From today's NYT:
QuoteFlood Insurance, Already Fragile, Faces New Stress
By ERIC LIPTON, FELICITY BARRINGER and MARY WILLIAMS WALSH
WASHINGTON — The federal government's flood insurance program, which fell $18 billion into debt after Hurricane Katrina, is once again at risk of running out of money as the daunting reconstruction from Hurricane Sandy gets under way.
Early estimates suggest that Hurricane Sandy will rank as the nation's second-worst storm for claims paid out by the National Flood Insurance Program. With 115,000 new claims submitted and thousands more being filed each day, the cost could reach $7 billion at a time when the program is allowed, by law, to add only an additional $3 billion to its onerous debt.
Congress, just this summer, overhauled the flawed program by allowing large increases in premiums paid by vacation home owners and those repeatedly hit by floods. But critics say taxpayer money should not be used to bail it out again — essentially subsidizing the rebuilding of homes in risky areas — without Congress' mandating even more radical changes.
"We are now just throwing money to support something that is going to end up creating more victims and costing more money in the future," Representative Earl Blumenauer, Democrat of Oregon, said of the program, which insures 5.7 million homes nationwide near coasts or flood-prone rivers.
Even with the new rules, critics argue, it will be many years, if ever, before many homeowners are required to pay premiums that accurately reflect the market cost of the coverage. Some communities have long resisted imposing more appropriate building codes to prevent damage, putting the program at further risk of devastating losses when storms like Hurricane Sandy hit. And despite some efforts in recent years, many of the flood maps the program relies on are out of date — which can have expensive, and even deadly, consequences in this era of rising sea levels if homeowners are not cognizant of the risks they face.
The program's giant debt makes matters worse because simply covering the interest owed the Treasury consumes from $90 million to $750 million a year, depending on interest rates. This means it is much harder to build reserves for future catastrophes.
But others on Capitol Hill argue that the changes adopted in July are an important first step, and that Congress must give the Federal Emergency Management Agency, which runs the program, a chance to apply them before any additional changes are considered.
Already, 44 members of the House of Representatives have called for Congress to appropriate whatever money is needed to help victims recover from Hurricane Sandy, and aides on Capitol Hill say that under such extreme losses, they expect lawmakers will do what they have to do to keep the program solvent — even amid a federal budget crisis.
"It is a program we require people to participate in, so we have to make sure it is adequately funded to handle claims," said Representative Timothy H. Bishop, Democrat of New York, whose district in Long Island has more than 100 miles of coastline. "You can't say: 'Awfully sorry. Hope this works out for you.' "
The federal government's flood insurance program, established in 1968, is one of the world's largest. The insurance is mandatory for homeowners with a federally backed mortgage if they live in an area subject to flooding at least once every 100 years. The average annual flood insurance premium is about $615, but for homeowners in areas at higher risk of flooding, an annual policy can cost from $1,200 to $3,000, according to Steve Harty, president of National Flood Services, a claims-processing company, depending on the level of coverage.
The federal program collects about $3.5 billion in annual premiums. But in four of the past eight years, claims will have eclipsed premiums, most glaringly in 2005 — the year of Hurricanes Katrina, Rita and Wilma — when claims totaled $17.7 billion. Private insurance companies have long avoided offering flood insurance to homeowners.
"It's like rat poison to them," said Tony Bullock, an insurance industry lobbyist, explaining how the risk outweighs the benefit for private insurers. "You need the federal backstop."
But the program is still a moneymaker for the private insurance industry. Even though these companies bear none of the risk, they take, on average, $1 billion a year of the premiums the government collects, as compensation for help in selling and servicing the policies. Federal auditors argue the payments are excessive.
FEMA officials declined to address whether changes beyond the already passed legislation are needed to strengthen the program.
"These reforms are being implemented," the agency said in a written statement. "Right now, we're focused on helping survivors."
More than one million property owners who live in homes at least four decades old also have historically paid only about 40 percent of the estimated true cost of the coverage the government provides — in large part because of lobbying by the real estate industry, mortgage brokers, homeowners associations and other groups to keep federal authorities from charging more.
