Why federal flood insurance is $24BB in debt

[DJofSD]

http://necir.org/2014/03/09/oceans-of-trouble-for-u-s-taxpayers/

This just proves when the federal government gets involved, common sense goes out the window.

The triumph of hope and the corruption due to OPM.

[Robert Goren]

http://necir.org/2014/03/09/oceans-of-trouble-for-u-s-taxpayers/

This just proves when the federal government gets involved, common sense goes out the window.

The triumph of hope and the corruption due to OPM.You are probably right, but remember the reason the feds got into it was that private insurance companies stopped writing because one huge event could wipe out the company.

[DJofSD]

You are probably right, but remember the reason the feds got into it was that private insurance companies stopped writing because one huge event could wipe out the company.
The private insurance market acted in a prudent manner.

At what point does the federal government act accordingly? Why should the tax payer have to foot the bill time after time after time to make whole some one that persists on rebuilding when it is painfully obvious it is not a good place to build a house and live?

[Robert Goren]

The private insurance market acted in a prudent manner.

At what point does the federal government act accordingly? Why should the tax payer have to foot the bill time after time after time to make whole some one that persists on rebuilding when it is painfully obvious it is not a good place to build a house and live?In the real world, not the dream world of conservatives, people are going build houses and businesses in scenic risky locales. And when tragedy strikes, the government will act. So why not get some of they money back in premiums. And premiums should reflect the cost, I agree.
The private insurance did not abandon the market because it was unprofitable. They left because risk of a worse case scenario. Something they are in business to cover for other things. That is not an issue for the government. Insurance companies have no problem writing policies for other risky events like tornados in Oklahoma and Nebraska because while they can take a pretty good hit against their assets from time to time, the tornado events are not big enough to wipe them out. It is the size of the risk that is important to them. It is like a gambler managing his bankroll.

[ArlJim78]

government is a distortion and always results in higher costs, unintended consequences, moral hazards, wasteful spending, etc.

[Clocker]

In the real world, not the dream world of conservatives, people are going build houses and businesses in scenic risky locales.

Why is it living in a dream world to say that those people should bear the risks and consequences of their actions? If you are a bad driver, your auto insurance premiums reflect that. If you are a really bad driver, you lose your insurance. You pay the consequences of your actions.

Why should house insurance be any different? Why should I bear some of the risk of someone else doing something stupid? You have a right to build a house on your property. You don't have a right to have someone else help pay for it.

[riskman]

Exactly. There is the safety risk to homeowners and financial risk to all taxpayers who subsidize for the Flood Insurance Program.You can not expect the private market to offer insurance on an expected event on these coastal properties.
If banks stopped offering financing, it would help stop development of these properties.

Something has to give here. The Feds in their wisdom might put a surcharge on every Homeowners policy sold in the U.S. to fund this disaster.

The coastal states might have to come up with legislation controlling development and rebuilding along the affected coastal areas.

[Clocker]

government is a distortion and always results in higher costs, unintended consequences, moral hazards, wasteful spending, etc.

The history of the federal government's failures in the flood insurance sector should have been a red flag to all, especially those in the government, of what would happen if they got into the health insurance sector.

[Robert Goren]

government is a distortion and always results in higher costs, unintended consequences, moral hazards, wasteful spending, etc. that is also true, but least this case, the government went there because private industry couldn't. Not that private insurance companies wouldn't if they could get big enough. Give an insurance company the assets of the Federal government and they would be offering flood insurance.

[Clocker]

Give an insurance company the assets of the Federal government and they would be offering flood insurance.

Why would they want to do that if they couldn't make money on it? If they had the money, why would they give it away to people that do stupid things?

[DJofSD]

In the real world, not the dream world of conservatives, people are going build houses and businesses in scenic risky locales. And when tragedy strikes, the government will act. So why not get some of they money back in premiums. And premiums should reflect the cost, I agree.
The private insurance did not abandon the market because it was unprofitable. They left because risk of a worse case scenario. Something they are in business to cover for other things. That is not an issue for the government. Insurance companies have no problem writing policies for other risky events like tornados in Oklahoma and Nebraska because while they can take a pretty good hit against their assets from time to time, the tornado events are not big enough to wipe them out. It is the size of the risk that is important to them. It is like a gambler managing his bankroll.
First of all, you can drop the BS like 'not the dream world of conservatives.'

The only tragedy is not learning the lesson after the first or second time nature wipes you out. I guess having flood maps and zones is just to keep federal employees busy.

