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/
Government vs. insurance
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real fool!bush has to do sth. concerning nothing with economisc.
What? I think you’re trying to type a little faster than you’re capable of. Slow down a bit so the final product looks like English.
Most of the houses that are 5-9 feet below sea level were uninsurable and uninsured. The government picks up the tab.
Those areas need to me rebuilt with interlinked multistorey housing with parking & recreation space(Squash courts or dance halls) on the ground floors. Walk ways and shops on the top floors. The power, water and sewerage systems need to be sealed or put above sea level plus 4 feet. We could rebuild the houses as homes on floating foundations anchored between pylons. These move up with the water but don’t float away. Holland is using the technology and on the Amazon there are power stations, factories, etc built on big rafts. The technology is roughly 3000 years old.
Oops typo
Most of the houses that are 5-9 feet below sea level were uninsurable and uninsured. The government picks up the tab.
Those areas need to be rebuilt with interlinked multistorey housing with parking & recreation space(Squash courts or dance halls) on the ground floors. Walk ways and shops on the top floors. The power, water and sewerage systems need to be sealed or put above sea level plus 4 feet.
We could rebuild the houses as homes on floating foundations anchored between pylons. These move up with the water but don’t float away. Holland is using the technology and on the Amazon there are power stations, factories, etc built on big rafts. The technology is roughly 3000 years old.
I think “all insurance is by its very nature Socialism in practice because it removes individual responsibility and makes it a group responsibility, but if entered into freely and run by market forces then it is a consenting Socialism, otherwise known as gambling.”
Water damage is covered, IIRC, unless the water was flowing on the ground. For instance if your window is broken by wind and then rain enters your home, you are definitely covered.
Yet, there are second-rate insuance companies (or their representatives) who try this sort of thing. The state of Mississippi is doing the right thing.
Yes, “wind driven rain” is covered, and yes, some “second rate” insurance companies may try to sneak around this. The problem is that the Mississippi AG is trying to browbeat State Farm et al into paying for damages that were in NO WAY covered, such as storm surge. Its insane. If he wins (he probably won’t) there won’t be a single reputable insurance company willing to write business in the state.
BTW, an insurance market that is “semi-socialized” is Florida’s. There is a state-run company called Citizens Property Insurance that insures houses that are essentially uninsurable at rates, while higher than the highest market rate, are still unprofitable. Another pool of dollars, the Florida Cat Fund, provides a first layer of reinsurance for homeowners’ insurance companies in the state. After the 2004 Hurricanes (where the state fund took a huge hit) the state restructured the fund to make the private market more exposed. As a result, Allstate, Safeco and other companies are pulling out of the state or radically scaling back. Most of the state is essentially a large-scale version of New Orleans. Essentially, the only way that a condo gets built in Miami is if a taxpayer in Orlando subsidizes the insurance premium.
I find the triumphalism of statists’ very disturbing, as they crow about how “of course” New Orleans is going to be rebuilt, bigger and better than ever. America is a rich country, but its government didn’t have a balanced budget before this disaster, it won’t have one anytime soon. I haven’t seen one shred of economic analysis attempting to prove that pouring tens of billions more dollars into that muskrat hole in the bayou is an investment that’s going to pay off.
I can see the demands for pork and welfare spreading from New Orleans to the rest of the south, and throughout the country. Wherever there is a city or region which is failing due to socialism, the failure will be turned into a demand that federal taxpayers should “do something for us too”.
Actually there is one tiny ray of hope, that your dimwitted socialist of a president may not get his way entirely: G.O.P. Split Over Big Plans for Storm Spending
Or maybe I’m wrong, and Bush will be able to buy off the dissenters by starting their own constituents’ “Marshall Plan” that much sooner.
I think that Bush will go down as the most expensive lame duck in American history. At least Bill Clinton mostly confined his legacy-building to rather inexpensive forays into Middle East diplomacy.
After reading the WSJ article on the same topic 9/16/2005, (C1); I confess to being too focused on Mr. Hood’s remarks.
Given that the Mississippi Department of Insurance approved the policy forms, Mr. Hood’s suit shouldn’t have a leg to stand on.
Hi Bernard:
I prefer to think of insurance simply as a service; like a service contract for my washing machine. If an insurance provider and i freely enter into an insurance contract in an unhampered insurance market then we are merely two free market participants. That insurance spreads and reduces the severity of risks to any given individual in the manner it does, has no bearing on it being socialistic. Socialism entails the coercive use of force by the state for whatever purposes it has, including the redistribution of wealth. No services provided on the free market including insurance have any similarity to that.
Also, the acquisition of insurance strikes me as the counter to gambling. For instance if i did not insure my house against fire, it would be one of the greatest gambles of my life.
Finally, i also don’t see gambling (if I understand your meaning of it) as socialistic because, again it is activity freely pursued by the participants. It’s either a pure leisure or free market activity.
Hello Paul,
Sure, insurance is a service because it helps relieve anxiety. Say in your area there are 100,000 houses, divide that by how many houses are burnt down each year and you have the odds for your chances of ‘winning’ the insurance lottery. That’s what actuarys and race bookmakers do I thought, then just add the profit margin. If you knew what those odds were you might be inclined to forgo insurance but you can’t if you own a mortgage because it’s a compulsory part of the loan. You have no choice if you want to own a home and you don’t have the money to pay for it outright. Socialism I thought took away choice and made your decisions for you. Indemnity insurance is compulsory insurance because it is an insurance you must have because Socialism made everyone responsible for everyone else. It would be interesting to see what these ‘compulsory’ insurance costs towards the building industry, I ‘bet’ it is more than half. Maybe more people could afford to buy their house outright if it wasn’t for all the insurance for everything. Everybody responsible for themselves, what a novelty.
