Monday, July 2, 2012

Waiting on disater

... in Colorado, from a former student:
 if you really want to keep houses from burning, you would not provide insurance against forest fires (i.e. people will start cutting down the trees around their homes or choose to live somewhere else). 

The hail damage part of the article really is a story about adverse selection and moral hazard. About 20 years ago, we had a huge hail storm that pretty much got everyone new roofs. My experience since that time has been that people learned that if they wait it out on their roof updates, that they can eventually get their insurance policy to cover a new roof. Apparently, over the past few years, strong-enough hail storms finally hit and paid off to the homeowners (at least the irresponsible ones).

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