Hurricanes Happen

The first thing you should know about the homeowners' insurance bill recently approved by the Florida legislature is that it passed almost unanimously, with the governor's enthusiastic support. Naturally, it's a reckless boondoggle. After Florida was hit by eight hurricanes in 2004 and 2005, accompanied by forecasts of more to come, homeowners were hit by steep premium hikes. Legislators and Charlie Crist, now the governor, promised to Do Something, which turned out to be a guarantee that the state would help cover future losses coupled with a requirement that insurers cut their rates. The upshot is modest savings for policyholders now at the cost of big surcharges in the future, when the state's Hurricane Catastrophe Fund will be tapped out and everyone with insurance (any kind, not just homeowners' coverage) will be forced to cover the deficit. This is an even less artful scam than Social Security, since the winners and the losers will be, by and large, the same people. In the event of a really big disaster (or series of pretty big ones), the losers could include taxpayers throughout the country, since no president is likely to tell Florida to drop dead if its government appeals for federal help in covering property losses.

Not surprisingly, the president of the Insurance Information Institute is not keen on the new price controls. But he makes a lot more sense than the governor and the legislature when he suggests that, rather than look to the government to "legislate away the real, formidable risk of hurricanes in Florida," residents should stop building so much in areas that tend to get wiped out by hurricanes. This is the message high insurance premiums are sending, a warning the government is trying to mute.

[Thanks to Marc Roston for the tip.]

Comments

Andrew | January 24, 2007, 12:15pm | #

Honestly, this is one of the times I'm happy with government intervention.

The insurance companies, years back, decided that they were going to abandon what insurance is supposed to be -- spreading the risk; so if there's a hurricane in Miami or an earthquake in San Francisco or a tornado in Dallas, the "hit" can be absorbed from a monetary POV and rates change little. So they set up state-specific susbsidiaries in high-risk areas, including Florida. Which worked for a while, since the period until 2004 saw little in the way of huge, catastrophic storms, and what there was was spread out by several years. But then you get 2 years like 2004-2005, huge payouts, and all of a sudden rates are going up 500% in some cases in a two-year period.

And I'd disagree with the high-risk areas... in my neighborhood, which is as inland as you can get in the state of Florida, where the houses are built far exceeding the state's building code, and where (despite being near the hardest-hit areas) the worst damage from Hurricane Wilma was one house that lost about 10 roof tiles, rates are still increasing 50%+ per year. Unless you mean completely closing down South Florida and bulldozing it all. That I'm in favor of.

Florida had to do something. The economy of this state is on the verge of completely collapsing. I'm planning on getting out of here as soon as I can find a job elsewhere (anyone need a corporate attorney?). Florida's suffering negative population growth for the first time since.... ever, as far as I know. Why do I live here again?

carrick | January 24, 2007, 12:33pm | #

The insurance companies, years back, decided that they were going to abandon what insurance is supposed to be -- spreading the risk; . . .

What insurance companies are supposed to do is generate profits for their stock holders.

J sub D | January 24, 2007, 12:36pm | #

Lessee, if I live in an area very prone to natural disasters, insurance companies will charge me more than if I live in an area less prone to property destroying natural disasters.

That is so unfair. I should be able to live where I want and have other people pick up the tab for my decision. That goes double if I'm wealthy and own coastal property.

Madpad | January 24, 2007, 12:38pm | #

I'm both with and not with Andrew.

I live in Florida as well, but in an areas thay almost never gets hit. The current debate up here is "why are we getting stuck with the bill for people living in more hurricane prone areas?"

I agree that something had to be done. But I disagree with providing an incentive for insurance companies to bail or make the state pick up the tab.

End Result? I'm paying more whether it's a higher insurance premium or higher property taxes (something Crist has also pledged to lower.)

