No to National Cat Fund

Published September 4, 2008

Dear Editor:

No to National Cat Fund

A national catastrophe fund would result in millions of taxpayer dollars being thrown at a system that is not only costly for taxpayers, but also unlikely to cover the losses incurred after a major storm.

In an ideal insurance system, families choosing to live in hurricane-prone areas would bear the burden of their high-risk decision. Under a National Catastrophe Fund, the brunt of the financial burden posed by a major storm would be borne by safer homeowners living in inland areas, transferring risk through the fund backed up by taxpayer dollars.

The current system in many coastal states encourages risky homebuilding in exposed coastal areas and aggressive business practices by insurers now absolved of a risk under the guaranteed government subsidies. Policies issued by state-run insurance companies like Florida’s Citizens Property Insurance Corporation represent significant unfunded liabilities on the states. These liabilities create the potential for fiscal collapse in the event of a significant storm, necessitating tax increases or service cuts to cover costs.

Government-backed reinsurance funds have not worked well at the state level; creating a national catastrophe fund is the wrong approach to stabilizing coastal insurance markets.

Matthew Glans ([email protected]) is a legislative specialist for The Heartland Institute.