A story in the Washington Post says that many private insurance companies are withdrawing from coverage of coastal and earthquake-prone areas due to revised risk assessments. This means homeowners are switching to insurance plans subsized by state governments.
The insurers, the state governments, regulators, and some academics are calling for more federal subsidies for state and private insurance.
The right policy is instead for federal and state governments to withdraw entirely from providing or subsidizing disaster insurance. Any new federal involvement is particularly insane. It will further encourage homeownership in areas prone to disasters, and it will create major financial liabilities for the federal government. The taxpayer will ultimately pay the costs when future Katrina-like events occur.
Let homeowners pay the full cost of private insurance if they wish to live in disaster-prone areas. Only then will homeowners appropriately balance the benefits againsts the risks.