Elections Show Voters Don’t Want Government-Run Property Insurance

by Matthew Glans on November 3, 2010

The November 2 election results show that American voters—even those most at risk of being struck by hurricanes—simply don’t desire a government takeover of property insurance markets, says the national director of The Heartland Institute’s Center on Finance, Insurance, and Real Estate.

In Tuesday’s voting, both Gene Taylor (D–Mississippi 4) and Ron Klein (D–Florida 22) lost their seats in Congress, to Republicans Steven Palazzo and Alan West, respectively. Taylor had proffered the Multi-Peril Insurance Act (H.R. 1264), which would have added wind coverage to the National Flood Insurance Program, while Klein had been the lead sponsor of the Homeowners’ Defense Act (H.R. 2555), which would have established a national catastrophe consortium and allowed the U.S. Treasury to make loans to state catastrophe funds.

“Voters made it clear: They don’t want—or need—a government takeover of property insurance markets,” said Eli Lehrer, national director of Heartland’s Center on Finance, Insurance, and Real Estate. “Both Rep. Taylor’s district and Rep. Klein’s district are places where hurricanes are major problems. Both men waged passionate efforts for their bills. But voters rejected them. This is a big win for taxpayers, the environment, and common sense.”

Lehrer says the elections demonstrate a rejection of government-run property insurance, rather than a simple side effect of the Republican wave. “Both Klein and Taylor tried to make government-run property insurance a campaign centerpiece. In fact, Taylor’s wind bill was the only serious, substantive piece of legislation he introduced or cosponsored in the 111th Congress. Voters saw what Klein and Taylor were selling, and they decided they didn’t want to buy it.”

According to Lehrer, the next Congress will likely take a much different tack on catastrophe issues. “We’re certainly going to see a major push to reauthorize the flood insurance program and, in a Congress sure to face lots of partisan wrangling, this is one place where Democrats and Republicans should be able to work together,” said Lehrer. “I’d also hope we’ll see some movement on some type of market-oriented, national, property mitigation strategy.”

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  • Dan Luby

    To say that the voters in Mississippi and Florida “simply don’t desire a government takeover of property insurance markets” is rather disingenuous. To suggest that the electorate voted on a single issue is too simplistic. The general public probably never heard of the Multi-Peril Insurance Act. The national trend is anti-incumbent and anti-Democrat/Obama. Additionally, history has shown that mid-term elections usually go against the majority party in power.

  • Peter J. McDonough

    The political analysis contained in this story has little basis in reality.

    The contest in Florida’s 22nd congressional district was typical off all of the races in the US. It was an expensive race — the second most expensive race in the nation. The campaign involved seasoned campaigners in a competitive district that was represented for more than 20 years by Rep. Clay Shaw, a Republican, who lost to Mr. Klein in 2006.

    Mr. Klein received just 50.9% of the vote in 2006 and was re-elected in the Obama landslide of 2008. It is important to recognize that despite the national trend in the 2008 election, President Obama received only 52% of the vote.

    The district, understandably, was targeted by both political parties and featured aggressive campaigning by both sides regarding jobs, the economy, the dysfunction of Washington and America’s relationship with Israel.

    The thought that this race was a referendum on catastrophe insurance is specious, simplistic and wrong. In fact, the issues of the campaign in FL-22 were the same as they were across the nation – jobs, the economy, and massive discontent by Independent voters. Multi-peril insurance or the creation of a national catastrophe fund were never, as Mr. Lehrer would have readers believe, a “campaign centerpiece.”

    Silly and baseless conclusions like those voiced in this article are unfair to the victorious campaign of Allen West and undermine the credibility of this web site.

    Peter J McDonough Jr.

    The writer is an adjunct professor at the Eagleton Institute of Politics at Rutgers University. He is a veteran Republican campaign consultant and has managed or consulted on more than 50 state and federal campaigns in the US and in Eastern Europe. He was twice chief of staff for a member of congress and was director of communications for NJ Gov. Christie Whitman.

