Ron Paul, the Hamilcar of Presidential Candidates

[Iormlund]

What about the financial crisis of 2008?  The financial people failed to calculate the risks of a collaspe in the US housing market.  What about Greece?  The creditors failed to put the right price on their bonds.  The list goes on.  People miscalculate risks all the time.

Which is why we call it taking a risk instead of a sure thing.

[CountDeMoney]

Assuming this is true, wouldn't "mandatory tornado insurance" look a lot like "property tax"? 

Yes, but the sweet, sweet money stays away from the damn government.

And into the hands of the private sector, which is so much more accountable.

[Monoriu]

What about the financial crisis of 2008?  The financial people failed to calculate the risks of a collaspe in the US housing market.  What about Greece?  The creditors failed to put the right price on their bonds.  The list goes on.  People miscalculate risks all the time.

Which is why we call it taking a risk instead of a sure thing.

But the whole point of insurance is to manage risks.  In order to do that, it is necessary to know the risks involved fairly reliably.  Otherwise, there will be mispricing in the insurance contracts.  Or the contracts won't take place in the first place.  I love the idea of insurance against natural disasters.  But I can't convince myself how that works. 

[Malthus]

Assuming this is true, wouldn't "mandatory tornado insurance" look a lot like "property tax"? 

Yes, but the sweet, sweet money stays away from the damn government.

And into the hands of the private sector, which is so much more accountable.

Well, look on the bright side: it is bound to increase litigation. 

[The Minsky Moment]

What if insurance companies just decide they don't want to offer their services to areas where those disasters happen.  You can get flood insurance, but only in the mountains etc.

Funny enough, that is exactly what happens in real life.
Which is why flood insurance is provided via a government program, the National Flood Insurance Program.

[Iormlund]

But the whole point of insurance is to manage risks.  In order to do that, it is necessary to know the risks involved fairly reliably.  Otherwise, there will be mispricing in the insurance contracts.  Or the contracts won't take place in the first place.  I love the idea of insurance against natural disasters.  But I can't convince myself how that works.

I said nothing of commercial insurance for disaster-prone areas. That's silly. No company will want to provide it, just like no sane insurer would admit me in a health plan.

I just said those estimations are already done. And for the most part, work fairly well.

[Martinus]

the firemen example would stand if the fire department would buy a new house to replace the burned ones. Guess what, it doesn't.

They are still expending public resources to save a private individual or their property.  It need not be relegated to bailouts.

I was typing a post but then I realized it's you, so I am not even going to waste a single minute on "arguing" with you.

[Martinus]

Exactly.  Design failures are possible because the designers failed to calculate the risks accurately.

Yeah, and it's happened once in half a century. That's not exactly a bad run.

What about the financial crisis of 2008?  The financial people failed to calculate the risks of a collaspe in the US housing market.  What about Greece?  The creditors failed to put the right price on their bonds.  The list goes on.  People miscalculate risks all the time.

Only because risk predictions are sometimes wrong, that does not mean they are pointless. Of all people, I thought you would be more educated and bureaucratically inclined to realize that.

Incidentally, some risks (like Fukushima) are so unlikely, they are not really worth to protect against on a cost-benefit basis. It's like the snow paralyzing Heathrow from time to time - it's cheaper to close down the airport for 2-3 days once every few years than to invest into an expensive defrosting system, for example.

[frunk]

Exactly.  Design failures are possible because the designers failed to calculate the risks accurately.

There are a couple of factors here to consider.  One is that this is as close to a worst case scenario as far as what can happen to a nuclear reactor apart from an even more cataclysmic series of events (hurricane hitting at the same time, direct meteor strike or volcano).  Second, there were design changes and safety violations at the plant which made recovery more difficult. 

See this from the wiki article:

On request of the Japan Broadcasting Corporation, on 2 October 2011 the Japanese Government released a report of TEPCO to NISA. These papers proved that TEPCO was well aware of the possibility that the plant could be hit by a tsunami with waves far higher than the 5.7 meters which the plant was designed to withstand. Simulations done in 2008, based on the destruction caused by the 1896-earthquake in this area, made it clear that waves between 8.4 and 10.2 meters could overflow the plant. Three years later the report was sent to NISA, where it arrived on the 7 March 2011, just 4 days before the plant was hit by the tsunami. Further studies by scientists and an examination of the plant's tsunami resistance measures were not planned by TEPCO before April 2011, and no further actions were planned to deal with this subject before October 2012. TEPCO official Junichi Matsumoto said that the company did not feel the need to take prompt action on the estimates, which were still tentative calculations in the research stage. An official of NISA said that these results should have been made public by TEPCO, and that the firm should have taken measures right away.[57][58]

This all was in sharp contrast with the events at the Tōkai Nuclear Power Plant where the dike around the plant was raised to 6.1 meters after evaluations showed the possibility of tsunami-waves higher than previously expected. Although the dike was not completely finished at 11 March 2011, the plant could ride out the tsunami, even though the external power-sources in Tokai were lost too. With two (of three) functioning sea-water-pumps and the emergency diesel-generator the reactor could be kept safely in cold shutdown.

