Catastrophic insurance dilemma in Florida

After last week's attempt by Mississippi to repeal one of the laws of economics, Florida is having to come to grips with a remarkably similar concern:

What should be done when a lot of people have built houses, businesses and infrastructure worth tens of billions of dollars where Mother Nature doesn't like them to be? This is the question that Florida is grappling with. Private insurers, burned by huge payouts for damages caused by two recent big hurricane seasons, are pulling out the state. This would seem like a market "signal" for people to get out. But Florida's state government is ignoring this "signal" and is instead creating a risk pool and a state-owned insurance company to cover property owners who can't find or afford private insurance.

While the Floridian response is somewhat more sensible than that of Mississippi, it's still going to end in tears. As Ronald Bailey points out, the federal government has spent huge sums in Louisiana and Mississippi to start recovering from the hurricane damages from Katrina, and there's still a lot of money that will need to be spent in the near future. Florida is hoping to cover potential claims in the tens of billions range, from a fund which currently holds less than a billion dollars. A fund which is composed of premiums collected from participating private insurance firms . . . who are starting to pull up stakes and leave the area.