Perhaps the most troubling problem, program officials acknowledge, is that only a tiny share of enrolled properties accounts for a giant share of the overall claims, as the properties are repeatedly flooded and rebuilt in low coastal regions and in hurricane flight paths.
One Biloxi, Miss., property valued at $183,000 flooded 15 times over a decade, costing the program $1.47 million, according to federal data provided by the agency to a member of Congress. Another in Humble, Tex., has resulted in over $2 million in flood payouts even though it was worth just $116,000.
An analysis of two decades of claims by the Wharton Risk Center at the University of Pennsylvania shows that certain states, like Texas, which has the second-largest number of policies, pay much less in insurance premiums than the homeowners there collect in damage claims, evidence of the inherent inequity in the national program.
The problem of repetitive claims is much less prevalent in coastal New York and New Jersey, where FEMA estimates Hurricane Sandy flooded 100,000 insured homes.
But homeowners in those two states have fought measures that would reduce storm damage. Barrier island communities in the Northeast, for example, have resisted overtures from the Army Corps of Engineers to build sand dunes as a natural flood barrier, arguing that the dunes would block ocean views or harm the local tourism industry.
Other communities, like Tuckerton, N.J., have failed to take steps recommended by FEMA to better protect homes after flooding through a program that pushes owners to elevate new homes above minimum required heights or to move flood-prone buildings.
Hurricane Sandy damaged more than 300 of the 660 houses in Tuckerton's beach area, including 22 that were washed away, according to Phil Reed, the town building inspector.
Fifteen years ago, Don Horneff, 74, had his Tuckerton house raised on pilings nine feet above ground level. As a result, he said, Hurricane Sandy's floodwaters ran only through his basement.
That is the kind of protective measure that federal officials want mandated into all new or rebuilt homes in flood zones.
Last week, piles of mattresses, fencing, chairs, appliances and other debris sat outside many of the homes on Mr. Horneff's street — and a backhoe worked to clear the mess. "All around me, the homes that were lower, most of them will have to be demolished," he said, surveying his neighborhood. "It's very sad. They have lost everything."
The pending costs for Hurricane Sandy would have been even higher if a greater share of residents along the East Coast had signed up for the insurance, which is voluntary outside the 100-year-flood zones. There would also have been more premium dollars, though not enough to pay the claims.
The fact that many homeowners hit by Hurricane Sandy have no flood or homeowners insurance could prompt Congress to provide assistance to the uninsured, too, as happened after Hurricane Katrina, further raising the cost to the federal Treasury.
Officials in New Jersey and New York say the federal government must move quickly to put the flood insurance program back on stable footing, even if it means increasing the federal deficit.
"All we want in our community — not any more and absolutely not less — is what is due to Sea Isle," said Leonard C. Desiderio, the mayor of Sea Isle City, N.J., one of the coastal towns hit hard by Hurricane Sandy.
Hurricane Katrina put the program so deeply into debt that federal officials have acknowledged they will never be able to fully repay the $18 billion Treasury-financed loan that bailed the program out.
FEMA, as a result of this year's legislation, has the authority to raise premiums by as much as 25 percent per year over the next five years. The increases will be imposed mostly on vacation homes and other properties that repeatedly flood, but whose owners have paid far below market insurance rates. The legislation also authorizes the creation of a national reserve fund to help the program handle major flood catastrophes, and urges Congress to appropriate $400 million a year to update the thousands of out-of-date flood control maps. That would likely force new homes to be built elevated off the ground in spots where rising sea levels or recent major storms have had an impact.
Lawmakers who pushed the legislation call it major progress in fixing the program's well-documented failings.
"The program is on a much more responsible path than it had been just one year ago," said Zachary Cikanek, a spokesman for Representative Judy Biggert, Republican of Illinois, who co-sponsored the legislation.
But others say much more needs to be done. The federal government should ensure continuous coverage in flood-prone areas, spreading the risk among a larger pool of homeowners, who now often allow their coverage to lapse, said Robert Hunter, an insurance administrator in the Ford and Carter administrations.
