A Few Ideas About Flood Insurance

December 23, 2013

Last week we set a framework for discussing flood and natural disaster insurance. This week we would like to pose some questions and some ideas that might be worth exploring.  Please keep in mind we are not saying “Here is the solution!”  We simply want to provoke thought with a format for discussion.  Please feel free to chime in by writing a letter to the editor.

During the 2012 primary we heard it suggested that there should be a national disaster insurance program that covered not only floods but also windstorms and earthquakes  perhaps even managed similar to FDIC insurance for banks.  So we got to thinking, if a policy covered more than one peril wouldn’t it eliminate the problem of the flood insurance companies claiming damage was done by windstorm and the windstorm companies saying it was caused by flood?  This might also broaden the pool of people interested in purchasing “natural disaster insurance” and as a result help keep premiums lower. 

In Texas the people in non-coastal communities don’t want the state to subsidize coastal storms.  But with a broader coverage would the people in Dallas -- who have hail storms on an annual basis -- be interested in an insurance policy that covers them and also covers storms that make landfall on the Texas coast every 10-15 years?  Would the folks in Kansas who have tornadoes or the Californians who have earthquakes every twenty years or so, be interested in insurance if doing so kept their premiums more reasonable?

What if we limited expenditures from national disaster insurance to the amount of coverage purchased?  If a person bought $100,000 worth of coverage but had $150,000 in damages, the maximum he or she would receive is $100,000. 

What if we limited attorney’s fees in any natural disaster insurance lawsuits and settlements?  One of our local state representatives received millions of dollars from windstorm settlements he handled.  Every dollar paid to attorneys is one dollar less that’s available to pay claims.  

Unlike Obama’s health insurance, what if the purchase of natural disaster insurance was voluntary?   Mortgage companies might require such coverage in order to get a loan, but the government must be prohibited from requiring homeowners to purchase the insurance. 

We have all heard the stories of people who had no insurance getting their properties rebuilt by FEMA at taxpayer’s expense. What if we prohibited the government from giving such subsidies in the aftermath of natural disasters to those who chose not to purchase insurance?  This is not hardhearted, it is how insurance works, only those who purchase a policy can be covered by the policy.  We all know that government doesn’t have a “heart!” So why should it be the dispenser of “charity” to those who chose not to purchase the insurance?  And why should those who chose not to have insurance get a free ride if those who have worked hard and prepared for such disasters pay the full freight?

We’ve all heard about the Federal government “raiding” the Social Security trust fund.  What if we made it a criminal offense, with personal liability, for government officials to spend any funds collected from natural disaster insurance premiums for anything other than running the program and paying for insured losses?  What if we also made those responsible for the fund civilly liable for any misuse of funds?

We will continue this discussion next week, so stay tuned!

John, Mark and Bill