Tuesday, August 30, 2011

Bad Consequences

"Bad consequences often follow even the best-intended government action," notes a commentary in Perspectives. Although Hurricane (and later, and more damaging, Tropical Storm) Irene may cost billions, the financial burden could have been worse—much worse.

In yet another example of government intending to protect the less fortunate but doing the exact opposite, the state of Florida in 1993 established two insurance funds to offset planned rate hikes by private insurers. Nearly 20 years later, both funds, despite having become the insurer and reinsurer of first resort, lack anything close to adequate capitalization.

Had Irene barreled into Florida, its impact could have forced a federal government bailout amounting to billions of dollars.

The fact that Florida remains at continuous hurricane risk only adds to the future cost.

What's more, Florida's subsidized insurance overwhelmingly favors the wealthy, those folks most likely to own waterfront properties. In classic big bank fashion, it evokes "heads I win, tails you lose".

The alternative, an environment advocating personal responsibility, would put risk and return into proper balance, and eliminate unnecessary cost.

Read "Case Study: Florida Catastrophic Insurance Funds" here.

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