The 20,000 communities that participate should also be adopting stronger building or flood prevention codes the way Florida has since Hurricane Andrew did $23 billion worth of damage in 1992. Mr. Hunter pointed to earthquake-prone Chile, where builders must assume the liability for catastrophic earthquake damage for 10 years after construction. "This program still encourages unwise construction instead of discouraging it, and to me that means the program has failed, even with the reforms Congress just adopted," Mr. Hunter said. "People are being killed and their properties are being destroyed because of a government that gives the false impression that there is less of a flood risk than there really is."
Solution appears to be to force the Private Insurance companies to offer Flood Insurance at the same rates.
Or just make it privatized and let home owners shop around.
Quote from: Darth Wagtaros on November 13, 2012, 08:23:26 AM
Or just make it privatized and let home owners shop around.
But that won't actually work.
The government will just have to suck it up or vast swaths of the country will be uninhabitable. That's just how it is.
Quote from: Darth Wagtaros on November 13, 2012, 08:23:26 AM
Or just make it privatized and let home owners shop around.
You can have the choice to buy flood insurance and live in a place where flooding isn't a problem, or you can live in a place where flooding may occur and not have the choice.
Quote from: Grey Fox on November 13, 2012, 08:05:26 AM
Solution appears to be to force the Private Insurance companies to offer Flood Insurance at the same rates.
the one thing private insurance is really good at is not paying out insurance :P
Quote from: HVC on November 13, 2012, 08:42:13 AM
Quote from: Grey Fox on November 13, 2012, 08:05:26 AM
Solution appears to be to force the Private Insurance companies to offer Flood Insurance at the same rates.
the one thing private insurance is really good at is not paying out insurance :P
That is true. Bunch of Crooks the lot of them.
Quote from: Grey Fox on November 13, 2012, 08:05:26 AM
Solution appears to be to force the Private Insurance companies to offer Flood Insurance at the same rates.
Solution to what, private insurance industry's solvency?
Quote from: DGuller on November 13, 2012, 09:49:14 AM
Quote from: Grey Fox on November 13, 2012, 08:05:26 AM
Solution appears to be to force the Private Insurance companies to offer Flood Insurance at the same rates.
Solution to what, private insurance industry's solvency?
Significantly reducing their profit margin is not something I am against.
Quote from: Grey Fox on November 13, 2012, 09:59:31 AM
Significantly reducing their profit margin is not something I am against.
The track record of forcing private insurers to write a catastrophe insurance at a loss is universally a very bad one. What you're going to accomplish is complete withdrawal of private insurers from certain areas, leading to a serious insurance availability crisis.
Quote from: jimmy olsen on November 13, 2012, 08:36:01 AM
The government will just have to suck it up or vast swaths of the country will be uninhabitable. That's just how it is.
I bet that 95% of the area of the USA are in no danger of ever being flooded.
Quote from: DGuller on November 13, 2012, 10:33:36 AM
Quote from: Grey Fox on November 13, 2012, 09:59:31 AM
Significantly reducing their profit margin is not something I am against.
The track record of forcing private insurers to write a catastrophe insurance at a loss is universally a very bad one. What you're going to accomplish is complete withdrawal of private insurers from certain areas, leading to a serious insurance availability crisis.
Withdraw? They won't be able to withdraw! :evillaugh:
Quote from: jimmy olsen on November 13, 2012, 08:36:01 AM
The government will just have to suck it up or vast swaths of the country will be uninhabitable. That's just how it is.
Tell that to the Libertarians.
Quote from: Darth Wagtaros on November 13, 2012, 11:42:06 AM
Quote from: jimmy olsen on November 13, 2012, 08:36:01 AM
The government will just have to suck it up or vast swaths of the country will be uninhabitable. That's just how it is.
Tell that to the Libertarians.
Tell what to the Libertarians?
The question here is not whether the government should fund this kind of flood recovery, but how to do so, how to pay for it, and what limitations should be placed on it.
Is it reasonable for the taxpayers to foot the bill to rebuild a house
ten times in fifteen years fifteen times in ten years? More to the point, is it reasonable for the taxpayers to be responsible for rebuilding a house next year, and the year after that, and the year after that forever and ever, no matter how likely it is that the house is just going to be destroyed again?
