Expert Comments: The Danger of Property and Casualty Insurance Subsidies

Published June 6, 2008

(CHICAGO, Illinois – June 6, 2008) In an effort to entice insurers to provide coverage to consumers in high-risk coastal areas, legislators in Florida and Louisiana have launched incentive programs that provide capital assistance to small insurers who provide coverage in these riskier markets. In both states, this has led to an increase in the number of smaller insurers providing coverage.

Critics of these incentive programs warn the smaller companies may be unable to withstand a large-scale catastrophe and fully cover their policies. In addition, legislators in both Florida and Louisiana are attempting to move a significant number of policies from their respective Citizens’ Insurance companies to the private market.

Experts contacted by The Heartland Institute offered the following comments about the issue. You may quote from this statement or contact the experts directly at the phone numbers or email addresses provided below.

“Florida’s Cat Fund/Citizens combination is a recipe for bankruptcy. It will take only one bad storm to drive the state over the edge.

“There’s nothing wrong with smaller companies coming into a market when bigger ones withdraw. In fact, smaller companies often have the flexibility to adopt new business models that let them write risks that bigger ones just can’t.

“That said, I’m enormously worried about the possibility of states subsidizing upstart private insurance companies. Doing this simply assures that large numbers of poorly managed, under-capitalized insurance firms will enter the market. They’ll deliver profits to their stockholders in good times and then, in more cases than not, collapse, leaving state guarantee funds and, ultimately, taxpayers to pick up their bills when things go bad.

“Government should not subsidize private insurance business. Florida Gov. Charlie Crist made the right decision with his recent veto to avoid doing it. Louisiana’s experiment could have serious fiscal consequences for the state.”
Eli Lehrer
Senior Fellow
Competitive Enterprise Institute
Washington, DC
[email protected]

“Consumers do not want policies that give handouts to more affluent costal property owners at the expense of other, often less affluent, homeowners. It is critical that state regulators and policymakers terminate unfair price regulations.”
Steve Pociask
American Consumer Institute
Reston, Virginia
[email protected]

“People will follow the taxpayer’s money directly into harm’s way.

“State subsidies of high-risk costal insurance policies are the exact opposite policy of disaster preparedness. The financial temptation of the subsidy will cause people to ignore the ever-present threat of hurricanes. Future disasters will come with a much higher toll in terms of human lives and the economy because of these policies. States in hurricane zones should be interested in finding ways of mitigating their risks rather than increasing them.”
Brian Costin
Assistant Director of Government Relations
The Heartland Institute
Chicago, Illinois
[email protected]

Nothing in this news release is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit The Heartland Institute’s Web site at and PolicyBot, Heartland’s free online research database.

If you have any questions about this issue or The Heartland Institute, you may contact Legislative Specialist Matthew Glans at 312/377-4000 or [email protected].