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Tuesday, February 20, 2007

Legislating Reality Out of Existence

Speaking as a public policy graduate student, this law just passed in Florida is the most irresponsible bit of policymaking I've seen in a while.

Basically, since home insurance rates have skyrocketed on the Florida coast as insurance companies have realized that their hurricane risk predictions are too low, the state of Florida has now comitted to come up with lots of cash -- up to around $40 billion -- to compensate insurers in the case of catastrophic hurricane claims so that the companies will lower their rates. Note that the state now has a little less than $1 billion for that purpose, and has no serious plan for raising the rest. When part of your implementation plan is "We all need to pray to the hurricane gods," you have a problem.

Even worse than the foolishness of this policy, it is also spectacularly unfair. If disaster strikes, inland and upstate residents (who tend to be poorer) will heavily subsidize coastal residents who insisted that their expensive oceanside homes still be affordable to insure even when they shouldn't be. I guess the market is only omniscient when it's working in your favor, eh?

What's more, the statement near the end of the article about the likelihood of federal government relief if the state comes up short is prescient. We would almost certainly be expected to bail them out of their pickle; I think that's ultimately what they're planning on in passing this, and it's extremely cynical and cowardly.

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