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False economies

Dear friend,

If you want to learn more about the law of unintended consequences, no matter how well-menaing the intentions, check out this report from AIF, a Florida business lobby group.

Now these guys are hardly pro-insurance (although I do understand their ranks do include some Floridan insurance companies).

What they want is reasonably-priced cover with decent quality security behind it.

They wanted to see what the recent Cat fund reforms as well as proposed extension might do to the market, so they paid Towers Perrin to have a look.

Surprise, surprise, the gap needed to be plugged by post-event funding through bonds might be $50 billion for a big hurricane.

Per household, total nominal assessment costs to pay off the bonds could range from approximately $1,700 for a moderate hurricane to $14,000 for a major storm.

And check this out — even a series of smaller storms across the state, like what happened in 2004, would “lead to assessments that exceed the incremental savings created by the legislation”..

Reality always has a way of spoiling the best laid plans.

And these are clearly nowhere near the best laid sort!

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