We're building up to 'beach-house bailout' — aka national hurricane insurance

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Not that I would wish anyone harm, but it wouldn't have been such a bad thing for Florida if Hurricane Earl had maintained its wind speed and then hung a left at latitude 40 degrees north.

That would have taken it through the Big Apple and into New Jersey, flattening buildings, flooding subways, jacking up cab fares and causing $100 billion or so in damages.

A bunch of insurance companies would have gone bankrupt, leading to an insurance crisis.

And we would finally get a national catastrophe-insurance program to subsidize our premiums and underwrite all those condo towers and mansions on Miami Beach.

That day is coming, regardless. Toppling the Statute of Liberty simply would have sped things up.

Hurricane Earl's northbound journey was a surprise to many but not to all the insurance CEOs glued to The Weather Channel last week. To them it was a reminder that monster storms do hit the Northeast, and that they are one big hit away from flipping burgers.

Weather Services International drove home that message by predicting atmospheric conditions are doubling the risk of the Northeast getting clobbered this year.

It is a very dicey hurricane season out there.

Even if we escape any carnage, the prophets of actuarial doom will incorporate what might have been into their worst-case scenario models. And the insurance companies will factor that into their risk decisions.

Bottom line: Higher premiums. Fewer policies.

This process already has been set in motion.

Check this out from a 2007 story in The New York Times: "Companies including Allstate, State Farm and Liberty Mutual have 'nonrenewed' policies not only in hurricane-battered places like Florida and Louisiana, but in New York and other Northern states that have not seen hurricanes in years. Since last year, those three companies and others have turned down all new homeowners' insurance business in New Jersey, Connecticut, Rhode Island, Maryland, Massachusetts and the eight downstate counties of New York.''

New York state Sen. Charles J. Fuschillo Jr. told the Times: "We have people who cannot buy a house because they can't find insurance."

Welcome to our world, Chuck.

Here in Florida we dealt with it by replacing the big insurers with a bunch of mom-and-pop operations that may or may not have money. The backstop is a state insurance company and a state catastrophe fund that require constant taxpayer bailouts.

The pressure to take this Florida model national is building.

This year there was a move in Congress to add federal wind policies to federal flood-insurance policies.

If you recall, the flood program was supposed to pay for itself. At last count, it was $19 billion in the red because premiums aren't covering losses. The program is such a mess that reauthorization keeps getting held up in Congress.

USA Today recently reported that the government has spent $663,000 repairing and rebuilding a house that is worth $69,900. The house floods. The government fixes it. The house floods. The government fixes it. And so on and so forth.

Rates never go up. The policy never gets cancelled.

We just keep on paying. See what happens when the government insures things?

The wind policies may not make it through Congress, but a national catastrophe fund made it through the House once and has the relentless backing of our state's political leaders.

The measure dubbed the "beach-house bailout" would be a money loser for the same old reasons, the Congressional Budget Office reported. The government is not willing to charge people the full price for insurance because it makes people unhappy.

The beach-house bailout eventually will pass. That day will come when the hurricane risk causes enough insurance problems in enough states to cause enough screaming by rate-payers to move enough members of Congress to vote for it.

We have put so many buildings in harm's way that we are losing our ability, or our willingness, to pay for the risk we have created. And when politicians drag in taxpayers to be the insurers of last resort, it only encourages more building.

This is the inevitable path we are on.

Mike Thomas can be reached at 407-420-5525 or mthomas@orlandosentinel.com.
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