NCPA - National Center for Policy Analysis


August 27, 2007

With more than half of all Americans living within 50 miles of the coast, it's time for all of us to face up to the economic reality of hurricane risks, says Jay S. Fishman, chairman and CEO of The Travelers Companies, Inc.

Unfortunately, most legislative efforts and proposals to address these problems are based on shifting risk away from coastal property owners and on to the government -- they're nothing more than broad-based transfers of risk to taxpayers.  Consider:

  • Florida, which arguably faces the greatest challenges, has turned to the state-owned Florida Citizens Property Insurance Corporation to assume significant amounts of coastal wind risk.
  • But if, for example, Hurricane Dean had hit Southern Florida, the obligations of Citizens would almost certainly have outstripped its resources.
  • In that case, the likelihood is that some would call for a government, i.e., taxpayer, bailout.

A private, market-based insurance industry solution is far preferable.  The basic tenet of insurance is to spread risk among as many people as possible who are subject to the same kind of risk.  We should resist public policy measures that enact the sort of "windstorm socialism" -- forcing inland property owners or all federal taxpayers to pay for hurricane risks to which they are not subject, says Fishman.

One way to avoid this outcome is to create a federally regulated "Coastal Hurricane Zone" along the Gulf and Atlantic Coasts -- from Texas to Maine.  The federal government would not have a financial role but rather would regulate and oversee most aspects of wind underwriting by private insurers, including pricing.

Source: Jay S. Fishman, "Before the Next 'Big One' Hits," Wall Street Journal, August 27, 2007.

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