I would have preferred a market-based solution that reduces the risk to insurance companies. For instance providing lower premiums to people and cities that promote better building standards, restrict building on flood planes and breaks for people who buy flood insurance ovr & above.

swillfredo pareto | January 24, 2007, 12:38pm | #

The insurance companies…decided that they were going to abandon what insurance is supposed to be -- spreading the risk

So if I build a concrete bunker on a hill in Gainesville I should be paying the same premium as the guy who builds a stick house on Key West? All that does is create a gaping moral hazard that destroys people’s incentive to make rational choices. It removes the financial benefit of building inland and removes the financial consequences of building on the coast. The idea is for people of equal risk to share premium rates not for everyone to pay the same rate. There is not homogeneous risk for every square foot of the state, people should be paying different premiums.

The whole thing played out according to script. For the last couple of decades the state stifled competition in insurance and refused to let carriers charge people who build in hurricane and flood-prone regions for their true risk. Carriers raised the rates as much as they were allowed, gradually stopped writing policies for these high-risk areas and shifted the cost to lower-risk communities. The population finally mustered its economic ignorance as one and demanded that the state repeal the laws of supply and demand and start providing insurance below the rates required to be solvent. The state has now ordered insurers to reduce their rates if they want to do business in Florida and will take the money that everyone saves in insurance premiums today and use it to fund an insurer of last resort. Alternatively the will do nothing today, and once the insurer of last resort is depleted come hat in hand to the residents of Florida and the Federal Government and demand that the fund be made whole. Only in the Welfare States of America could this be considered success. Be prepared for the exact same process with national healthcare.

haywood's proxy | January 24, 2007, 12:40pm | #

Naturally, it's a reckless boondoggle.

Here’s the problem with Reason – when you guys consider any government program to be a de facto bad idea then you’ve kind of watered down your authority on the matter. Reason can’t be considered a useful source to evaluate the effectiveness of government because you assume from the get-go that government programs are ineffective.

So reading this, I have no idea if this hurricane program is a bad idea because it will produce poor results or if it’s a bad idea because it must be, it’s the government.

Dee | January 24, 2007, 12:51pm | #

Thats like saying you shouldn't build where there might be forest fires or earthquakes. The economy of the state and its negative population growth probably has something to do with all the elderly in Fl. They most likely have many tax exemptions so they take up a lot of space and resources but don't pay much into the system and of course they are not re-producing.

My company has a facility in Miami and I was considering a possible transfer (from La. another hurricane state). I noticed a unusal amount of positions open at the site and wondered why. I found out it is due to the fact that housing costs have nearly doubled in the area and now with the big insurance rate hikes people are leaving because they can not afford to live there at all. These are not fast food jobs either, these are folks in the pharmaceutical industry making good money. But the businesses are not upping the pay to offset these astronomical rate increases. So basically to stay they would be taking pay cuts in the thousands of dollars. I hope the insurance companies employee enough folks to pay all the taxes Fl. needs to operate because it is likely many will be moving away over time.

Here in La. we are having the same issue with rate increases, even as stated for areas that are not especially prone for damage from a storm. We keep hearing how if the Insurance Companies can't raise our rates they will not write anymore policies in the state. Mind you these are the same companies many were insured with before Katrina and who now refuse to pay settlements and are splitting hairs over the fine policy print coverage. My question is why would we even want insurers in this state if all they want to do is collect premiums and not cover any claims made, smells of a scam to me?

But again take into account that we had 3 count them 3 State Commissioners of Insurance in jail at the same time for taking bribes from these same Insurance companies for allowing them to raise our premiums rates. So if 3 in a row were doing this how much have we been overcharged through the years for insurance? Why have we not gotten a repeal on rates we pay since they are obviously only as much as they are now because of bribes.

Insurance I truly believe is the guiding force of the US's downfall in many areas. Why is medical care and prescriptions so expensive? Because insurance pays for it, but who pays for insurance? People pay thats who. What keeps rising 3-5 times faster than inflation, health costs and health insurance premiums.

In the end like EVERYTHING else the tax paying citizens pay for it all. Thus if the medical field thinks it can bleed insurance and insurance is then being bled so they claim they need to raise rates. Rates paid by regular people who don't get near the annual pay raises these folks want in premium increases. It will all come toppling down eventually I can already see it starting to happen. Once people can no longer afford insurance the medical field will no longer be able to charge so much and prices will drop. How else can you explain why 2 people going in for the same procedure end up with 2 different bills at the end. Its amazing to see what some procedures cost if your insured versus paying out of pocket. Literally those with insurance are charged 3-4 times more than if you walked in and paid cash, for the exact same procedure at the exact same facility by the exact same doctors. Tell me thats not a scam?

