What is insurance anyway? Insurance assumes that all persons are potentially at risk for a major loss, but that actual losses occur on a random basis. To prevent a random event from wreaking havoc on individual disaster victims, losses are covered by a large financial pool to which everybody contributes a modest sum.
Insurance can't reduce actual losses; rather, it establishes a method for equitably distributing the cost throughout the community. Insurance is an alternative to the belief that disasters are caused by bad karma and thus disaster victims deserve to stew in their own juices.
Over the last 150 years we have promoted the belief that the best way to pool community resources is through private insurance companies. In support of this belief, our laws exempt insurance companies from federal antitrust regulations. Further, because insurance companies must be licensed by the state, they operate in a limited competition environment.
By granting these special privileges to insurance companies, the public has the right to expect private companies to maintain a fair balance between what they charge customers and what they pay out to cover losses. It is the duty of the state to assure the public that this fair balance is maintained. It may not seem obvious to some politicians, but the state does not exist for the purpose of making the world safe and profitable for insurance corporations.
Is our our love affair with private insurance companies coming to an end? Social Security has already assumed a major financial support role for children with a parent who has died or become disabled. Private flood insurance no longer exists. The federal government insures many home mortgages. Belatedly we have come to that realize private insurance will not cover losses for 9/11 and Katrina-sized disasters. Are we now reaching the point where all disaster insurance must be managed by the public sector?
Like Social Security, a publicly managed insurance program would skim about 1.5 percent off the top for administrative purposes. Instead of diverting a large portion of the premium cost to shareholders and CEOs (Warren Buffet made most of his bundle in insurance), 98.5 percent of the premium cost would serve the intended purpose of covering actual losses. I know it is alleged that the government can't run anything efficiently. But as compared to what? Enron? Bear Stearns?
If disaster insurance were a publicly managed activity (as opposed to the present publicly-regulated business) a strong interest in controlling losses would emerge. There would be serious political fallout if preventable losses were not avoided in a publicly managed program. Existing building codes would be strengthened and more vigorously enforced. Building in high-risk coastal areas would be prohibited. Florida's remaining coastal wildlife areas could be preserved for public use.
Best of all, rather than beg surly insurance companies to pretty-please write policies that charge Floridians exorbitant premiums, we could invite them all to leave unless they wished to compete with the state-managed program. Florida would be known for constructing hurricane-proof buildings in flood-free zones with reasonable insurance rates.
Oh, dear! That might restore the real estate business.
C.D. Chamberlain has been a Methodist minister since 1962. During his ministry, he has served as a pastor, mental health administrator, lobbyist and editor. He lives in Spring Hill. Guest columnists write their own views on subjects they choose, and do not necessarily reflect the opinions of this newspaper.