Another flood insurance canard washed away
When the cause of flood insurance reform is advanced, one immediate bit of pushback that one tends to hear is that reform is unfair. The reasoning usually goes that, by removing the state from flood insurance reform, consumers get socked with a bigger share of the bill. This is an old chestnut, which conservatives should have little difficulty answering in this specific case, yet it persists all the same.
Fortunately, Bill Newton of the Florida Consumer Action Network has an article out (paywall) exploding this myth in the case of Florida’s Cat Fund. The article itself is behind a paywall, but some highlights can be excerpted. This is the money quote:
Opponents of the legislation contended that shrinking the Cat Fund would force Florida insurers to obtain more expensive coverage in the private market and insurance premiums for consumers. But the opposite is true. The cost of reinsurance is on the decline, and accessing that capital would not increase consumer rates.
In point of fact, Newton argues, leaving insurance as a bill to be paid by taxpayers will ultimately cost Floridians far more than simply pushing flood insurance toward the private market:
Florida has taken on a huge amount of risk. The Cat Fund, originally intended to provide stability for Hurricane Andrew-sized events, is supported by issuing debt that would have to be repaid by Florida homeowners, business owners, renters, churches, charities and automobile policyholders. That means ALL the risk is on us.
While the absence of a land-falling storm over the years has provided the fund with an opportunity to build up a cash reserve, we should not forget that its structure relies on post-event bond debt to pay hurricane claims, rather than traditional reinsurance, which spreads the risk outside the state. Florida can only put a limited amount of our funds at risk, and after that current law leaves us at the mercy of the financial markets.
We may or may not be able to borrow enough money, or we may face the possibility of having to pay sky-high interest. That means we might not be able to pay claims, which would be a second disaster, possibly worse than the storm itself. In today’s markets, estimated bonding capacity is down, not up. Thus, interest rates would be higher.
Both these points are absolutely necessary for conservatives to know, if they plan to win the broader flood insurance fight nationwide. Americans have already witnessed the regressive effects of one attempt to socialize risk and appear to have no stomach for similar schemes. Just like Obamacare’s use of poor young people to subsidize the risks of insuring disproportionately wealthy aging baby boomers, socialized flood insurance disproportionately benefits the well-off (often people with pricey oceanfront property) while stripping money from less well-off taxpayers. Americans should accept neither state of affairs.
