From the AP wire:
Skittish from Hurricane Katrina and bracing for another storm season, lawmakers including Florida Gov. Charlie Crist asked Wednesday for a national catastrophe fund to help hold down property insurance premiums.
The Bush administration rejected the idea, however, and a leading Democrat promised only to create a commission to study the issue.[...]
Sen. Richard Shelby of Alabama, the ranking Republican on the committee, said a national fund also would leave taxpayers everywhere paying to cover vulnerable coastal locations.
Crist and others disputed those arguments, saying the program would cover all types of catastrophes in every region, such as earthquakes. Federal taxpayers already pick up the tab for events like Hurricane Katrina in the form of disaster assistance. It’s wiser to create a fund on the front end that could earn interest and hold down insurance rates, they argued, even if it requires a taxpayer subsidy.
I’ll applaud the relevant Congresscritters for at least seeming to be contemplative in considering their course of action, resisting the urge to give money away for the poor huddled masses on the coasts.
I’ll also say that I’m not necessarily opposed to the idea of some form of federal protection, particularly if it has the effect of at least partially replacing handouts to folks who can’t (or won’t be bothered to) acquire protection on their own.
A case can be made that there exists the potential for certain megadisasters which probably cannot be safely absorbed by private insurance. For example, it’s not currently sexy for insurers to look at their aggregations in the New Madrid fault zone. If a repeat of the New Madrid earthquakes of 1811-1812 were to occur, the financial impact to the insurance industry could be crippling, and the market disruption in the recovery process would be massive, countrywide.
In such a situation, having federal protection to cushion the worst of the impact could be justified. Even though there would be an implicit subsidy by folks in less cat-prone areas, you could argue that such a subsidy is justified, on the basis that it is protecting those out-of-region folks from the economic ripples that would arise in the absence of a federal backstop.
What I would hate to see happen is a federalization of a Florida-like scheme, where the cost of even mid-sized catastrophes in the short term would simply be deferred to assessments on future premiums, without regard to relative exposure to loss.