There has been much discussion on this blog and elsewhere about whether to rebuild severely hurricane-damaged areas so people can live there again, and who should assume the risk for doing so. This lawsuit by the government of Mississippi doesn’t bode well for sensible decision-making about rebuilding. One possible scenario that occurred to me: Insurers will flee Mississippi, leaving homeowners without any coverage. Once people can’t get their homes covered, they’ll start clamoring for the government to be the insurer of “last resort” for homeowners in the state. The end result will be total socialization of homeowners’ insurance, with a state-run insurance apparatus even more massive than the current flood insurance program. Such a program run by the government, with no rational relationship between costs, risks, and the ability to get coverage, could well end up creating even more perverse incentives to settle in flood-prone areas.
Source link: http://archive.mises.org/4100/government-vs-insurance/