Insurance Companies forced to Leave Florida

Yet another example of Governments not understanding basic economics.

Homeowner insurance rates in Florida have skyrocketed in the aftermath of several catastrophic hurricanes in recent years, capped by Katrina. The 2005 season’s disastrous results highlighted insurers’ risks, should a megastorm strike Florida and its estimated $2 trillion of coastal property value.

Florida’s answer to rising rates was to expand a state-run pool, essentially pushing reinsurance companies like Motley Fool Hidden Gems recommendation Montpelier Re (NYSE: MRH) and Renaissance Re (NYSE: RNR) out of the market. It’s a daft decision, the idiocy of which will become clear once the next major storm hits the state. Or maybe not — Florida’s governor recently asked the U.S. Senate Banking Committee to look into forming a national catastrophe fund to backstop insurers in case of disaster.

All of this hubbub ignores a simple truth: Wealth has concentrated on America’s coasts, Florida in particular. Insurance companies (which lose money from their underwriting, on average) cannot adequately cover their own risks; it makes no sense for them to write coverage. No happy-pill talk about denying people the right to live where they want can overcome this math.

Read the whole thing.

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