and has imposed massive liabilities on the state. No federally run consumer insurance program has ever broken even in the long run; the National Flood Insurance Program (which one of the major proposals would expand) is more than $17 billion in debt. In any case, these proposals seem dead. Although they passed the House of Representatives, the Senate resoundingly rejected them.

There's a better way and, in fact, Florida's policymakers are onto ideas to look toward Washington for help. The two of us -- one a free-market activist, the other a consumer advocate -- agree that Florida should change its own insurance system in a variety of ways. We think it should scale back the Cat Fund, let insurance rates rise for high-risk coastal property, and limit Citizens' role. These would be good starts, but we're aware that Florida may not be able to solve the problem on its own.

Rather than focusing on insurance policy, Florida and the federal government need to focus on making the state safer. A number of worthy proposals already have appeared in Washington: Several federal tax-credit programs intended to help people secure their homes against storms have found bipartisan support in the House and Senate.

Although particulars differ, the programs focus on federal tax credits -- some paid out as cash to people who pay little or no federal taxes -- that would help individuals reinforce their homes. Mississippi Sen. Roger Wicker and Rep. Bennie Thompson have also proposed direct help to people of modest means who have been socked with quickly rising insurance premiums. This also deserves consideration.

Florida itself should renew and expand its My Safe Florida Home program next year and should set a goal of having every hurricane-threatened property safety-inspected by the end of 2009.

The federal government, at minimum, should cut off all federal money for any new development in areas at serious risk of hurricanes, while mobilizing scientists and engineers to devise building technologies to secure existing structures.

Florida's hurricane problem won't go away. Increased development, global climate change and cyclical ocean temperature trends may well make hurricane risk even more severe. Property insurance reforms alone can't fix things. Instead, Florida -- and America -- should focus on making coastal property owners safe, secure and assured.


Eli Lehrer is a senior fellow at the Competitive Enterprise Institute. Steve Pociask is president of the American Consumer Institute.

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