22 October 2005

Here's another

The National Flood Insurance Program spends about $200 million annually subsidizing insurance for flood-prone properties. (I apparently pay about $1 of that each year.) I don't see why it shouldn't be scrapped.

In the U.S. law establishing the NFIP, Congress found that “many factors have made it uneconomic for the private insurance industry alone to make flood insurance available to those in need of such protection on reasonable terms and conditions”. Can anyone tell me what these “many factors” are? Private flood insurance is available... on terms that reflect the risk of flood damage.

The NFIP sounds like a typical government insurance program. It is mandated to charge premiums that are sufficient to cover the risks, plus the administrative costs of running the program. But it certainly doesn't do this in all cases—hence the $200M annual price tag—and I can't tell if it does so in the bulk of cases or not.

It sounds like a classic case of government doing something, at a loss, that private companies could just as well do at a profit. With a private market, you'd also get the benefits of competition (on price and service). What am I missing?

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