There are acts of nature and then there is just foolishness. I'm sure the private insurance companies and the re-insurance industry had concluded there was a reasonable chance they could be financially wiped out. But when it comes to the government that is not a consideration when it comes to floods. Why not?

[Clocker]

But when it comes to the government that is not a consideration when it comes to floods. Why not?

Because in the federal government there are no consequences for failure. Programs don't get canceled because they don't work. People don't get fired for incompetence and bad decisions. Politicians don't get thrown out of office for waste and corruption.

P.S. This whole thread so far has been off target because we have been talking about federal flood insurance. Insurance is a hedge against risk. As with ObamaCare, when risk is taken out of the equation, it is no longer insurance. It is an entitlement program. Only in this case it is redistribution of wealth to the wealthy. Perhaps if the government called it what it is, it would be easier to kill.

This is not insurance. It is subsidized housing for the well to do. Period.

[ArlJim78]

exactly right, it's a housing subsidy, not insurance.

[Robert Goren]

Why is it living in a dream world to say that those people should bear the risks and consequences of their actions? If you are a bad driver, your auto insurance premiums reflect that. If you are a really bad driver, you lose your insurance. You pay the consequences of your actions.

Why should house insurance be any different? Why should I bear some of the risk of someone else doing something stupid? You have a right to build a house on your property. You don't have a right to have someone else help pay for it. They should be able to get insurance, but you are right that the premiums should reflect the cost of providing. They are not being denied insurance by private companies from the risk of damage to their property. They being denied insurance because of the risk of too many claims coming at the same time. For private company to offer flood insurance would roughly equivalent to offer only tornado insurance and only in Oklahoma City. They aren't going to that because they can't spread risk around, not because they could not make money doing it. Did you bet every penny you had on Rachel Alexandra to show in the 2009 Woodward? Why not. You would cash over 99% of the time and earn well over an average of 4% on your money. It is putting all their eggs in baskets that insurance companies won't do. That is not an issue for the feds. I like you wish they would get their rates up to at least a break even point.

[Clocker]

They should be able to get insurance

Why?

If you drive stupidly, you can't get insurance. Why should you be able to get insurance if you build stupidly?

[Robert Goren]

Why?

If you drive stupidly, you can't get insurance. Why should you be able to get insurance if you build stupidly?yes you can, but it will cost you an arm and a leg, but you can get it. At least you can Nebraska. I would like to know a state where you couldn't.
It is called SR22/FR44 insurance if you want to go looking for it.

[Clocker]

yes you can, but it will cost you an arm and a leg, but you can get it. At least you can Nebraska. I would like to know a state where you couldn't.
It is called SR22/FR44 insurance if you want to go looking for it.

Totally different situation. That is liability insurance to protect others. And it is not federally subsidized. Flood insurance is to protect your house. Try getting car insurance to protect your car if you need FR44.

And you still haven't given a good reason why people that live in flood plains, mud slide areas, etc., should be able to get insurance.

And to correct my earlier misstatement, people that build in a flood plain are not building stupidly, if they are getting federally subsidized insurance. What would be stupid would be to build there without federal insurance.

[tucker6]

You guys are somewhat missing the boat. The exorbitant rate increases are for homes built before 1978 AND below 14 feet elevation. I know, I own one of those and another one that is newer. That said, most owners grumbled slightly over the extra charge, but it really wasn't a "to die for" issue. If you can afford a beach property, you can afford a few hundred dollars rate increase on flood insurance. The biggest proponents of reducing the flood increase were realtors. A higher insurance cost means homes are less attractive and all things being equal will cause home values (where commission is derived) to level off and/or decline. It's a BIG issue for them, and to a smaller extent local govts, who get tax revenue based on home valuations.

So in order of who benefits the most from lower flood insurance costs, I'd say:

1. realtors
2. local govt
3. homeowner

This is about continuing a gravy train for business and govt. This is not about the rich getting richer. A couple hundred bucks is nothing.

[Robert Goren]

Totally different situation. That is liability insurance to protect others. And it is not federally subsidized. Flood insurance is to protect your house. Try getting car insurance to protect your car if you need FR44.

And you still haven't given a good reason why people that live in flood plains, mud slide areas, etc., should be able to get insurance.

And to correct my earlier misstatement, people that build in a flood plain are not building stupidly, if they are getting federally subsidized insurance. What would be stupid would be to build there without federal insurance.First the insurance should not be subsidized and I have pointed that repeatedly. We all know that when the worst happens, even it is predictable, the feds are going come in and help so they going to build there anyway. Why not get some money? Is building in a flood plane any more risky than building OK city? It can't be much riskier? Why do people live there? I know a farm house that been destroyed 4 times in my life time by tornados. They still get insurance. The feds moved in when a BP oil rig dumped oil to the gulf. And having something like that happen sometime was as close to sure thing as death and taxes. Yet we don't force people to move inland because of that threat.

