September 1, 2017
Time to Mandate Flood Insurance?
by Bill Wilson
We should abolish the NFIP and mandate property coverage by all owners and tenants in property, auto and other policies.
According to this article, only 15% of homeowners in the Houston area have flood insurance:
“As of August 2016, just 15% of the 1.6 million homes in Harris County, where Houston is located, had flood insurance, according to emailed data from the Insurance Information Institute, and only 28% of the homes in ‘high-risk’ areas for flooding.”
See also: Hurricane Harvey: A Moment of Truth
We all know the reasons why people don’t buy flood insurance. They think, “It’ll never happen to me.” It’s too expensive. They don’t have to. They don’t know they need it. Or, they’re told they don’t need it in idiotic articles like this one that can be found plastered all over the internet:
“Unless you live in a flood plain or an area with a history of water problems, don’t even bother buying flood insurance. If none of the homes in the area has ever been flooded, yours is unlikely to be the first.”
Last month, in a blog post about healthcare, I raised the issue of whether we should explore an alternative system to how we currently insure catastrophic exposures to loss:
I’ve opined for years that we should abolish the National Flood Insurance Program (NFIP) and windstorm pools, mandate property coverage by all owners and tenants and include flood and windstorm damage in standard homeowners, commercial property, auto and other policies. Minimum and maximum catastrophe loadings could be established so that there is some degree of subsidization in more risky areas. CRITICAL, though, would be mandated loss control measures, including zoning restrictions, building codes and so forth. Loss prevention and reduction would be absolutely necessary components of an insurance program, as they should be now.
The reality is that, unless the risk of loss is almost definite or coverage is mandated, people simply will not buy the coverage. And if the risk of loss is high, the cost of insurance is either unaffordable or results in adverse selection and repetitive losses. While the focus today is on flood, this holds true for other catastrophic exposures like earthquake.
Is this doable? Should property insurance be mandated and include catastrophe premium loadings similar to civil disorder charges applied in the late ’60s? Can the risk of loss be spread enough that the private sector can manage it? Can commerce and governments work together to invoke loss control measures to mitigate loss to manageable levels? What are the issues? What are the obstacles? Can they be overcome?
See also: Harvey: Tips to Avoid Claim Issues
Your comments are welcome below. And, please, no political rants, just rational and respectful arguments, points and counterpoints.