A Stitch in Haste

Perhaps because the private insurance industry would never tolerate an insanity such as this:

A major public policy issue before the 109th Congress is the cost to the [National Flood Insurance Program] of paying for repetitively flooded properties ["RLPs"].
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In total, there were 4,498,324 flood insurance policies [as of September 30, 2004] — so RLPs are 1% of the total policies nationwide. Yet, according to FEMA, this 1% accounts for an annual average of 30% of amounts paid in claims.

If you're a "repetitively crashing driver," you're banished to a high-risk insurance pool with appropriately higher insurance premiums. Eventually, you're barred from driving altogether.

Could you imagine trying to run an auto insurance company where 1% of drivers were responsible for 30% of claims? Or a health insurance company? Is the private insurance industry unable to provide flood insurance because of market failure (as the government would have you believe), or merely unwilling to provide it because of public policy irrationality in tolerating repeat victims?

More:

[A]lthough RLPs exist in all 50 states, five states — Louisiana, Texas, Florida, North Carolina, and New Jersey — accounted for 63% of all repetitive loss payments from 1978 through 2004. The top 10 states accounted for 78% of all repetitive loss claims; and the top 25 states account for 96% of all repetitive loss claims.

Forgive the bad pun, but flood insurance money has been pouring into Louisiana on a regular basis for over 25 years. Remind me again how "nobody saw this coming"?

Flood insurance, and the apparently non-negotiable rebuilding of New Orleans, may well be the ultimate manifestation of the doctrine of "private gains, public losses" that underlie much of our disaster policy. Why is it so outrageous to ask people who know their property floods repetitively not to come crying to the federal government because "they had no idea this could happen"?

As the saying goes: "Don't pee on my leg and tell me the levee broke."

Because the following are not enough:

--FEMA generally

--$2,000 debit cards (including the one used at a strip club)

--$250,000 credit limits on 250,000 bureaucrat credit cards

--President Bush's "New New Deal" for the "New New Orleans"

One state also wants to make sure insurance companies pay their unfair share too:

Mississippi on Thursday sued insurers to force them to pay billions of dollars in flood damage from Hurricane Katrina, saying standard insurance polices have led homeowners to believe they are covered for all hurricane damage, whether from high winds or storm surges.

To deny coverage to those whose homes were wiped out by the storm surge, but lacked flood insurance, is "taking advantage of people in the most dire straits," said Attorney General Jim Hood, who filed the lawsuit against five major insurers.
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He asked a Chancery Court to void provisions in the policies that attempt to exclude from coverage losses or damages directly or indirectly caused by water, whether wind-driven or not. He said he would seek a restraining order next week pending a full hearing.

Remember the lengthy lawsuit about whether the World Trade Center attack was one or two "occurrences" for insurance purposes? Multiply that by a factor of -- who knows?

And remember, this is Mississippi, not New Orleans. I might -- might -- understand arguing that insurance companies should pay New Orleans property owners on the grounds that the levee failure was not an "act of god" flood but rather an "act of man" construction failure. Mississippi has no such argument.

Floods are floods, insurance policies are excruciatingly detailed and specific documents, and litigants are limited to reasonable interpretations of contracts. This is frivolous litigation -- and politics -- of the most despicable kind.

Finally, have hack politicians not learned the lessons of oppressive auto insurance laws? The point can come where the government literally forces insurance companies out of a state. Is that what Mississippi wants -- to make property insurance unavailable at any price under any terms?

That's a mighty high premium for a sound bite and a re-election bid.

The National Flood Insurance Program has openly admitted that it is hopelessly, um, underwater:

The acting head of the federal flood insurance program told Congress yesterday that his agency needs to be allowed to borrow $5 billion more just to cover claims it expects to pay by mid- to late November.
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In contrast to past borrowings, [David I.] Maurstad said after a hearing by the Senate Banking Committee, the insurance program has no hope of repaying debt of that magnitude out of premium income. This would mean that most funding necessary to pay claims would have to come from taxpayers, either as "borrowing" that won't be repaid by the agency or as an appropriation.

Until now, when the flood insurance agency has borrowed from the Treasury, it has repaid its loans with interest, Maurstad said.
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Maurstad called the $5 billion in increased borrowing "a stopgap" while fundamental questions about the future of the program are addressed.

