Metrological Disaster Waiting to Happen

That is USA Today's take on Florida. According to its editorial, the increasing risk to the nation due to Florida's hurricane insurance market mismanagement is ...

"At bottom, Florida's underfunded, state-run program is a cynical ploy to get people in places like Iowa and Tennessee to subsidize those who want to live in hurricane-prone areas."

Comments

[Brian Martin]

This is an ignorant editorial. Florida subsidizes Iowa and Tennessee, not the other way around. Think ethanol and other subsidized corn programs, multiple peril crop insurance, TVA subidized everything, dams, flood insurance, etc. Floridians pay much more in flood insurance premiums than they collect in claims. Does Iowa? Does Tennessee? Floridians pay homeowners insurance premiums that are several times more than their estimated losses. The premiums are not the problem. Capital reserves are the problem. You are not going to collect enough premiums in 10 years to cover a 200-year event and you are not going to build up reserves in a single-state pool to fully cover a megacat. The private guys can't do it either. Megacat reinsurance is so ridiculously overpriced that no insurance company would buy it so why should state risk pools? Florida needs a line of credit from the federal government in case a 200 or 300 year event hits. Or even better we need a federal hurricane insurance pool that spreads this risk geographically, not to Iowa or Tennessee, but along the coasts from Texas to Maine, with risk-based premiums.
It also is ignorant and insulting for USA Today to imply that coastal residents are all beach bums. We can't put the ports, oil refineries, shipyards, Naval stations, fisheries, etc. in Iowa. Coastal communities more than pay their own way.
If you guys are going to keep saying that the premiums are too low, then have the courage to compare the expected losses according to the risk models with the premiums that coastal residents pay. Wharton says the premiums are 5 to 10 times higher than estimated losses. Does it make sense for anyone to pay 10 times more in premiums than the expected claims? Would you pay that? Would USA Today's editorial board pay that?

[Brian Martin]

Did USA Today editorialize against terrorism insurance? Did you oppose it?
Isn't TRIA similar to what Florida is requesting except that TRIA is a retroactive federal backstop for private insurance companies and the financial industry?

[RiskProf]

I was a coauthor of that Wharton report. In fact you saw me at the presentation because I invited you. I thought you might learn something and I wanted you to see how seriously we think about the economics of the problem.