WASHINGTON (April 15, 2016) – The R Street Institute today expressed its concern about the reintroduction of a deeply flawed legislative proposal to create a taxpayer-backed federal reinsurance scheme for state catastrophe funds.

Introduced by U.S. Rep David Jolly, R-Fla., H.R. 4947 would put the federal Treasury on the hook to cover shortfalls suffered by government-sponsored entities like the Florida Hurricane Catastrophe Fund in the event of a large disaster. According to R Street Senior Fellow R.J. Lehmann, the bill marks the latest iteration of a concept that Florida’s congressional delegation has been pushing for more than 20 years.

“As a Florida resident, I fully understand the frustrations Floridians feel at the high cost of homeowners insurance, an inevitable result of choosing to live on a low-lying peninsula that juts out into some of the most hurricane-prone waters in the world,” Lehmann said. “While it’s understandable that Florida would like to shift its problems onto the other 49 states, this sort of structure, which we call the ‘beach house bailout,’ is and has always been poor public policy.”

Whether structured as reinsurance or loan guarantees, the practical effect of federal support to state catastrophe funds is to subsidize risk-taking and development in environmentally sensitive regions, such as coastal wetlands, as well as to displace private insurance and reinsurance markets, Lehmann added. Moreover, there simply is no need for any legislation of this sort, as global reinsurance markets currently are as deep and competitively priced as they have ever been.

“Proposals for a national catastrophe fund are like the undead. They are killed over and over, as rational minds come to see just how ill-advised they are, but they slither back from the grave – just as brainless and stinky as ever,” Lehmann said.

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