WASHINGTON (March 12, 2013) — The R Street Institute today expressed concerns about the reintroduction by Rep. Albio Sires, D-N.J., of legislation establishing a pre-packaged federal bailout system for failing and ill-conceived state-run insurance programs.

Under a so-called “national catastrophe fund” system, the federal government would guarantee liabilities from government-run property insurance schemes like the Florida Hurricane Catastrophe Fund, which currently has $17 billion in liabilities, but would be unable to make good on billions of dollars in claims if a large hurricane were to strike the state.

R Street Senior Fellow R.J. Lehmann argued that shifting such liabilities to the federal government would violate basic principles of insurance, which dictate that risks should be spread as broadly as possible. He added that the global reinsurance market stands fully capable of taking on catastrophe risks at market-based, actuarially sound rates.

“While federal cat fund supporters often claim they would require participating state cat funds to charge actuarial rates to participate in the federal program, the reality is that any fund that did charge actuarial rates would not need federal support in the first place,” Lehmann said. “We’ve already seen what happens when the federal government gets involved in property insurance; the answer is the National Flood Insurance Program, which has $30 billion in debt it will never be able to repay.”

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