I’m immersed in the history of insurance regulation these days. What was that? Oh, yeah, it’s hilarious and stuff. Good one.
Anyway, know what’s striking about the history of insurance regulation? Let’s quote Bastiat:
The State is the great fiction through which everyone endeavours to live at the expense of everyone else.
Insurance is brutal: everyone thinks that they can screw someone else over indefinitely. Consumers do it, insurance companies do it, the government does it.
Take the National Flood Insurance Program. Here’s a report from the Government Accountability Office:
Why GAO Did This Study
The National Flood Insurance Program (NFIP) has been on GAO’s high-risk list since 2006, when the program had to borrow from the U.S. Treasury to cover losses from the 2005 hurricanes. The outstanding debt is $17.8 billion as of June 2011.
17.8 billion with a ‘b’. All because nobody will bother to do either of these things:
1. Move out of flood zones.
2. Pay enough for insurance to cover the cost of repairing flood damage.
Realistically this is a risk that is too costly to insure for most. If your house costs $100,000 and you annual insurance policy is $10,000, what’s the point?
But how did the government get involved? Get this: FANNIE And FREDDIE! A timeline from my notes:
1973: Flood disaster protection act is passed for owners of properties who had mortgages from federally regulated lenders.
1994: National Flood Insurance Reform Act strengthened mandatory purchase requirement for owners of properties in flood zones and with mortgages from federally regulated lenders.
2004: Bunning-Bereuter-Blumenauer Flood Insurance Reform Act authorized grant programs to mitigate properties that experienced repetitive flood losses. Owners that did not mitigate *could* face higher premiums.
They vacillate between statist coercion and open market reforms. But we’re at 17.8bn now and private capital is the only way out of the mess.
It’s a dizzying spiral of interlocking regulations and market distortions that press down on our economy. If only, like before, it were strong enough that we didn’t care.