Monday, December 2, 2013

Flood subsidies are difficult to remove

Subsidies destroy wealth by encouraging the movement of assets to lower valued uses.  Flood subsidies,, for example, encourage home owners to build where they ordinarily wouldn't build because the insurance rates are artificially low.  


... affluent beachcombers who are accustomed to artificially cheap insurance. Businesses, vacation homes and homes with "repetitive" flood losses will see rates rise 25% a year until those "rates reflect true risk," according to the Federal Emergency Management Agency (FEMA), which administers the federal insurance program. About 20% of the national insurer's 5.5 million policyholders will be affected.

Cue the caterwauling from the 1% and their elected representatives. In June the House voted 281-146 to delay premium increases for a year, a turnaround from the 406-22 vote that passed Biggert-Waters only a year ago. California Democrat Maxine Waters is protesting that she didn't know what was in the law that bears her name—which seems plausible to those who have followed her career. She'd like more Americans to build homes in flood zones and have poor Americans pick up the tab when insurance premiums don't cover losses.

2 comments:

  1. Having grown up in Florida, I was accustomed to hearing about flood insurance and hurricane insurance. There were multiple times that my parents were able to have leaking windows repaired for free after a hurricane. It is important to note that they live on a barrier island on the river so they are clearly exposed to risk. It is interesting that insurance is supposed to be for catastrophic, low probability events. Although floods and hurricanes can be catastrophic, they are certainly highly probable, especially on the east coast of Florida. However, this definitely makes it more appealing for people to risk it and live near the water!

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  2. A similar government insurance policy is agricultural insurance. The policy insures farmers against the risk of a poor harvest. When Memphis flooded a couple years back, farmers planted massive amounts of acreage in the flood plain in advance and reaped massive profits from the insurance payouts.

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