WASHINGTON
The start of the 2012 hurricane season has provoked the annual pleas from Florida to create a national catastrophe fund to bail out its state insurance program, an exemplar of government dysfunction and waste.
Don't be fooled: This is a beach-house bailout that Congress has rejected in the past and should reject again.
The Florida Hurricane Catastrophe Fund (Cat Fund) was created to shield residents from the high property-insurance rates that stem from the fact that Florida is among the world's most active hurricane regions.
The Cat Fund is a highly subsidized public insurance system that has largely displaced the private insurance market in Florida. By artificially pricing insurance instead of letting risk determine premiums, this fund was designed to fail and costs taxpayers a boatload of money.
Many Florida officials have been working to fix this problem where it should be fixed -- in the state -- and these efforts should be encouraged. But some have suggested that taxpayers from around America should pay for this subsidized insurance.
Proponents of legislation based on 2007's Homeowner's Defense Act -- which would have created a public insurance scheme and would have made taxpayers responsible for most insured losses in Florida -- are advocating a program that has the potential to cost U.S. taxpayers more than $200 billion, according to a study done in 2008.
By supplanting the private insurance and reinsurance markets, this approach would create a government backstop akin to Fannie Mae and Freddie Mac, the two government-sponsored entities that have now cost American taxpayers $180 billion.
The federal government currently covers immediate cleanup and rescue, human services to disaster victims and public infrastructure repairs while private insurance coverage is available to pay for most rebuilding of private homes. Under a federal backstop, guarantee program or similar scheme, American taxpayers would continue to pay for immediate needs and infrastructure but also pay billions of dollars in rebuilding costs now covered by the private sector.
The greatest risk posed by this kind of legislation is that it does nothing to prepare and protect people and property in advance of natural disasters. It also does nothing to discourage development in disaster-prone areas. A federal backstop would leave everyone in America on the hook for the bill if a major hurricane strikes Florida.
This means that taxpayers from Kansas would be on the hook to bail out owners of beach houses who have chosen to place themselves in harm's way.
There are more sensible ways to prepare for nature's wrath. For example, Congress should reject a federal backstop scheme for Florida and support mitigation as well as reform the National Flood Insurance Program (NFIP) that would benefit all taxpayers, especially those in the Sunshine State.
A national mitigation strategy would prepare communities to withstand the next storm. Mitigation is estimated to have saved more than 200 lives between 1993 and 2003 and prevented 4,700 injuries over 50 years. Mitigation is also cost-effective, saving four dollars in clean up and rebuilding costs for very dollar spent on measures that reduce the risk arising from major storms.
Currently, the NFIP is about $18 billion in debt to taxpayers. Republicans and Democrats both support specific reforms that would put it on sounder financial footing and enhance coverage for property.
It is cheaper and safer to prepare for hurricanes before they strike than it is to rebuild after they strike. Florida can get on the right path by beginning to phase out taxpayer subsidies and bring back the private insurance sector.
The federal government should encourage these behaviors by showing some tough love and saying no to a national catastrophe fund now - before it's too late.
Ryan Alexander is president of Taxpayers for Common Sense.
Florida's Beach-House Boondoggle (Providence Journal)
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