I don't think you have to be a Libertarian to say "Hey, if your house is in a spot where the odds of it being destroyed each year are 75%, then we are not going to nisure you! That is not insurance, that is just repaying for your house over and over again!"
QuoteOne Biloxi, Miss., property valued at $183,000 flooded 15 times over a decade, costing the program $1.47 million, according to federal data provided by the agency to a member of Congress. Another in Humble, Tex., has resulted in over $2 million in flood payouts even though it was worth just $116,000.
The question is: What is that percentage where the state funded "insurance" company can and should say "Nope, sorry, you are on your own - we simply do not recommend that you build your house in such a flood prone area, and if you insist on doing so, it is on you".
And since there is another rather important question -"How do we pay for all of this?" that is apparently not well answered, it seems clear that the answer to those two questions are very closely linked. The more we are willing to pay, the higher the risk that can be tolerated.
And that raises the next question: "How much of the cost of the program should be born by everyone, even those not living in flood prone areas (ie the portion of the program funded from the general budget), and how much should be born by those living in flood prone areas, and how should the latter costs be linked to the actual danger of flooding?"
I think it is a fine example of the basic problem in discussion about our budget and costs that any suggestion that serious consideration be given to these questions is dismissed as beyond the pale.
Quote from: Berkut on November 13, 2012, 01:49:17 PM
...we are not going to nisure you!
My sentiments exactly.
Berkut raises good questions, all of them. Too bad they're unlikely to be answered where it counts.
Quote from: Zanza on November 13, 2012, 10:33:39 AM
Quote from: jimmy olsen on November 13, 2012, 08:36:01 AM
The government will just have to suck it up or vast swaths of the country will be uninhabitable. That's just how it is.
I bet that 95% of the area of the USA are in no danger of ever being flooded.
I bet at least 50% of the population of the USA has some vulnerability to flooding. Maybe more since lots of major cities are built on coasts or river banks.
Its probably true that flood risk is minimal thousands of miles up the in the Rockies or in the middle of the high desert of the Colorado plateau but it isn't that realistic to move the whole US population in such regions (not to mention the huge water supply problems that would result).
Meanwhile, those areas not in danger of flooding face other catastrophic risks. Like earthquakes and tornados.
Quote from: The Minsky Moment on November 13, 2012, 02:24:21 PM
I bet at least 50% of the population of the USA has some vulnerability to flooding. Maybe more since lots of major cities are built on coasts or river banks.
Its probably true that flood risk is minimal thousands of miles up the in the Rockies or in the middle of the high desert of the Colorado plateau but it isn't that realistic to move the whole US population in such regions (not to mention the huge water supply problems that would result).
Meanwhile, those areas not in danger of flooding face other catastrophic risks. Like earthquakes and tornados.
What conclusion are you heading to with this?
Quote from: DGuller on November 13, 2012, 02:29:51 PM
What conclusion are you heading to with this?
It's cheaper to pay a few billion every half-decade or so than to abandon half the metro areas in America for higher ground.
Hey, I am an Euroweenie. Of course I agree with your conclusion.
I just wanted to refute Tim's argument for the sake of it. I thought that's Languis what Languish is about. ;)
Quote from: The Minsky Moment on November 13, 2012, 02:32:48 PM
Quote from: DGuller on November 13, 2012, 02:29:51 PM
What conclusion are you heading to with this?
It's cheaper to pay a few billion every half-decade or so than to abandon half the metro areas in America for higher ground.
Who says you need to abandon them? Just have the residents pay the actuarially fair premium to choosing to live in a flood zone, so that you don't subsidize idiotic development.
Quote from: The Minsky Moment on November 13, 2012, 02:32:48 PM
Quote from: DGuller on November 13, 2012, 02:29:51 PM
What conclusion are you heading to with this?
It's cheaper to pay a few billion every half-decade or so than to abandon half the metro areas in America for higher ground.
This is exactly the kind of non-response response I am talking about.
Talk about a classic false dilemma. Abandoning half the metro area or taking on the entire cost of all flooding damage in America on the shoulders of the government and taxpayers is not the only two options.
Quote from: DGuller on November 13, 2012, 02:47:19 PM
Quote from: The Minsky Moment on November 13, 2012, 02:32:48 PM
Quote from: DGuller on November 13, 2012, 02:29:51 PM
What conclusion are you heading to with this?
