Stop flirting with disaster
Palm Beach Post Editorial
Sunday, March 15, 2009
Gov. Crist and the Florida Cabinet made the case last week for national disaster insurance.
Florida’s Hurricane Catastrophe Fund has about $8 billion in cash to help insurance companies pay claims after a very bad storm or storm season. The fund, though, could have to pay as much as $28 billion in the very worst case. Florida has ways of raising the balance – increasing the sales tax – but given the credit markets, no one can be certain of raising it. Last year, Warren Buffett made a quick quarter-billion for guaranteeing $4 billion in fund payments and then not having to pony up.
This year, the state’s angle is to seek a line of credit from the federal government. Please insert here your caustic comment about Washington becoming an ATM. Granted, next to the $700 billion financial rescue plan and the $780 billion stimulus plan, $4 billion or so doesn’t seem like much. But it makes no sense when there’s another way.
That way is a national disaster insurance program, for hurricanes, earthquakes, tsunamis and other perils that in the worst-worst case would overrun conventional private insurance. In the last Congress, U.S. Rep. Ron Klein, D-Boca Raton, got his national disaster bill through the House but not the Senate. It would have created a system under which a state would set up the first tiers of payment, as Florida has done. Anything above that would be repaid through private bonds backed by the federal government.
After Katrina, Congress sent more than $100 billion to the Gulf Coast. It never came back. Under Rep. Klein’s proposal, that sort of emergency money would come back to the treasury over time. For Floridians, the benefit would be lower insurance costs. The state requires that property insurers be capitalized to pay claims from a 1-in-100-year-storm. But as Florida has pushed companies to offer more discounts for hardening property, some insurers have been buying reinsurance – insurance for insurance companies – for claims from a 1-in-250-year storm.
That extra cost of reinsurance has pushed premium costs higher. It’s needless; if a mega-storm hit Florida, the federal government would step in. So Rep. Klein is pushing his plan in the new Congress. And when President Obama was in Fort Myers a month ago to tout the stimulus bill, Rep. Klein spoke with him and Gov. Crist about national disaster insurance, which the president and governor support. Most of the opposition comes from the reinsurance industry, which would lose business.
"I think there’s a good chance of it being pursued in the Senate this time," Rep. Klein said. "It may not look like exactly like what we did the last time, but we’ve always said that if people can improve on it, we’re willing to listen." If you listen to what Florida is saying, Congress should be willing to get a disaster insurance bill to the president.