You read that correctly: "'borrowing' that won't be repaid." Isn't there another term for that?

The federal flood insurance program was an intrinsically unstable program that did not "correct a market failure," but rather created one via ongoing subsidies to people living in areas that are prone not just to flooding, but to chronic flooding. A classic moral hazard trap.

Furthermore, the insolvency of the program cannot be blamed solely on the catastrophic nature of Katrina and Rita — private property & casualty companies are in the very business of insuring against catastrophes (including this year's hurricanes), and their financial condition is just fine, thank you very much.

The collapse of the flood insurance program is not comparable to the FEMA debacle — it's worse. FEMA was just typical bureaucratic incompetence and cronyism. Government flood insurance was a fundamentally flawed concept from the outset. It was, no pun intended, a disaster waiting to happen.

Keep that in mind when the next shoe to drop — the Pension Benefit Guaranty Corporation — goes through the same death throes. Ditto for Social Security and state and local government pensions.

The State of Louisiana wants the federal government to pay for the rebuilding of state facilities:

Louisiana Gov. Kathleen Babineaux Blanco (D) is asking federal officials to pay the vast majority of the $2.3 billion in damage to state facilities wrought by hurricanes Katrina and Rita, including at least $125 million to restore the state-owned Louisiana Superdome in New Orleans.
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While many people think of FEMA as an agency that mainly helps individuals, historically its greatest single disaster expense is to reimburse state and local governments for their losses and emergency costs.

Color me confused, but is there any reason why state and local governments can't be expected to buy their own property and casualty insurance for their own buildings, roads, parks, playgrounds, etc.?

It's debatable enough whether "poor homeowners" (can there even be such a thing?) shouldn't be expected to pay their own insurance premiums just as we expect them to pay their own heating and electric bills. But the City of New Orleans? The State of Louisiana? Just how "poor" can a government get?

The concept of FEMA as "forced charity" or "forced insurance" might -- might -- have some paternalistic quasi-justification presupposed by the premise that people are fundamentally stupid (a premise I and most libertarians reject). But an even more basic premise is that our elected leaders are not fundamentally stupid and should be able to run their jurisdictions appropriately.

Somewhere there's a contradiction here. I know where I think it is. How about you?

I have blogged previously about the unjustifiability of national taxpayer bailouts to disaster areas that are known, a priori, to be prone to disasters. If you choose to live in a hurricane zone, or a flood zone, or a blizzard zone, or an earthquake zone, then why shouldn't you be expected to assume the risks of your decision?

Such reasoning is, unfortunately, lost on some people:

Florida homeowners are no longer silent victims of the state's insurance crisis. From the Keys to the Panhandle, they've mobilized.

In Miami-Dade County, they have launched a major petition drive to tell lawmakers in Tallahassee that soaring rates are choking their personal finances and the quality of their lives.
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Some of what the petition seeks: rate relief, tougher statewide building codes and a strong lobbying effort for a national catastrophe fund.

Well, if the Red Cross or Salvation Army want to create a "national catastrophe fund," then that's their business and more power to them. But of course what these whiny Floridians want is a national taxpayer-financed catastrophe fund.

Which is no different than saying that they want to enjoy, privately, all the benefits of living in Florida while shucking the catastrophe-related costs of living there to the public.

Um, why?

Owning real property entails costs: utilities, property taxes, maintenance and upkeep. Oh, and insurance. If you can't afford insurance, then you can't afford the property. To which the proper response is not, "Have the federal government pay for it," but rather, "Too bad so sad -- move somewhere else."

If Nevadans were to demand a "national air conditioning fund," or Minnesotans a "national parka fund," that Florida taxpayers would be expected to underwrite, then people would laugh hysterically (or indignantly). But for some reason, when the word "disaster" enters the conversation, common sense gets swept out to sea.

And remember that these are foreseeable disasters. Not predictable, perhaps, but foreseeable. A hurricane in Florida is simply not unheard of. (Not that foreseeability is a critical distinction -- but the fact that people know that hurricanes strike Florida makes the lamentations of these homeowners all the more preposterous.)

The best proof of maturity is a willingness to take the bitter with the sweet. You would think that a state so well known for its citrus would understand that.

(Via Fark.)