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Jewish World Review Sept. 28, 2005 / 24 Elul, 5765 Create insurance backstop for natural disasters By Peter A. Brown
http://www.JewishWorldReview.com |
I am loath to expand the federal government's role, but common sense dictates Washington make sure insurance is available for catastrophes. After all, insurance is vital for capitalism to thrive.
The New Orleans/Gulf Coast disaster caused by Hurricane Katrina and the price tag for Rita's damage in Texas drive home the need for a comprehensive solution for earthquakes and terrorism, as well.
The feds don't need to subsidize policies in high-risk states; they need to create a marketplace in which it is profitable for insurers to do business. The government must make sure economically reasonable coverage is available.
This is not a foreign concept.
Private firms won't write flood insurance, which is why the federal flood-insurance program was created. But federal flood insurance creates a marketplace in which private insurers are willing to write liability, wind and fire policies for flood-prone homes or businesses.
Congress needs to do the same for terrorism and natural disasters, either through tax credits or a federal reinsurance fund to bail out insurers.
I am not talking about the government underwriting policies for high-risk, expensive properties without some sort of new requirements. People choose where they live and should pay for that decision by meeting stricter building standards to withstand the next storm.
However, there are millions of Americans who live miles from the coast who need insurance for their middle-class homes and businesses.
The federal government must safeguard the economy by providing the right incentives for job creation and growth.
People won't buy a home or invest in a business if they think their investment may be gone in a flash because of an event beyond their control.
Absent a federal effort to make sure insurance is available and affordable, investment becomes unwise, economic activity slows and jobs disappear.
This year it is Louisiana, Mississippi, Alabama and Texas. Last year Florida was smacked by four hurricanes. Next year, maybe Charleston, S.C., will get the big storm.
Oh, don't forget the earthquake that everyone worries about in California.
Then there is the threat of a terrorist attack that could cause damage on a scale of 9-11 — or, G-d forbid, even greater.
After the Sept. 11, 2001, attacks, which caused $32.5 billion in insured losses, Congress approved a terrorism-insurance plan to step in where the private market was unwilling to tread. It expires Dec. 31.
Under the plan, the federal government provides reinsurance for 90 percent of an insurer's cost once a deductible has been met. It was aimed at providing a backstop for insurance companies should there be another massive terrorist attack.
Katrina's bill will be much larger than the $32.5 billion insurers paid for 9-11 damages, although much of that will stem from flooding, which is not on a private firm's tab.
We won't know Rita's price tag for some time. We do know, however, that insurance will become even more expensive and difficult to get for anyone in natural disaster-prone areas.
Without insurance, the economy will suffer as business will be unwilling to take risks. Banks won't lend money, not just for business investments, but also for your mortgage.
Without insurance, only speculators risk their money, and an economy built on speculation is not a healthy one.
Regardless of how one feels about insurance companies — and they are not exactly popular institutions — they must make money to exist. Otherwise, they won't offer coverage.
A national insurance backstop for natural disasters is a touchy idea because of understandable parochialism.
Those who live in the states that do not court natural disasters don't want to underwrite my ability to live in the sunshine, where hurricanes are a way of life. After all, I don't help pay their heating bills.
Although 48 of the 50 states experience some form of natural disasters, says the insurance industry, realistically the coastal regions are most at risk.
Yet as Katrina taught us, the damage to Louisiana's infrastructure is going to raise New England's heating bills, the Midwest's food costs and everyone's gasoline prices.
Congress should enlarge the existing terrorism insurance act to include natural-disaster coverage, with the flood-insurance program as the model to use.
Without it, millions of homeowners would not be living where they are, because banks won't lend in those areas without such coverage, which the private sector won't provide.
Sure, a backstop plan might allow the insurance companies to make a few bucks by reducing their risk. But we all would suffer a great deal more if they stop writing high-risk policies.
And anyone who doesn't think Katrina and Rita are going to make that more likely is living on another planet.
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Peter A. Brown is an editorial page columnist for the Orlando Sentinel. Comment by clicking here. © 2005, Knight Ridder/Tribune Information Services |
Mitch Albom | |||||||||||
