State insurance programs flawed
Re “Insurance assurance,” editorial, April 9
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.
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.
writer runs the insurance project at the Competitive Enterprise
Institute, a nonprofit dedicated to free enterprise and limited