It wasn't the designers that failed to properly appreciate the risks, it was the company that decided not to make the necessary changes based on new evidence on the risks.

[PDH]

Funny enough, that is exactly what happens in real life.
Which is why flood insurance is provided via a government program, the National Flood Insurance Program.

So you are saying that forcing the government out and allowing the private sector in would result in a need for the government in because the private sectors wanted out?

[The Minsky Moment]

Funny enough, that is exactly what happens in real life.
Which is why flood insurance is provided via a government program, the National Flood Insurance Program.

So you are saying that forcing the government out and allowing the private sector in would result in a need for the government in because the private sectors wanted out?

The government doesn't need to be "forced out".  Any private insurer who wishes could offer coverage now.  They don't and they won't.  And history suggests that if the government exits that market, private insurance won't come in.

[PDH]

I was taking the Paulist line

Force the Government out of our lives!

[Berkut]

Exactly.  Design failures are possible because the designers failed to calculate the risks accurately.

There are a couple of factors here to consider.  One is that this is as close to a worst case scenario as far as what can happen to a nuclear reactor apart from an even more cataclysmic series of events (hurricane hitting at the same time, direct meteor strike or volcano).  Second, there were design changes and safety violations at the plant which made recovery more difficult. 

See this from the wiki article:

On request of the Japan Broadcasting Corporation, on 2 October 2011 the Japanese Government released a report of TEPCO to NISA. These papers proved that TEPCO was well aware of the possibility that the plant could be hit by a tsunami with waves far higher than the 5.7 meters which the plant was designed to withstand. Simulations done in 2008, based on the destruction caused by the 1896-earthquake in this area, made it clear that waves between 8.4 and 10.2 meters could overflow the plant. Three years later the report was sent to NISA, where it arrived on the 7 March 2011, just 4 days before the plant was hit by the tsunami. Further studies by scientists and an examination of the plant's tsunami resistance measures were not planned by TEPCO before April 2011, and no further actions were planned to deal with this subject before October 2012. TEPCO official Junichi Matsumoto said that the company did not feel the need to take prompt action on the estimates, which were still tentative calculations in the research stage. An official of NISA said that these results should have been made public by TEPCO, and that the firm should have taken measures right away.[57][58]

This all was in sharp contrast with the events at the Tōkai Nuclear Power Plant where the dike around the plant was raised to 6.1 meters after evaluations showed the possibility of tsunami-waves higher than previously expected. Although the dike was not completely finished at 11 March 2011, the plant could ride out the tsunami, even though the external power-sources in Tokai were lost too. With two (of three) functioning sea-water-pumps and the emergency diesel-generator the reactor could be kept safely in cold shutdown.

It wasn't the designers that failed to properly appreciate the risks, it was the company that decided not to make the necessary changes based on new evidence on the risks.

But that says the new evidence was in their hands 4 days before the earthquake - hardly enough time to do anything. They didn't "decide" not to do anything, they simply didn't decide anything yet.

That is the nature of risk assessment - and when it comes to once in a century level of disasters, there generally isn't much urgency until it is too late.

There seems to be this idea that if only all the risks are evaluated properly, bad things simply won't happen at all. That is not at all true, rather if you evaluate risks properly, you may very well decide the risk is not great enough to justify the cost of mitigating it.

And what does it mean to evaluate risk "properly" anyway? If the current data suggests that the odds of something happening in a given year are 1 in 10,000, then it happens, and someone finds out that the data was wrong, does that mean the risk was improperly evaluated? Not really - it may very well have been correct given what was known. But evaluating risk like odds of an earthquake is always based on data that is incomplete, so there is the risk of your risk being wrong.

Paul is sort of correct, and sort of wrong. We do need a FEMA, but not to deal with risks that are well understood, like the odds you house gets crushed by a tornado. We need them to deal with risks that are NOT well understood, or low enough that they won't be accounted for in any reasonable assessment, not to mention damage to public property that could very well be out of the capability of local resources to handle.

I completely agree with him that it is not the job of the federal government to rebuild your house when it gets wiped out by a natural disaster you could very well have simply purchased insurance for.

Flood insurance is another matter however - there the risk to insurance companies is high enough that it is simply not viable for them to sell insurance. Therefore as a society we have to decide if we want to take on that cost ourselves, or live with the idea that large portions of otherwise pretty nice parts of the country should not be considered habitable. I think it is reasonable to accept that risk, and I welcome anyone who wishes to take advantage of the cost savings a federal flood insurance program creates to live in flood prone areas to take advantage of it. I will pass.

[MadImmortalMan]

They don't and they won't.  And history suggests that if the government exits that market, private insurance won't come in.

Out of curiosity--why don't they? Is it not profitable? Just no customers for it?

[fhdz]

They don't and they won't.  And history suggests that if the government exits that market, private insurance won't come in.

Out of curiosity--why don't they? Is it not profitable? Just no customers for it?

Not profitable. Those floods are pretty regular.