Government Hurricane Insurance

[Demeter]

http://blogs.washingtonpost.com/thinktanktown/?referrer=email

The Policy Brief from the Brookings Institution says that disasters of the magnitude of Katrina cause losses which are too large for private insurance companies to cover. This causes insurance companies to charge such high premiums that customers cannot afford insurance, or else the companies are unwilling to sell policies at all in high-risk areas. As a result, says the author, Brookings senior fellow Robert E. Litan, taxpayers all over the country are forced to pay for what he calls de facto insurance – tens of billions of dollars in government disaster relief costs. The think tanker estimates that while insurance companies will pay about $50 billion for Katrina recovery, the federal government has already committed $85 billion of taxpayers’ money for disaster cleanup and reconstruction. And even those large costs would be dwarfed by other possible natural disasters, such as an earthquake in California or a category 4 or 5 hurricane along the heavily-populated East Coast, the Brookings paper warns.

The current private insurance system discourages property owners from buying the high-priced policies, and also provides no incentive for taking steps that would reduce losses, such as strengthening structures or not building at all in the highest-risk areas.

His proposed solution is a government insurance program. The government would charge premiums to provide disaster insurance to individuals, and to underwrite losses above a certain level by private insurance companies and state catastrophic insurance programs.

The think tanker says this program would be modeled after the government’s terrorism insurance. He suggests that the new government catastrophic insurance program could be run by a full-time staff of no more than 100 people, by contracting out actuarial services to private firms. In the long run, a government insurance plan for hurricanes and other disasters would not require money from taxpayers, Litan says, since premiums from home owners and businesses would pay the costs. And, since premiums would be based on the potential loss by each individual home owner or business, there would be a strong incentive to take such precautions as reinforcing roofs, strengthening garages, and securing structures more firmly to their foundations.

SOCIAL INSURANCE PAID BY ALL: SOCIAL SECURITY FOR PROPERTY. WHAT A NOVEL IDEA. HOW ABOUT HEALTH INSURANCE, HOW ABOUT JOBS? HALF-BAKED IDEAS FROM HALF-WIT THINK TANKS GOT US INTO THESE MESSES.

[msgadget]

1. Insurance companies are in the business of risk

and they are still posting profits. The issue seems to be more about whether or not that profit rises from one year to the next in some instances. Once again, corporate welfare over social welfare.

[phantom power]

2. Basically a good idea. But what happens when every hurricane season...

is like 2005? That's the world we're going to be living in. Nobody can afford to rebuild the coast every year. Not even the US government. Hell, especially the US government, which is 8 trillion dollars in the hole.