State insurance programs flawed

State insurance programs flawed

Letter to the Editor in The Los Angeles Times
April 20, 2009
Originally published in The Los Angeles Times

Re “Insurance assurance,” editorial, April 9

The
Times argues that the federal government should provide a "backstop"
for state insurance funds like the California Earthquake Authority. The
Times is wrong. States like Florida that have experimented with
backstops have found that they don't work.

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 practices. To break even, such backstops have
to charge more than the private sector.

Rather than charging
rates that are really sufficient, however, existing government-run
insurance programs under-price coverage and leave taxpayers with
enormous unfunded liabilities. Below-market insurance rates, in turn,
encourage unnecessary, environmentally destructive development.

A federal insurance backstop is a terrible idea.

Eli Lehrer

Washington

The
writer runs the insurance project at the Competitive Enterprise
Institute, a nonprofit dedicated to free enterprise and limited
government.