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  • Mike Merola

    Dear SirrnI strongly disagree with your conclusion about Rep Ron Kleinu2019s defeat in last Tuesdayu2019s election and would like to point out that you also completely misunderstand the approach of his legislation, the Homeowneru2019s Defense Act of 2010 u2013 rather than proposing a government takeover of property insurance it provides a market driven, actuarially sound approach that utilizes private premium dollars to fund a National Catastrophe Fund that would act as a backstop to a select number of state funds around the nation.rnThis approach is necessary because there has been a failure of the private markets in Florida and other highly impacted states due to the abusive and borderline corrupt practices of offshore reinsurance companies like those highlighted in the below article from the BERNEWS service.rnIt was the hyper-partisanship of the 111th Congress, coupled with legislative exhaustion over health care and financial services reform that prevented Rep Kleinu2019s legislation from passing this year. I believe if we had suffered a major hurricane this summer, this storyline would have had a different ending, and it is simply a matter of time before a smart, innovative public-private partnership like the Homeowneru2019s Defense Act becomes the law of the land.rnRe-insurers: u201cAlmost Pirates of Caribbeanu201drnOctober 25, 2010 by bernews u2022 8 Comments rnA Florida newspaper has run a sharply critical report on Bermuda-based re-insurers u2014 accusing the u201calmost-pirates of the almost-Caribbeanu201d of exploiting the stateu2019s catastrophic hurricane seasons in 2004 and 2005 to boost earnings.rnAfter eight deadly hurricanes slammed into the Sunshine State, Floridians suffered another blow when Bermuda reinsurance companies seized on the crisis to double or triple their rates.rnu201cThese reinsurance companies, which insure the insurance companies, are the lifeblood for scores of under-capitalised, highly leveraged start-up insurers. Most carriers could not remain in business without costly reinsurance policies geared to cover their losses,u201d reported the Sarasota Herald-Tribune on Sunday. u201cBut in 2006, many reinsurers reduced the storm coverage they were willing to give Florida. Some purposefully refused to write policies for months, convinced they could extract an even higher price from insurers that neared collapse.rnu201cFirst-hand accounts, brokerage reports and copies of reinsurance contracts written that year show Florida insurers were still cobbling together hurricane protection in August and September, during the peak of danger, and paying three times the January rate.u201drnThe cost was paid by Florida property owners, some of whom suddenly faced premiums as high as their house payments. Real estate agents complained they were losing home sales as buyers no longer qualified for mortgages, and Florida bank leaders trouped to Tallahassee begging relief.rnu201cThatu2019s what we saw after hurricane Andrew and thatu2019s what will happen again, in my opinion, the next time we have a major hurricane,u201d said Steve Alexander, actuary for the office of the Florida Insurance Consumer Advocate.rnThe state represents the largest catastrophe risk in the insured world. It also has more small, thinly capitalised insurance companies than any other state. Thus, Floridau2019s demand for reinsurance almost always outstrips supply, most of which comes from a few dominant reinsurers.rnThe 59 reinsurers based in Bermuda provide billions of dollars of hurricane protection for nearly every home in Florida, from swamp trailer to coastal high-rise condominium developments. In the aftermath of the 2004/2005 hurricane seasons, the average cost of reinsurance coverage in Florida climbed from $9.90 per $100 in exposure to $20, the highest in the US. The average home premium increased 80 percent. Florida Residents near the coast saw increases of 300 percent. More than 300,000 Floridan families lost their private coverage, forced to find a new company or join Citizens, the state-run insurer of last resort.rnA few industry leaders were troubled. The late Bill Riker, president at the time of Renaissance Reinsurance, said the Bermuda reinsurers overreached, hurting their own market. u201cThe reinsurers didnu2019t do themselves well at all,u201d he told the Herald-Tribune. They u201clost track of what theyu2019re all about.u201drnu201cItu2019s an oligopoly, I donu2019t know what else to call it,u201d said Floridian insurer Reese Bowen referring to the $470 billion Bermuda reinsurance sector. Oligopolies can artificially drive prices higher without explicitly trying, a practice economists call u201ctacit collusion.u201d Such actions are difficult to control and frustrate antitrust authorities, international law expert Sigrid Stroux told the Herald-Tribune.rnWhatu2019s more, the insurance industry as a whole is largely exempted from American anti-trust laws. u201cItu2019s not a free market when people conspire to set rates,u201d said US Rep. Bill Posey, a Republican from South Florida who for years chaired the state Senateu2019s insurance committee.rnAmerican regulators have raised no challenge to consensus pricing. But controversy surrounding its use overseas prompted the European Union to investigate in 20007. Examiners concluded such practices distort market prices, u201cto the benefit of the reinsurers imposing it and to the detriment of the reinsured.u201drn

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