Miami Herald Editorial: When the big one hits

Mar 10, 2010

The Miami Herald published this editorial on March 10, 2010.

Federal consortium offers market solution

Soon, hurricane season will be upon us again. And once more Florida won’t be ready if a big one hits.

That’s because the Florida Hurricane Catastrophe Fund — like catastrophe funds in other states — is woefully underfunded to cover another storm as destructive as Hurricane Andrew.

Meanwhile, the state’s insurer of last resort — Citizens — has become for many state residents, particularly those in South Florida, the only insurer that will take them at rising rates that have become a drain on household budgets.

There’s a national solution — one that has come before Congress before but lost ground in the Senate: the Homeowners’ Defense Act.

On Wednesday, the House Financial Services Committee will be briefed by catastrophe experts from California to Florida on Rep. Ron Klein’s sensible market-driven solution. The Boca Raton Democrat’s legislation — backed by more than 70 Republicans and Democrats from more than 30 states — has the potential to lower insurance costs for homeowners. It encourages states with catastrophe funds to join a consortium that would pool their disaster risk.

This would spread the risk for not just hurricanes but earthquakes and wildfires for participating states.

By diversifying the risk among various states, the costs of insurance for homeowners would drop — by several hundred dollars a year.

The not-for-profit consortium could sell federally backed bonds for private investors to cover damage claims. The states, not the feds, would be on the hook to pay back bondholders.

Under the legislation, the U.S. Treasury Department would be authorized to create a federal reinsurance fund that would back up one-year reinsurance contracts from the national fund. This money would only be available when a once in a 200-year catastrophe occurs, ensuring coverage for the worst natural disasters.

Sens. Bill Nelson, a Democrat, and George LeMieux, a Republican, both support the measure and have promised to push hard this year to make it happen. It’s a common sense approach that does not displace the private insurance market — and long-awaited relief for Florida’s overburdened property owners.