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Madman solves Florida problem in 3 minutes

In the grand tradition of mad dogs and Englishmen, after yesterday's blog I decided to solve “the Florida problem”.

I went to the office kitchen, made myself a cup of tea and sat down.

Three minutes later I cooked up a plan.

Here’s the problem:

Those pesky hurricanes are spoilin’ the party down in Florida.

(To the tune of about $36bn in the last 3 years).

There is a “crisis”. Governor Crist says so, so it must be true.

The problem from Crist’s point of view is that those nasty reinsurer types seem to be charging an awful lot for their service and are forcing the few remaining insurers who still haven’t already high-tailed it out of the state to file for hefty price increases to consumers.

These consumers have votes — and they don’t like it.

His solution is to double the Florida Cat fund and halve its deductible and effectively knock the nasty reinsurers out of the game. Insurers can now charge less and the voters get cheaper insurance — yippeeyayay!

The only flaws in this plan are that the Florida Cat fund doesn’t actually have the money to pay a loss (it will somehow fund the loss ‘after the event’) and the move is temporary — it will all expire in a couple of years anyway.

When the deal expires, the reinsurance market is supposed to come waltzing back into town, sweep Floridian insurers off their feet and ride off into the sunset.

This is of course a great fantasy. Reinsurers have borne massive losses, just like the insurers, but they are being made out to be the villains of the piece — the unacceptable face of nakedly greedy capitalism.

Here’s my half-baked idea:

If the problem has been identified as a reinsurance one, why not subsidise and incentivise reinsurers to come to Florida?

Instead of subsidised reinsurance, how about cheap retro?

How about the biggest sidecar in reinsurance history, offering quota share capacity to all and sundry? Better still, how about only giving the deal to reinsurers who come and domicile in Florida? (maybe as a tax-exempt vehicle?).

This should have the same effect on the voters’ premiums, and at least when the Cat Fund deal ends, reinsurers will still be around!

I’m not saying this is the solution — after all I only spent 3 minutes thinking it up.

But surely it makes a lot more sense than demonising an industry that you are going to end up calling upon for business in a couple of years time?

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