It's cheaper to pay a few billion every half-decade or so than to abandon half the metro areas in America for higher ground.
Who says you need to abandon them? Just have the residents pay the actuarially fair premium to choosing to live in a flood zone, so that you don't subsidize idiotic development.
I don't even mind that idea that the government is in the business of subsidizing this "insurance" when it comes to covering the really big disasters.
But you are exactly correct - there must be a cost associated with building in higher risk areas, and that cost must NOT be hidden, or else we will get...well, we will get exactly what we have now, with examples of people being reimbursed over and over and over again for the same loss because there is no reason for them NOT to build in places they have no business building.
Take the example of someone wanting to build a vacation home. If you want that vacation home on the Outer Banks, good for you - but why should I have to bear the cost for the inevitable replacement bill for it? The cost to replace your house in the next 20 years should be factored into how much house you can afford via your insurance premiums. I am fine with those going through the government if private insurance companies won't touch it, but I do NOT agree that the cost should be born by anyone other than the person who wants to build or buy a house in a known high risk area, if no other reason than it will create perverse incentives.
When it comes to property/casualty insurance debates, there is one iron-clad bullshit-detection rule. Whenever you hear about earthquake risk or tornado risk or meteor strike risk in the rest of US, be prepared for a bucketful. You're about to be subjected to a logically-contorted argument about why it's not unfair for a certain group of people to be subsidized by other policyholders or taxpayers (most of the time it will involve Floridians living on the coast).
Clearly, people need to stop trying to live in New Jersey.
Wouldn't the cost be passed on to everyone then? I mean cities on the sea shore are usually there for a reason. If you are going to charge more for people to live in in a place like a port, wouldn't they just pass the cost on in every product that moves through that the port?
Quote from: Razgovory on November 13, 2012, 03:34:18 PM
Wouldn't the cost be passed on to everyone then? I mean cities on the sea shore are usually there for a reason. If you are going to charge more for people to live in in a place like a port, wouldn't they just pass the cost on in every product that moves through that the port?
Possibly, but so what? If you buy products from China, you're in effect contributing to creating the need to have a port in a dangerous place, thus giving rise to that cost. It's a lot more fair for you to pay extra for that, than for a taxpayer who buys only American.
Quote from: Razgovory on November 13, 2012, 03:34:18 PM
Wouldn't the cost be passed on to everyone then? I mean cities on the sea shore are usually there for a reason. If you are going to charge more for people to live in in a place like a port, wouldn't they just pass the cost on in every product that moves through that the port?
Don't most Americans have a commute of several miles? There is no reason to live right on the waterfront even if you work in a port. I am sure that ports are by default flood threatened, but then I guess they can more easily afford the necessary insurance than private citizens. I don't see any problem with ports putting their extra insurance cost onto their prices.
Quote from: DGuller on November 13, 2012, 02:47:19 PM
Who says you need to abandon them?
That was the toungue-in-cheek implication of zanza's post; otherwise the fact the much of the raw land mass of the US lies outside floodable areas would be of no relevance.
QuoteJust have the residents pay the actuarially fair premium to choosing to live in a flood zone, so that you don't subsidize idiotic development.
Ok but what is the fair premium?
If you look at the loss experience over the 20 year period from 1991-2010, the total claims paid out was about $35 billion, or 1.75 billion per year.
If you just focus on the last 10 years, it increases to over $2.8 billion per year, mostly due to the influence of 2005, in which over $17 billion was paid out in that year alone. In most years, less than $1 billion was paid out.
The past loss experience suggests that the current $3.5 billion premium level should be sufficient, at least if we can cut down on the $1 billion the private insurers are skimming off the top.
But it may be objected that due to changes in the earth's climate, there is reason to believe losses may increase in the future; thus, it would be prudent to raise premiums. That is a legitimate suggestion. However, to the extent the higher loss experience is driven in part by people all across the US burning carbon, I would query whether 100% of that impact should be internalized solely by those living in flood-prone areas. If, e.g. collections need to go to $4-5 billion (an increase of 15-40%), might it be fair to propose that half the premium increase be absorbed by the policyholders, the other half funded by part of the proceeds of a carbon tax.