[Saratoga_Mike]

First the insurance should not be subsidized and I have pointed that repeatedly. We all know that when the worst happens, even it is predictable, the feds are going come in and help so they going to build there anyway. Why not get some money? Is building in a flood plane any more risky than building OK city? It can't be much riskier? Why do people live there? I know a farm house that been destroyed 4 times in my life time by tornados. They still get insurance. The feds moved in when a BP oil rig dumped oil to the gulf. And having something like that happen sometime was as close to sure thing as death and taxes. Yet we don't force people to move inland because of that threat.

Subsidized by the fed govt? If it's private insurance, who cares? Your BP comment is so off-point that it isn't worth commenting on.

[classhandicapper]

We all know that when the worst happens, even it is predictable, the feds are going come in and help so they going to build there anyway.

It's called "moral hazard".

That's why Wall ST keeping behaving recklessly, creating excesses, bubbles etc... They know when it all blows up the Fed and Washington will be there to bail them out.

The only way to fix is is to STOP baling them out.

The only way to get people to stop building in these high risk areas is to stop baling people out for risks that private companies are unwilling to shoulder. You can still live there if you want, just don't come looking for a handout if you know the risks.

[Robert Goren]

It's called "moral hazard".

That's why Wall ST keeping behaving recklessly, creating excesses, bubbles etc... They know when it all blows up the Fed and Washington will be there to bail them out.

The only way to fix is is to STOP baling them out.

The only way to get people to stop building in these high risk areas is to stop baling people out for risks that private companies are unwilling to shoulder. You can still live there if you want, just don't come looking for a handout if you know the risks.Even the most right wing congressman is going to come begging when it happens in their district. It is disingenuous to pretend otherwise.

[Clocker]

Even the most right wing congressman is going to come begging when it happens in their district. It is disingenuous to pretend otherwise.

So??? No rational person ever confused politics with principles. The basic fact is that the federal government has no business in providing insurance. The fact that people want insurance, that the government provides it, and that right wingers in Congress are as complicit in this scam as left wingers does nothing to make it right. It is pork, pure and simple, used to buy votes. And the involvement of politicians on both sides of the aisle is proof of the corrupting influence of this kind of pork.

[davew]

Why would they want to do that if they couldn't make money on it? If they had the money, why would they give it away to people that do stupid things?

All they need to do is increase the rates to match costs ( I do not know how bad they are losing - whether they need to increase 5%, 50%, 500%, 5000%) and then they would be break-even, which is what insurance is supposed to do across the board.

[Saratoga_Mike]

So??? No rational person ever confused politics with principles. The basic fact is that the federal government has no business in providing insurance. The fact that people want insurance, that the government provides it, and that right wingers in Congress are as complicit in this scam as left wingers does nothing to make it right. It is pork, pure and simple, used to buy votes. And the involvement of politicians on both sides of the aisle is proof of the corrupting influence of this kind of pork.

You're the radical for making this statement - amazing.

[TJDave]

The basic fact is that the federal government has no business in providing insurance.

What's your opinion on the FDIC?

[Clocker]

What's your opinion on the FDIC?

It can be handled by the private sector with appropriate strong banking laws.

[classhandicapper]

All they need to do is increase the rates to match costs ( I do not know how bad they are losing - whether they need to increase 5%, 50%, 500%, 5000%) and then they would be break-even, which is what insurance is supposed to do across the board.

My guess is that the right price is so prohibitive (including trying to reinsure to mitigate the risks) that it's not viable. Otherwise they would be doing it.

If you can reinsure for things like earthquakes, tsunamis, hurricanes etc... in high risk areas you could reinsure for floods...except if the probability is so high only a dimwit would build there and expect the government to rebuild after the near certain flood.

[davew]

My guess is that the right price is so prohibitive (including trying to reinsure to mitigate the risks) that it's not viable. Otherwise they would be doing it.

If you can reinsure for things like earthquakes, tsunamis, hurricanes etc... in high risk areas you could reinsure for floods...except if the probability is so high only a dimwit would build there and expect the government to rebuild after the near certain flood.

Maybe they need buy-outs like if I total my car and want to keep it. The comprehensive is no longer included. Then the dimwit can decide if they want to live in the floodplain and have the mortgage paid or give it up and move somewhere safer.