Disaster Insurance

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.

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The Federal Emergency Management Agency, or FEMA, is an agency of the United States Department of Homeland Security, initially created by Presidential Order on 1 April 1979.

The primary purpose of FEMA is to coordinate the response to a disaster that has occurred in the United States and that overwhelms the resources of local and state authorities. The governor of the state in which the disaster occurs must declare a state of emergency and formally request from the president that FEMA and the federal government respond to the disaster. FEMA also provides these services for territories of the United States, such as Puerto Rico. The only exception is when an emergency or disaster occurs on federal property or to a federal asset, for example, the 1995 bombing of the Alfred P. Murrah Federal Building in Oklahoma City, Oklahoma, or the Space Shuttle Columbia in the 2003 return-flight disaster.

While on-the-ground support of disaster recovery efforts is a major part of FEMA's charter, the agency provides state and local governments with experts in specialized fields and funding for rebuilding efforts and relief funds for infrastructure, in conjunction with the Small Business Administration. FEMA also assists individuals and businesses with low interest loans. In addition to this, FEMA provides funds for training of response personnel throughout the United States and its territories as part of the agency's preparedness effort.

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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.