Wednesday, April 21, 2010

Where's My Insurance Bailout?

In a previous post I wrote about the joys of HR 2555, which seeks to create a federal program to protect the voters who live in catastrophe prone areas.  Sponsored by a Floridian, logically.  This disastrous piece of legislation implies that it would allow for better risk sharing by introducing the government into the hurricane and earth quake insurance business.  Who foots the bill?  You, lucky readers, who don't live in those high risk areas will eventually pay the price for your fellow tax-payers folly.  Maybe they'll let you stay in the beach house for free?

The new kid on the block, HR 1264, sponsored by Gene Taylor, a congressman from Mississippi, seeks to allow the National Flood Insurance Program to sell hurricane insurance too.  Taylor failed to pass a bill he introduced after Katrina that would have allowed people to retroactively buy flood insurance from the federal government.  No, I did not make that up!  I hear the new commercials: "GEICO could save you fifteen percent or more, especially if you call shortly after an accident."

So, why am I so concerned about letting the National Flood Insurance Program sell hurricane insurance?  Funny you should ask.  Today the GAO released a study of the program.  (Yes, there have been non-Goldman related news items today, you just have to dig...)  The program simply from your wallet.  Note the first sentence from the report: "[T]he program is, by design, not actuarially sound."  I am not kidding.  By design, that means it isn't insurance.  It's a wealth transfer.

This program has faced limited losses since Katrina.  It remains $18.8 billion in debt, borrowing more from the Treasury to make interest payments on the debt, with no hope of catching up, to quote the GAO, "especially if it faces catastrophic loss years." Yes, that's right, it cannot recover even if there aren't any disasters!!

So, Congressman Taylor suggests we all chip in, and add potentially several hundred billion dollars worth of risk to the program.  That's great.

I guess the path to my bailout involves a real estate agent on the Jersey Shore.

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