Reality On Flood Policies


by Karl Denninger, Market Ticker:

Want to know why flood insurance coverage has decreased so much?

WASHINGTON (AP) — Houston’s population is growing quickly, but when Harvey hit last weekend there were far fewer homes and other properties in the area with flood insurance than just five years ago, according to an Associated Press investigation.

The sharp, 9 percent drop in coverage means many residents fleeing Harvey’s floodwaters have no financial backup to fix up their homes and will have to draw on savings or go into debt — or perhaps be forced to sell.

It’s not hard to figure out.

It’s not like every firm that sells homeowners and renters insurance doesn’t know and make a commission selling flood insurance.  Nor that they don’t issue warnings — they do, on the face of every policy.

No, the problem is that if you’re in other than a special-hazard area flood insurance is not required to get a mortgage and when more than 70{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of the population lives paycheck to paycheck they simply can’t afford it.

This is what the health scam has done to people.  It’s what offshoring jobs has done to people.  It’s what unlimited deficits and doubling of the national debt has done to people.

They simply don’t have the damn money which makes the entire argument about whether someone “wants” to buy flood insurance moot — they don’t have the money to pay for it.

Of course it doesn’t help that NFIP premiums have been going up — quite a lot.  That has a lot to do with losses, and unfortunately rather than monkey-hammer those people who built and live in special hazard areas, where those losses are both insured and more-frequent (remember, NFIP doesn’t care about uninsured losses as that doesn’t hit their accounts) they have “spread the pain” to those who don’t live in such special hazard areas and thus have lower risk.

My flood coverage (never flooded, and grandfathered into “no special hazard”) has gone up 44{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} since 2011 alone!

Yes, NFIP runs at a loss today.  But it largely runs at a loss because of people inside special-hazard areas who are insured and take losses, sometimes repeated losses, because most people who are not in special-hazard areas don’t buy the insurance.

Now they’re whining about people who don’t buy it and aren’t in special hazard areas, saying they “should have” now that they’re facing (probable catastrophic) losses in the greater Houston area.

Well, duh!  The program has forced those not in those special-hazard areas to subsidize those who are!

Just as with so-called “health insurance” when you force well people to pay sick people’s bills they will stop if they’re legally able to do so, risk be damned, because you are stealing from those who are not taking higher risks to subsidize those who are.

The utter stupidity displayed in the referenced article is astounding.  The answer to this problem is to rate the special-hazard areas appropriately, grandfather those who weren’t in special risk areas (but are remapped later) so you don’t force someone out of their house after they buy it and for those who do buy or build in a special hazard areas charge premiums commensurate with actuarial risk.

My risk of being flooded did not go up by 44{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} over the last six years and the $250,000 building / $100,000 contents insurance limit (which is all you can buy through NFIP) has not gone up either.  What has gone up (by 43{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}) is the forced subsidy of people who are in special-hazard zones and thus are forced to buy flood insurance in order to get a mortgage by those of us (like myself) who intentionally bought a building at or above base flood hazard elevation (in other words, no special risk) but want the coverage anyway.

This forced subsidy by people just like myself along with the repeated financial******served upon everyone for so-called “health insurance” and similar racketeering schemes has made buying NFIP policies for those who do not live in said special risk areas increasingly unaffordable and thus the rate of such insurance coverage has gone down materially.

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