Francisco Torres Gamez | January 24, 2007, 12:57pm | #

Reason can’t be considered a useful source to evaluate the effectiveness of government because you assume from the get-go that government programs are ineffective.

There is nothing to assume - people who understand basic economics, they already know government programs cannot work, simply because of the calculation problem, a concept that was described by Ludwig von Mises. It states that government and socialist bureaucracies cannot employ resources efficiently or effectively since they cannot know the true costs of their activities or of the resources they are using, since they are not subject to the profit/loss test that the market imposes on producers.

Since there is no profit/loss test for government programs (and there cannot be one, due to the nature of bureaucracy itself), one can conclude a priori that a government program will NOT work.

You can read how the calculation problem becomes obvious in the way the government handled the Katrina disaster, here:

http://www.mises.org/story/1968

VM | January 24, 2007, 1:00pm | #

Wow - Haywood. You're on a roll today. You're up to three shots and a beer chaser in the drinking game rules.

But to nitpick a bit here:

instead of saying:
"Here’s the problem with Reason – when you guys consider any government program to be a de facto bad idea then you’ve kind of watered down your authority on the matter. Reason can’t be considered a useful source to evaluate the effectiveness of government because you assume from the get-go that government programs are ineffective."

You need to start with, "for a magazine called 'Reason, you sher don't behave with reason. Then continue.

I'll make sure you get a copy of that memo.

carrick: can you come up with anything more useless to say (given insurance companies offer service X, and in performing that service, they seek to maximize stakeholder/shareholder value)? Cuz if they only wanted to maximize value, they'd be in a business that maximizes better than insurance.

Merkins, for example!

Dee | January 24, 2007, 1:01pm | #

Haywood- "Reason can’t be considered a useful source to evaluate the effectiveness of government because you assume from the get-go that government programs are ineffective."


I think the whole point is that government programs have proven themselves time and time again to be ineffective. What part of I know what to do with my money for me better than the Government do you not understand? Or do you like letting the nannies do your care taking for a large administrative fee off each dollar your taxed? They can't give you shit until they take it from you or someone else first, why is this so hard to understand. the government has no money, makes no products and sells no goods. They take and re-distribute thats their whole gig.

If you really think government programs are effective then you should have no problem listing off say 10 of them that have come in on or under budget, on time and actually accomplished what it was intended to do without causing more problems in the process.

Surely out of the 1000's of programs you can name a few that are winners? I won't be holding my breath for your answer anytime soon!

Dee | January 24, 2007, 1:15pm | #

Bottom line on shareholders etc and insurance is that the Insurance companies are in the business of collecting premiums 1st and foremost and lastly to pay customers claims. They do not build all those high rise office buildings and sponsor college bowl games etc because they are not turning a profit. Just as Vegas wasn't built off winners neither are these insurers built off claim makers.

Considering they make no product their overhead is likely very low. What does it take to write a policy, a desk, some paper/computer thats about it. Big investment there huh!

Here is the kicker, Allstate (the good hands people) sponsored the Sugar Bowl in New Orleans. They are one of the many insurers that people in New Orleans had policies with and who are still fighting to get a claim paid 16 months later. Good hands for jerking you off perhaps. Allstate the good hands reach around people. Thats some nerve to promote your company in the very city that could be a poster child for why you would never want their insurance.

In some areas of coastal La. you can't even get a policy or if you could the rate would be so high you would be better off banking the premiums and hoping for the best.

jf | January 24, 2007, 1:17pm | #

"Charlie Christ"?

jp | January 24, 2007, 1:23pm | #

Wait a minute - You mean to tell me I've been reading a blog by libertarians that is generally OPPOSED to government intervention in people's lives? Shit, I thought this was cnn.com.

