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Insurance Plan Won't Work

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Insurance Plan Won't Work

Op-ed in The Miami Herald

James Lee Witt and James Loy are, quite simply, wrong to suggest that a ''national catastrophe backstop'' would help reduce homeowners' insurance rates for Floridians. (Why we need a federal plan for insurance, May 18 Other Views). In fact, as Florida's own experience with the Hurricane Catastrophe Fund has shown, such arrangements just don't work. The Legislature has already voted to scale back the Cat Fund because it has no chance of paying out its liabilities.

The reason is simple: Private reinsurance markets spread risk all over the world, while government-run backstops, even national backstops, concentrate risk in the same place. This violates sound insurance practice. To break even, such backstops have to charge more than the private sector.

For all of their talk of ''private insurance dollars,'' any federal backstop would rely on a taxpayer bailout to keep its costs lower than those of the private sector.

To make matters worse, such a backstop would encourage lots of development in environmentally sensitive places where it simply shouldn't happen. The results will be simple: bigger liabilities for taxpayers, destruction of the environment and a Florida that isn't as safe as it could be. A national backstop is a bad idea.