NU Online News Service, March 25, 2:16 p.m.EDT

Florida's government-dominated insurance system needs reformbecause its current system makes the state less safe and increasesthe log-term costs to taxpayers, a study by a free market thinktank has concluded.

The background paper by the Tallahassee, Fla.-based JamesMadison Institute said there is no instant solution, but the statemust make sweeping changes to the state's insurer of lastresort–Citizens Property Insurance.

It also called for revisions to reduce the Hurricane CatastropheFund's potential liabilities, as well as moves to encouragestorm-proofing of buildings and protection of the environment.

The study said efforts to attract new out-of-state companies towrite homeowners insurance "have proven dismal failures. Florida'staxpayers, not insurance companies, have assumed massiveliabilities on behalf of coastal residents."

Floridians living on the coast, the Institute said, will in theend have to pay higher rates for property insurance, while vigorousmarket competition will likely lower rates for those living inlandand far from the coast.

The study said higher rates will at least reflect the risksinherent in living on a hurricane-prone peninsula, while advisingthat Floridians may, in some cases, find that their current modesof living cannot be sustained.

The paper said that recent recommendations of a task force thatstudied Citizens and recommended increasing rates by 10 percentyearly (with caps on rates for territories and individuals of 15and 20 percent, respectively) are a good start but don't go farenough.

Such hikes, the report said, may be too mild or too harsh–andrather than having universal caps it suggested limits for those onfixed incomes.

"The state's taxpayers ought not to be obligated to ensureothers the opportunity for hurricane-prone coastal living," saidthe report by Eli Lehrer, an adjunct scholar at the Institute.

Risk-based, market-driven insurance rates will, in the end, makeFlorida safer, more secure and more solvent, the report concluded."The path toward a better system of insurance regulation will taketime and will mean some pain for Florida residents, but it's thebest choice. Florida simply can't afford the status quo," Mr.Lehrer said.

The paper called for elimination of the Temporary Increase inCoverage Layer (TICL) for the Hurricane Catastrophe Fund.

It noted that the layer–essentially the last $12 billion of the$28 billion total authorized amount of the Cat Fund–has never beenfunded and in all probability could never be funded.

"No rational insurance company would ever depend on the TICLlayer in its actuarial calculations and, insofar as the [State]Office of Insurance Regulation allows insurers to consider it, itneglects its obligation to provide for insurer solvency. Thiselimination of the TICL layer should have no significantconsequence for the state or its residents," the paperconcluded.