Monday, July 02, 2007

Yet again: Idiots using our tax dollars

Yet another example of how government-run programs only lend themselves to more headaches and inefficent spending, is the National Flood Insurance Program. Basically, since insurance companies have to charge extremely high premiums in flood-prone areas due to the risk that multiple homes will be demolished after a flood, homeowners insurance does not include flood coverage. So, the government stepped in with the NFIP. However, the goverment has no idea how to plan for the risks they are taking. They do not have sufficient reserves to cover future claims, and they can't raise premiums since it's now a political issue. Hurricane Katrina left the NFIP in billions of dollars in debt, so finally, the House has decided to do something about it and just passed reforms.

There are some positive outcomes like premiums charged must be 'actuarially sound' so that the NFIP can actually build up a reserve. Also, they will place a penalty on mortgage lenders who fail to require flood insurance in high-risk areas.

This is all well and good, but the NFIP still has billions of dollars in debt to repay, and there is still zero incentive for anyone to buy flood insurance since the governments kicks in through disaster relief. Also there is no mention of what seems to be most problematic and crippling, the vicious cycle of repeated flooding in coastal areas. You'd think there would be someone over there that would address this issue before another Hurricane Katrina hits.