Quote from: Zanza on November 13, 2012, 03:41:35 PM
Don't most Americans have a commute of several miles?
Increasing commute times and distances increases costs in itself, rather sizably when you start talking about tens of millions of people. It also increases carbon consumption which may worsen the problem over time.
Also it is not uncommon to find that much of the land area surrounding ports and coastal cities is also low-lying and vulnerable to flooding under extreme conditions.
Quote from: The Minsky Moment on November 13, 2012, 03:43:46 PM
Ok but what is the fair premium?
Premium that is commensurate with the property's risk.
QuoteIf you look at the loss experience over the 20 year period from 1991-2010, the total claims paid out was about $35 billion, or 1.75 billion per year.
If you just focus on the last 10 years, it increases to over $2.8 billion per year, mostly due to the influence of 2005, in which over $17 billion was paid out in that year alone. In most years, less than $1 billion was paid out.
The past loss experience suggests that the current $3.5 billion premium level should be sufficient, at least if we can cut down on the $1 billion the private insurers are skimming off the top.
This has little to do with what is a fair premium. For a moment, let's say that the overall level of premium being collected for the flood insurance program is adequate. That still doesn't say anything about how fair individual premiums are. It could be that policyholders in very safe areas are overpaying for flood insurance, and are subsidizing people who get a new house every year.
Quote from: DGuller on November 13, 2012, 03:51:21 PM
This has little to do with what is a fair premium. For a moment, let's say that the overall level of premium being collected for the flood insurance program is adequate. That still doesn't say anything about how fair individual premiums are. It could be that policyholders in very safe areas are overpaying for flood insurance, and are subsidizing people who get a new house every year.
It could be but without spending thousands of hours analyzing data at a granular level, neither you nor I are in a position to judge that. It is my understanding that the program attempts to vary premiums on risk. It may be the risk categories need to be more finely defined, but at a certain point there is trade off between greater precision and complexity of administration. I don't have a problem generally with the concept that costs within the program should be appropriately distributed to reflect risk to the extent feasible consistent with efficient administration.
The broader point is that looked at as a whole, there is no reason to think that the program isn't assessing sufficiently high premiums to cover losses, and the current year deficit is no different than when a reinsurer takes a big hit one year after many years of fat margins.
Quote from: Zanza on November 13, 2012, 03:41:35 PM
Quote from: Razgovory on November 13, 2012, 03:34:18 PM
Wouldn't the cost be passed on to everyone then? I mean cities on the sea shore are usually there for a reason. If you are going to charge more for people to live in in a place like a port, wouldn't they just pass the cost on in every product that moves through that the port?
Don't most Americans have a commute of several miles? There is no reason to live right on the waterfront even if you work in a port. I am sure that ports are by default flood threatened, but then I guess they can more easily afford the necessary insurance than private citizens. I don't see any problem with ports putting their extra insurance cost onto their prices.
Floods can flood a long way.
Quote from: DGuller on November 13, 2012, 03:37:25 PM
Quote from: Razgovory on November 13, 2012, 03:34:18 PM
Wouldn't the cost be passed on to everyone then? I mean cities on the sea shore are usually there for a reason. If you are going to charge more for people to live in in a place like a port, wouldn't they just pass the cost on in every product that moves through that the port?
Possibly, but so what? If you buy products from China, you're in effect contributing to creating the need to have a port in a dangerous place, thus giving rise to that cost. It's a lot more fair for you to pay extra for that, than for a taxpayer who buys only American.
Ports go both ways. Products made in Kansas may be sold in France and they have to get there by boat. Plus a lot of ports are used for interstate trade. Another thing is that people who live in flood prone areas may not even know they live in a flood prone area. Back in 1993 we had a catastrophic flood, many of the people who lived in those areas that were flood didn't even live close to water. Areas that flood may do so infrequently or may do so because of someone else changed the flood plain by diverting a creek or screwing up the watershed. You might live in a house for 50 years never seeing a flood, but suddenly get a flood.
