> They're such high risk, that no actuary will quote them a reasonable price.
That makes sense. There is such a high chance of the insurer losing out on flood insurance money, that no one would want to buy flood insurance.
> Private insurers are unapologetic about this: The prevailing thought is, when nature strikes, the government must bail people out.
> ...the "free market" doesn't work properly when it comes to flood plains...
Let me get this straight. The author states that the free market fails when it comes to flood insurance, but in the next breath states why government is the problem. Private insurers can't possibly compete with a free service provided by taxation. If the government wasn't guaranteed to bail people out, then they would probably buy flood insurance in droves (or leave because, like the author said, it's expensive to live in a high-risk area like a flood plain), therefore driving the cost down. All of this could happen without government intervention. Furthermore, so many people have moved there because government intervention prevented the price system could not reflect the high risk of floods.
I really don't see how to author can blame the free market for the lack of flood insurance when it is the government mucking up the price system.
No, the point is - flood insurance (on a floodplain) is so expensive people simply don't get it. You can say people should leave if they can't afford it, or they should suck it up and buy it, but it's not going to happen. The USA has the same problem - you couldn't get people to move from New Orleans (until they were actually washed away), San Francisco (an earthquake zone) or Seattle (there's a massive tsunami waiting to go off there any time in the next millennia).
People are stupid. They settle in dangerous areas, then the government will be forced to bail them out. It's not 100% efficient, but the alternatives (letting people suffer, or draconian regulations like compulsory flood insurance or strict zoning laws) aren't politically acceptable. And the costs of the government insuring people just isn't so high that it's completely unacceptable - especially when you consider the economic cost of them not covering people (e.g. homeless people clogging up emergency rooms because they couldn't get their cough looked at when it was simply a mild case of pneumonia).
People shouldn't have to evaluate the risk involved in living anywhere, that is the job of actuators. Their evaluation is presented to consumers through the price system.
If the government didn't bail out homeowners who didn't have insurance, then the risk would be reflected in the price of insurance, and a potential homeowner can then easily compare the utility of living in that location relative to the total cost of owning the home versus any other location. As I said, insurance companies don't even try to offer risky coverage like that because they are competing with bailouts based on compulsory taxation (they are competing with a "free" service). When the government interferes in this case, the consumer is falsely led to believe that the cost of living in that area is lower than it actually is, because they don't have to pay for insurance. Therefore, more people move there than can afford it, and more people need to be bailed out by the government when disaster strikes. It's a vicious cycle.
That makes sense. There is such a high chance of the insurer losing out on flood insurance money, that no one would want to buy flood insurance.
> Private insurers are unapologetic about this: The prevailing thought is, when nature strikes, the government must bail people out. > ...the "free market" doesn't work properly when it comes to flood plains...
Let me get this straight. The author states that the free market fails when it comes to flood insurance, but in the next breath states why government is the problem. Private insurers can't possibly compete with a free service provided by taxation. If the government wasn't guaranteed to bail people out, then they would probably buy flood insurance in droves (or leave because, like the author said, it's expensive to live in a high-risk area like a flood plain), therefore driving the cost down. All of this could happen without government intervention. Furthermore, so many people have moved there because government intervention prevented the price system could not reflect the high risk of floods.
I really don't see how to author can blame the free market for the lack of flood insurance when it is the government mucking up the price system.