AllState insurance backs group pushing for federal natural disaster fund

Opponents say a national pool of high-risk states won’t work for the same reasons Florida’s state-level catastrophe fund doesn’t. Private sector reinsurers are usually large international companies that spread risk over a diverse area — hedging against earthquakes in Tokyo to floods in the U.K. Supporters say that private market can better pool this risk on a large scale, and that if the government has to provide this kind of protection on a national level, it will raise costs and require subsidies in the future.

“Our experience is that when insurance is priced below a rate that truly reflects the risk, it acts as an incentive for building and developing in these sensitive coastal areas. This increases total disaster costs — and taxpayers of course end up paying in the end,” said David Conrad of the National Wildlife Foundation.

“The states that are going to voluntarily join this are going to be the states with the greatest risk, they’re going to want the guarantee of a federal bailout. They’re going to create a massively high risk pool for reinsurance,” said Michelle Minton, an insurance policy analyst at the Competitive Enterprise Institute. “Allowing states to have these public option reinsurance pools allows them to continue on this dangerous trajectory they’ve been on.”

Rates in Florida were getting so high that in 2002 the state created the Citizens Property Insurance Company as an insurer of last resort. This public insurance was not supposed to compete with private insurers, but recent legislative changes have allowed it to expand and compete with the private market — and it has steadily been gained market share and recently become the single biggest provider.

“The rates should be prohibitively high in these risky areas,” said Minton. “Why should other taxpayers provide subsidies to those who want to live on the beach? It’s become an entitlement now for those people who want to live on the beach. Even though they can’t afford it, they demand that someone give them insurance at a reasonable rate. In a normal insurance situation the folks who live inland would have a discount, but insurers don’t have a way to gauge true risk,” she said.

“When you have an institutional guarantee, you’re more likely to encourage risky behavior. What we’re lamenting is that the guarantee of protection will prevent people from thinking logically and taking responsibility,” said Minton. “If it wasn’t for the state-run insurance, which has so much of the market, they wouldn’t need a federal bailout at all.”

Contact Aleksandra at: ak[at]dailycaller[dot]com.