The author of the John Locke Foundation’s recent study on the coastal property insurance Beach Plan submitted these remarks this morning:

After months of debate ? much of it good, useful, and informative ? North Carolina’s Beach Plan study committee ended its work earlier this week without reaching many firm conclusions about exactly what should happen to the Beach Plan. To be sure, the recommendations the committee did make were all sensible and deserve quick consideration. In particular, it’s a step in the right direction to cap the amount of coverage at $750,000 as the committee recommended.

The crux of the debate, however, rests on a “cap” for assessments. Right now, the Beach Plan can impose essentially limitless special taxes (called assessments) on the insurance industry to pay for the costs of any storm, and most current models show that a future storm could very likely exceed the Beach Plan’s current ability to pay. Insurers, seeking to avoid ruinous special taxes, want a specific cap of $100 million on the assessments while the state insurance department and others have called for a higher cap or none at all.

In fact, both sides are right: $100 million is both “too little” AND  not enough from the standpoint of maintaining the Beach Plan’s health. A $100 million assessment cap would leave North Carolina spending enormous amounts of general revenues to bail out generally well-off coastal property owners if a major storm hit. A significantly higher cap, or none at all, would result in some insurance companies going under (if they operate only in North Carolina) or leaving the state to avoid future assessments.

The solution, such as it is, is simple but not easy: raise rates on Beach plan properties until they are sufficient to keep the Beach Plan without requiring massive assessments. Virginia, which faces a greater storm risk than North Carolina, charges a lot more to people who participate in its equivalent of the Beach Plan. Its plan (structured a bit differently) is a lot smaller and, even if an awful storm hit the state, it wouldn’t unnecessarily burden the state’s residents or insurance companies. Yes, a big increase in premiums is painful, but, amid a national fiscal crisis, higher premiums are the best possible solution.