Quote from: Razgovory on November 13, 2012, 04:11:45 PM
Quote from: DGuller on November 13, 2012, 03:37:25 PM
Quote from: Razgovory on November 13, 2012, 03:34:18 PM
Wouldn't the cost be passed on to everyone then? I mean cities on the sea shore are usually there for a reason. If you are going to charge more for people to live in in a place like a port, wouldn't they just pass the cost on in every product that moves through that the port?
Possibly, but so what? If you buy products from China, you're in effect contributing to creating the need to have a port in a dangerous place, thus giving rise to that cost. It's a lot more fair for you to pay extra for that, than for a taxpayer who buys only American.
Ports go both ways. Products made in Kansas may be sold in France and they have to get there by boat. Plus a lot of ports are used for interstate trade. Another thing is that people who live in flood prone areas may not even know they live in a flood prone area. Back in 1993 we had a catastrophic flood, many of the people who lived in those areas that were flood didn't even live close to water. Areas that flood may do so infrequently or may do so because of someone else changed the flood plain by diverting a creek or screwing up the watershed. You might live in a house for 50 years never seeing a flood, but suddenly get a flood.
Again, how is this relevant to the point that premiums should be set based on risk?
How about this for a solution.
1. Make private flood insurance compulsory for both insurers (they must provide it) and insurees (they must take it). Most likely this will affect premiums for everyone, but then again it wouldn't be much different than taxes covering existing plans anyway. The burden would however all be on the private sector.
2. All existing federal / public insurance agreements will be kept for existing homeowners only. New owners will have to get private insurance.
3. This is likely to lower house prices on the flood prone areas. Therefore to compensate for changing policy, the state should pay the prior market price for anyone currently on such a public insurance scheme, and sell to new owners at the current market price, if this is the case. The prior market price should however be fixed and not be index linked to prices of any kind.
Quote from: DGuller on November 13, 2012, 04:13:50 PM
Quote from: Razgovory on November 13, 2012, 04:11:45 PM
Quote from: DGuller on November 13, 2012, 03:37:25 PM
Quote from: Razgovory on November 13, 2012, 03:34:18 PM
Wouldn't the cost be passed on to everyone then? I mean cities on the sea shore are usually there for a reason. If you are going to charge more for people to live in in a place like a port, wouldn't they just pass the cost on in every product that moves through that the port?
Possibly, but so what? If you buy products from China, you're in effect contributing to creating the need to have a port in a dangerous place, thus giving rise to that cost. It's a lot more fair for you to pay extra for that, than for a taxpayer who buys only American.
Ports go both ways. Products made in Kansas may be sold in France and they have to get there by boat. Plus a lot of ports are used for interstate trade. Another thing is that people who live in flood prone areas may not even know they live in a flood prone area. Back in 1993 we had a catastrophic flood, many of the people who lived in those areas that were flood didn't even live close to water. Areas that flood may do so infrequently or may do so because of someone else changed the flood plain by diverting a creek or screwing up the watershed. You might live in a house for 50 years never seeing a flood, but suddenly get a flood.
Again, how is this relevant to the point that premiums should be set based on risk?
Risk can't be assessed very easily. Secondly it doesn't seem fair if you were in a low risk area and someone comes a long fucking with the local creeks making your home a high risk area without you knowing. The whole "LOL WHY U LIVE IN FLOOD AREA? IT YOUR OWN FAULT" thing sorta falls flat there. Also, people in Kansas benefit financially from the ports moving their products.
Quote from: Razgovory on November 13, 2012, 04:19:11 PM
Risk can't be assessed very easily. Secondly it doesn't seem fair if you were in a low risk area and someone comes a long fucking with the local creeks making your home a high risk area without you knowing. The whole "LOL WHY U LIVE IN FLOOD AREA? IT YOUR OWN FAULT" thing sorta falls flat there. Also, people in Kansas benefit financially from the ports moving their products.
Those are externalities, and they have little to do with the topic at hand. It's not the job of insurance to compensate for externalities.
Quote from: DGuller on November 13, 2012, 04:59:39 PM
. It's not the job of insurance to compensate for externalities.
But it is the job of public policy to do so, and we are talking about a public insurance program.
