By eliminating federal disaster relief.

An interesting argument. I know that a lot of people are being priced out of the housing market here in south Florida by outrageous and rising insurance costs. Basically, it's another form of outlawing gambling. Of course, the mortgage companies are driving this as well, for obvious reasons. The question is whether or not they're properly assessing the actuarial risk, and how much federal regulation is preventing the market from working by not allowing an insurance company to take a flier by offering offering lower rates. Or maybe, the market is finally recognizing the risk of building in such places.

A lot of the federal flood and disaster insurance serves to subsidize people to live in dangerous areas. John Stossel (sp) did a good segment on this several years ago. Why should someone in Colorado or Kansas have to subsidize someone's insurance to live in a beach house that'll get destroyed every time a hurricane hits? No ordinary insurance company would insure such property (or if they did, the premiums would be very high). However, the federal insurance allows someone to build there, making what was essentially worthless land now very valuable.

The old political axiom of "following the money" should apply here. It would be interesting to see who got this insurance passed in Congress and see who was donating to them. It wouldn't surprise me in the least to see major contributions from people who bought dangerous, essentially worthless coastal land cheap and who were then able to sell if for very high prices.

Like all insurance, the cost should be proportional to the risk. If someone lives in an area that gets flattened every 10 years or so, then the annual premiums should be about 1/10th of the value insured. Simply put, under those circumstances, $300,000 of coverage would cost $30,000 a year. Otherwise, it's just another taxpayer rip off. You want to live on the beech? Fine. Just don't expect me to pay for it when your house gets destroyed by the next hurricane.

As a Tampa area resident, I know the problem well. There are a number of things that contributed to our insurance nightmare, and little was done in Gov. Crist's effort to reform the system.

From what I understand, the current law certifying who can write homeowners in Florida was basically written by the big six homeowners companies in such a way that only they qualify. There are legal impediments to anyone offering innovative solutions.

Additionally, the state created an insurer of last resort, and legally mandated that they have the highest premiums of any company. So your homeowners ins. company can drop you, and you are forced to go to a higher cost state solution. They can drop high risk properties (as is their right) without worrying that an innovative competitor will take those properties because they have blocked those competitors and they don't face backlash because the state will pick those people up.

Also, the hurricane projection models are literally marketed to the insurance companies like any other software. They use these models to justify rate increases to the public insurance commission. Obviously, they have the incentive to pick those models that justify the highest rates.

A few years ago, 4 hurricanes struck the bay area. Insurers used that to justify rate increases of up to 75%. Last year, no hurricanes struck the state of Florida, but rates are still expected to go up because the models call for increased activity.

The large insurance companies have worked with our legislature to create a nice little gov't sponsored monopoly.

We need more competition here, not more government promising to take the risks away from the private insurers.

We also need the legal ability to drop windstorm coverage and keep libability and fire protection.

In Wilma my trees and fence got knocked over but there was no damage to my house. But tree removals and fences are not covered under my policy. And the windstorm deductible is huge if I ever have a claim! I am probably more at risk from a fire or break-in than the once every two lifetime Cat 5 hurricane. The last Cat 4 to hit Broward was in 1947.

Rick

The insurance companies are rationally assessing risk.

They see rising damage curves, and are pulling out of coastal
communities all over the atlantic and gulf coast.

They...are pulling out of coastal communities all over the atlantic and gulf coast.

If this is true, it has nothing to do with the size of damage claims. The size and frequency of damage claims just sets the size of the premium. It doesn't make you exit the market.

What does make you exit the market is unpredictability in the size of your claims. If you routinely plan for $150 million a year in average claims, and one year it spikes to $15 billion, and you can't reliably predict that at all, not even on average, then you get out of the business. It's too dangerous.

Hurricans and weather are, on average, very predictable. So I doubt the unpredictability has to do with the weather. It's more likely the unpredictablity of the legal "weather", so to speak. That no one has ever been able to predict accurately, even on average.

Option three is either build structures that can handle the damage or ones that are cheap enough to replace without insurance. I don't buy insurance that I am not required to buy.

Carl, I think it's more that the insurance companies can't determine how much extra costs the state of Florida will add. It's one thing to have a bad year and have your costs spike to $15 billion and it's another to have a Florida law create that spike. The only way you can protect yourself from that is to get out of the business.

Karl, that's what I said, or meant to say. I must have expressed myself badly.