Catastrophe fund risky
Indeed, many private insurance companies have increased rates, reduced policies, or left Florida altogether in recent years. However, this is not a failure of the free market or competition, but rather a consequence of government policies that have stifled free market competition.
Instead of allowing insurers to compete for business in Florida, lawmakers have imposed de facto price controls on the market that have either forced insurers to reduce policies or leave the state altogether. As a result, that concentrated Florida’s enormous risk on fewer companies, which drove up rates for consumers.
A national catastrophe fund would have a similar effect. Instead of spreading risk globally as reinsurance companies do, which allows them to pay claims on, say, hurricanes in Florida while collecting premiums on earthquake risk in Japan, a national catastrophe fund would only serve to concentrate risk within our borders. And risk that is concentrated is always more expensive.
In contrast to Florida’s broken system, insurers who serve the region impacted by Sandy seem prepared to pay their claims without assessments, taxes or bailouts. The exception is the perpetually underfunded National Flood Insurance Program, which charges rates far below what it should. Like Florida’s Citizens Insurance, NFIP subsidizes its rates and requires taxpayers to bail it out — repeatedly.
A national catastrophe fund would be no different.