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Politics

Through the nose, or through the state

By HOWARD TROXLER
Published October 15, 2006

Both of the candidates for governor, Charlie Crist and Jim Davis, have laid out plans for what to do about hurricane insurance in Florida.

Good. Either way puts us ahead of where we are now, which is to say planless.

The Crist and Davis plans have some different points. But at their core they share one key idea:

The state - the public sector, the taxpayers, society at large - has to subsidize more of the risk of living in Florida.

For Crist, that means a quicker trigger on using the state's catastrophic fund. The state fund would kick in when hurricane losses reached $3.2-billion, instead of the current $5.3-billion.

For Davis, it means using the state fund to cover between 70 and 90 percent of all hurricane losses, up to $500,000 per policy, up to $20-billion a year.

The idea in both plans is to use the power of the state to give the private insurance companies better and cheaper backup.

In theory, that cheaper backup would save the private companies money - savings they would share with their customers.

In theory.

* * *

Make no mistake. A free-market solution would work too.

We could announce to Allstate and State Farm and the whole insurance industry, "From now on, y'all can charge as much money as you want. The sky's the limit."

And the free market would find its level. Premiums would rise to a point at which enough companies would say, "Hey, let's get back into Florida!"

As to what that level would be, who knows? Maybe $10,000 a year for the average house. Maybe $20,000. Or maybe enough companies would come back for it to start going down a little.

Whatever it was, that sky-high price level would then represent the "true" cost of living in Florida.

After all, the free-market argument goes, we're the ones who want to live on a narrow spit of sand that gets hit by hurricanes. That risk carries a cost. No free lunch.

Of course, in this "honest" market, some people would lose their homes. Some people would have to leave Florida. Some businesses would close. The people left here would be the ones who could afford it.

But, by gum, it would work.

* * *

This is where the state comes in, then.

Either we have that wide-open free market, or we have a state solution that works.

What we have now is neither.

In fact, we have the worst of both worlds. The state has assumed only the highest-risk Floridians, those of us who have been dumped as customers by a still-crippled private market.

The simplest state solution is the use of brute force. That means the regulation of rates, keeping them lower than the insurance companies want them to be.

But that has helped get us into this mess. Enough companies have said, "You won't let me charge as much as I want, so I'm leaving."

Neither can we just hold a gun to the big companies' heads, as Crist thinks he can do, and say, "You can't sell auto insurance in Florida either, then." More companies would just leave.

So the most workable state solution is simply for the public sector to assume more risk.

Here is one plan that I bet nobody would like: We could just socialize storm insurance outright, have the government take over the whole thing. Yikes!

More moderately, we could assume enough of the risk to try to bring private companies back to pick up the rest. That's what the Crist and Davis plans both aim to do.

So we are at a fascinating point. No matter who gets elected as our next governor, he will be advocating a bigger public-sector role to a Legislature that has been reluctant to accept "socialist" solutions.

Davis, as a Democrat, embraces it naturally. Much more interesting is Crist, a free-market Republican by label, but a career-long populist by instinct and calculation.

Like FDR in 1932, Crist seems to grasp that desperate, fed-up, angry people do not sit around with their pinkies in the air tut-tutting over "big government."

[Last modified October 15, 2006, 01:38:06]