The Magazine

Bankrupting Florida

A disastrous hurricane could trigger a disastrous insurance debacle.

Aug 20, 2007, Vol. 12, No. 46 • By ELI LEHRER
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There's no copacetic model, but four proposals offer hope. First, hurricane-prone South Carolina has passed its own set of coastal insurance reforms. While far from perfect--they contain some open ended subsidies for consumers and industry--they go well beyond Florida's reforms in encouraging people to purchase private insurance and expand the private market. Second, Florida congressman Tom Feeney has proposed creating federal "disaster savings accounts" (a version of which South Carolina has already established), that would help people self-insure against minor emergencies. Although they would do little to deal with major hurricanes, such accounts could help some people raise their deductibles and thus cut their premiums. Third, bipartisan legislation sponsored by Rep. Melissa Bean, an Illinois Democrat, and California Republican Ed Royce in the House, and Democrat Tim Johnson and Republican John Sununu in the Senate, would let insurance companies do what banks have done since the Civil War and organize themselves under federal rather than state law. At least at the margins, this would send some companies trickling back into Florida. Finally, several insurance industry proposals--most prominently one put forward by Travelers--offer strictly limited new types of government-regulated insurance and reinsurance plans that, although still subject to political manipulation, do not pose the same fiscal risks as Florida's current plan.

For all the problems with the current Florida situation, the basics of it--Citizens and the Cat Fund--were in place before Crist first made his proposal. It took years to get Florida into the mess, and it will take years to get the state out of it. In the end, there's no easy solution. Under any circumstances, some Floridians will have to pay higher insurance premiums, move, or see their taxes go up. But the current situation is deeply unstable: If it goes unattended to, a major storm could send Florida into bankruptcy court.

Eli Lehrer is a senior fellow at the Competitive Enterprise Institute.