So rather than view this one piece in isolation, it might make sense to view as a part of a general policy scheme addressing the broader problem
Quote from: The Minsky Moment on November 13, 2012, 05:04:06 PM
Quote from: DGuller on November 13, 2012, 04:59:39 PM
. It's not the job of insurance to compensate for externalities.
But it is the job of public policy to do so, and we are talking about a public insurance program.
So rather than view this one piece in isolation, it might make sense to view as a part of a general policy scheme addressing the broader problem
If you're going to address externalities, it might help to have the douchebag tinkering with the creek to pay something, rather than taxpayers or other flood insurance policyholders. Raz's method just shifts the externality costs from one innocent party to another, so I don't see how we're getting anywhere more rational here.
Alas Grover Norquist has forbidden any tax on douchebags or indeed any feminine hygeine product. It's the only part of the entire GOP platform that is good for the single woman vote.
I'm assuming DGul wasn't being serious. After all, how do you assign said costs when it is all of us polluting that have made places like NJ and New York more prone to catastrophic weather?
Quote from: garbon on November 13, 2012, 08:00:04 PM
I'm assuming DGul wasn't being serious. After all, how do you assign said costs when it is all of us polluting that have made places like NJ and New York more prone to catastrophic weather?
You're taking for given a very contentious conclusion. NYC area has been devastated by natural disasters before. I don't think global warming was responsible for 1938 Long Island Express hurricane, or multiple hurricanes before that. It has been living a charmed life for many decades until Irene and Sandy, but people in the know where always aware of the catastrophic potential there.
Regardless, even if there is global warming, different concepts need to be compartmentalized to avoid a slew of unintended effects. The point of insurance is to convert uncertain costs into certain costs as fairly as possible. Just because government had to step as insurer of last resort with floods doesn't change the nature of that insurance, and it doesn't mean that it has to be conflated with other concepts. At the end of the day, society still loses when people keep rebuilding houses that are highly likely to be washed away again.
Quote from: PJL on November 13, 2012, 04:14:35 PM
3. This is likely to lower house prices on the flood prone areas.
this will make it more likely that poor people will move into the area. people who can't afford insurance. what do you do when they lapse in their payemnts? kickem out of there house? when the next flood comes the government will be on the hook again becasue it'll be a PR nightmare to ignore the poor home owners.
I'm only taking a conclusion that has been drawn by the gov't of New York.
As to your second point - I'm not sure how that doesn't lead to Joan's tongue and cheek point. A great many places would have to or would be abandoned if we dropped gov't support and forced people to pay a "fair" premium with regards to their likelihood to get flooded out. (Or as HVC pointed out - inhabited by those who just wouldn't take on said insurance and still would need gov't assistance.)
Quote from: garbon on November 13, 2012, 09:20:48 PM
I'm only taking a conclusion that has been drawn by the gov't of New York.
Not the most impartial observer.
QuoteAs to your second point - I'm not sure how that doesn't lead to Joan's tongue and cheek point. A great many places would have to or would be abandoned if we dropped gov't support and forced people to pay a "fair" premium with regards to their likelihood to get flooded out.
If some place has to be abandoned because a fair flood premium would cost too much, then it should be abandoned. The underlying reason for that would be that the benefits of that place are outweighed by the cost of regular flooding. Subsidizing such expenditures doesn't solve the problem; on the contrary, it exacerbates it. This is about as basic as economics get: costs should be paid by those who incur them if you want efficient allocation of resources.
Quote from: DGuller on November 13, 2012, 09:25:07 PM
If some place has to be abandoned because a fair flood premium would cost too much, then it should be abandoned. The underlying reason for that would be that the benefits of that place are outweighed by the cost of regular flooding. Subsidizing such expenditures doesn't solve the problem; on the contrary, it exacerbates it. This is about as basic as economics get: costs should be paid by those who incur them if you want efficient allocation of resources.
I'm not sure I agree with that if the upfront cost is more than the incremental costs for a good long while. Not to mention the cultural and historical loss that can't easily be quantified in economic terms.
Quote from: HVC on November 13, 2012, 08:42:13 AM
the one thing private insurance is really good at is not paying out insurance :P
I never had serious problems with my insurane companies. Then again, I do read the fine prints.