Providing wind coverage in coastal areas is essentially a no-win situation for insurers, and as a result the majority of wind policies have shifted to state-run insurers of last resort.
The captive insurance companies being proposed by Alabama State Revenue Commissioner Tim Russell to help cover coastal homeowners are in reality residual insurance companies — private companies that are heavily subsidized by the state government and whose risk of loss is assumed by every taxpayer.
Residual markets erode the private market and have generally pushed consumers toward state-run companies, which were created to be insurers of last resort.
While the goal of restarting the real estate market is important, subsidizing the construction and coverage of new homes in coastal areas vulnerable to wind and flood damage is both irresponsible and unfair to homeowners who build in safer areas.
The correct path to sustained growth in the insurance market is the opening of Alabama’s market to competition.
The Heartland Institute