Isn’t it already the case with the state-run auto insurance?
Hi Bernard:
The truth is, i don’t ever expect my house to burn down, but i do realize it is a small possibility. Even if i owned the house free and clear, i would still insure it because i can afford to, but i cannot afford to replace it with my own funds without suffering a huge financial setback from which i could not recover. I don’t quite view the burning down of my insured house as winning an insurance lottery. But i can see how that is one way to view it. The fact that the mortgage company requires fire insurance is ok with me because it was part of our contract which i freely entered into, and secondly, i can see the logic of it. If the uninsured house burns down, the value of the mortgage outstanding may be higher than the value of what is left of what was bought with it. That’s an unwise position for a lender to allow himself to be left in.
Again if you buy a car by installments than you have to insure it otherwise you don’t get the loan. Because accidents are no longer accidents then if someone hits you usually they have to pay both yours and their own insurance but if accidents were accidents then you would pay for your repairs and they theirs. Third party auto insurance as with public indemnity insurance are feeding troughs for trial lawyers usually working in conjunction with the insurers. They win a greater amount, the premiums go up to cover it. So the people who never have accidents always pay for those that do. Perfect Socialism. Everybody paying for some one else.
“Trial lawyers supposedly now take home over 2% of the US GDP which equals over $200 billion a year, roughly the same amount it costs to run the whole justice industry minus them. Apparently they virtually control the US Senate because as a group they are the single largest contributors to the senators re-election bank accounts. It appears they are splitting the spoils of their successful litigations with these senator’s, many of whom themselves are ex-trial lawyers, thus ensuring the system stays profitable for both groups. This situation will last forever as long as the US government is run predominately by lawyers for lawyers and sound economics is ignored.”
I think insurance is a big part of the backbone of Socialism, from Social Security to compulsory insurance for car and house loans to Medicare. It stops everyone being responsible for themselves and the lawyers the doctors and the politicians benefit the most from Socialism. Even the War on Drugs is a Socialist program. It keeps millions employed stopping others doing what they want to their own bodies, and who pays for that non-productive work?
Sorry Paul I missed your entry , I was busy writing my own missive. I agree it would be an unwise position for a lender to be in especially if they could increase their profit by having a compulsory insurance attached to the loan. I just loath compulsory insurance, it inflates the cost of everything. My arguement is that insurance is probably actually a vein of communism that runs through the heart of Socialism. It’s dependent on communal participation and fear and not the user pays system. If the cost of your house was not so high you probably would not insure it. When did people turn to insuring their houses? When they became expensive. Why did they become so expensive? Was it anything to do with government charges and the tighter release of building land? Its not that long ago that both houses and land were cheap until Socialist governments became profit seeking land sellers. Now everyone who bought a house in the last ten years has a house that is massively overvalued and to try and keep that over valued property safe we take out expensive insurance to that valuation. But nothing will save it when the correction comes, we lose it all anyway, fire or no fire.
The State of Florida once had a similar situation with insurance companies not wanting to pay up or canceling policies after paying up. The Govenor at the time after Hur. Andrew, told those insurance companies that they could no longer sell any policies in the State of Florida, not just homeowner policies, but car, life and health. Needless to say, 90 days later they were all back wanting to write thos policies. Maybe Mississippi needs to do the same.
Bernard,
Compulsory insurance is, of course, socialism; insurance as a concept is not. The insurer may seek to tie the premium to the risk, which improves the chance that the insured takes some responsibility. A home above sea level would call for a lower rate than one below sea level, reducing the incentive to build below sea level. When the individual chooses to purchase or build a home below sea level it is with the knowledge of the increased risk and associated cost.
Discarding a concept because it is twisted by the state’s involvement is to “throw the baby out with the bathwater.”
It is actually worse than I suspected. The feds in these cases VOLUNTEER our money to help the victims of both man-made and natural events.
This is very disturbing. Why pay for flood insurance when Bush 2 will allow you to buy it after the flood. Why buy extra home insurance or property insurance.
So 100 senators, 435 congressmen and 1 president make up the largest casualty, property and (After Sept 11 2001) life insurance company in the world.
The problem here is that we are going to have future disasters made worse by government stupidity that forces government to pay through the nose for that stupidity.
William — by “volunteering” our money the government merely increases the overall flow of resources through itself, thus increasing opportunities for the goverment apparatchicks and their friends to steer some of that flow towards themselves.
Insurance is not socialism. Insurance is the management of risk. I join with other folks to pay a fee slightly greater than the overall risk of a “bad” event happening. It is simple capitalism at its best.
It is a hosed up legal system that makes insurance socialistic. It is the volumes of law constraining the contracts insurers can write. For example, I have to have mental health coverage on my health insurance. That is required by law despite the fact that I may want to handle the risk of mental illness out of pocket.
Making matters worse is Bush giving out for free or very low prices insurance on health, prescription drugs, property, casualty, oil prices(the strategic petroleum reserve) etc.
bast site
http://www.superinsurancesite.org/
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