Tuesday, June 3, 2008

Disastrous Policy Ahead

Went looking into homeowners insurance recently. Wow, what a shock when I learned of the rates they charge here in California. The policy would be almost 3 times what we spent in Virginia, and that doesn't include any supplements like earthquake. For those interested, the insurance commissioner has a nice estimator on their website.

Thus I became a bit upset when I read an article this weekend in the WSJ. Apparently there is a bill in Congress that may subsidize others at taxpayers expense. The big insurance firms want taxpayers to back them up, if they run out of money after a big hurricane in places like Florida.

Somehow this doesn't seem fair to me. We don't ask them to pay for our earthquake insurance do we? (I know nothing about earthquake insurance....anyone know if we even need it in Sacramento?) The situation is especially slimy because there are political motivations behind it, since FL tends to be a swing state.

If Congress were really to go down that road, it would seem fair to make all communities eligible based on their risk for major natural disasters......to name a few of the biggies: hail, fire, earthquake, flood, mudslide, hurricane, tornado, cyclone, and wind. So zips that are at a very low risk for any of these, would pay almost nothing to the fund, while zips at a very high risk would pay the most. This would help to discourage people from settling in high risk areas.

In most situations, subsidizing costs associated with risk, sends the wrong signal to the market. You end up with more risky behavior than we should have otherwise.

Personally I would love to implement a "one time, one event" rule per family. This rule would allow federal assistance for a natural disaster one time per type of event (so one for earthquake, one for hurricane etc.). For example, folks who's homes have been damaged by flood every 10 years when the Mississippi overruns its banks would be much cautious about rebuilding in the same place if they use up their one flood meal ticket. In other words, fool me twice, shame on me.


sacramentia said...

I don't think you need Earthquake here in Sacramento.

How much were your quotes? I'm paying about $900/yr (properly insured) through Farmers.

PeonInChief said...

There is virtually no private earthquake insurance available in California. There is an earthquake insurance program (I believe mandated by the federal government), but the cost is very high and the benefits very low. Most people just go without and take their chances. And while major earthquakes won't happen here, a major quake on the coast would have social and political repercussions here, as the displaced fled inland in search of housing and other services.

For tenants earthquake insurance is worthless, as it doesn't pay for what we would most likely need--replacement housing.