NCPA - National Center for Policy Analysis


June 3, 2008

As hurricane season begins, Democrats in Congress want to nationalize a chunk of the insurance business that covers major storm-damage claims, says the Wall Street Journal. 

The proposal  -- backed by giant insurers Allstate Corp. and State Farm Mutual Automobile Insurance Co. -- focuses on "reinsurance," the policies bought by insurers themselves to protect against catastrophic losses.  The proposal would establish a taxpayer-financed reinsurance program covering all fifty states, which would essentially backstop the giant insurers in case of disaster.  These reinsurance funds would collect premiums from insurance companies, who would benefit because they would be paying less than in the private reinsurance market, says the Journal. 

There are numerous criticisms of this proposal:

  • The lower premiums would likely spur irresponsible coastal development.
  • The proposal would also shift costs to taxpayers in states with fewer natural-disaster risk.
  • It would essentially squeeze out a large portion of the private reinsurance market.

Florida Democrats have attempted to make a federal disaster fund a big issue in this year's presidential race.  Sen. Clinton (D-N.Y.) and Sen. Obama (D-Ill.) have both expressed support for the plan.  Sen. McCain (R-Ariz.) is resisting calls to back the program:

  • Florida is currently the only state with its own reinsurance fund, which was created in 1992 after Hurricane Andrew caused $26.5 billion in damages.
  • An advocacy group backed by Allstate and State Farm estimates the program would save Florida homeowners roughly $500 apiece in annual premiums.

Source: Elizabeth Williamson, "Taxpayers May Face Hurricane Tab," Wall Street Journal, June 1, 2008.

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