R C Dean | January 24, 2007, 1:31pm | #

Cuz if they only wanted to maximize value, they'd be in a business that maximizes better than insurance.

Actually, there may be no better business for maximizing shareholder value. Does Berkshire Hathaway ring a bell?

Dave B. | January 24, 2007, 1:32pm | #

Literally those with insurance are charged 3-4 times more than if you walked in and paid cash, for the exact same procedure at the exact same facility by the exact same doctors. Tell me thats not a scam?

This is a misconception. Insurance companies do not pay doctors the amount they're charged. They pay whatever fraction they feel like paying. Thus, doctors have to charge insurance companies several times the amount they wish to receive. Since doctors tend to want to help people, they don't do this to the uninsured. No scam, just trying to make a living.

haywood's proxy | January 24, 2007, 1:35pm | #

There is nothing to assume - people who understand basic economics, they already know government programs cannot work, simply because of the calculation problem, a concept that was described by Ludwig von Mises. It states that government and socialist bureaucracies cannot employ resources efficiently or effectively since they cannot know the true costs of their activities or of the resources they are using, since they are not subject to the profit/loss test that the market imposes on producers.


Of course, it could just as easily be said that the market has been shown to do such a lousy job of distributing wealth that government programs are necessary to make corrections. The reason countries like the United States have succeeded is because we’ve allowed the market to generate wealth and the government to distribute a portion of it where it’s needed.


Since there is no profit/loss test for government programs (and there cannot be one, due to the nature of bureaucracy itself), one can conclude a priori that a government program will NOT work.


Only if you assume that the purpose of a government program is to earn a profit. Which it’s not – the government is not a business and therefore should not be judged in the same way a business is.

Obviously there’s a cost involved when redistributing wealth – citizens have to decide if the cost is worth it.

Huh | January 24, 2007, 1:39pm | #

VM - you are on a roll today. So many posts and not one opinion of your own that some prick can disect. I'll tell you three things that will help there, buddy. 1) think of your opinion 2) type it 3) let other people read it.

trust me, if your opinions are that good, the smart people around here will notice.

haywood's proxy | January 24, 2007, 1:40pm | #

If you really think government programs are effective then you should have no problem listing off say 10 of them that have come in on or under budget, on time and actually accomplished what it was intended to do without causing more problems in the process.

Surely out of the 1000's of programs you can name a few that are winners? I won't be holding my breath for your answer anytime soon!

There are plenty of examples of effective government programs – Social Security, Medicare, Medicaid, the EPA, the SEC and other regulatory agencies, etc.

By effective, of course, I don’t mean they’re perfect. But they address problems that the market itself cannot address at all.

Pi Guy | January 24, 2007, 1:42pm | #

Good hands for jerking you off perhaps. Allstate the good hands reach around people.

That's hilarious!

Cab | January 24, 2007, 1:42pm | #

haywood's proxy - are you by chance related to a guy named Dan T. ?

Larry A | January 24, 2007, 1:45pm | #

The insurance companies, years back, decided that they were going to abandon what insurance is supposed to be -- spreading the risk; . . .

Actually, insurance companies haven't been able to "decide" anything for a couple of decades. Insurance is one of the most heavily regulated businesses in existance. In many states, including Texas, where I live, state agencies both dictate what will be covered and set rates for that coverage.

Thats like saying you shouldn't build where there might be forest fires or earthquakes.

Bingo. Or build fireproof houses and clear the brush around them. If the government will let you.

Here in La. we are having the same issue with rate increases, even as stated for areas that are not especially prone for damage from a storm. We keep hearing how if the Insurance Companies can't raise our rates they will not write anymore policies in the state.

If insurance companies write policies where on average settlements are larger than premiums they go out of business. If they go out of business it doesn't matter how low the premiums are, there are no more settlements and policyholders are effectively uninsured.

And insurance companies are raising rates statewide because under Louisiana law that's the only way they can raise them.

Mind you these are the same companies many were insured with before Katrina and who now refuse to pay settlements and are splitting hairs over the fine policy print coverage.

Most of that fine print is mandated by state law. The insurance companies are merely following the laws passed by the legislature.

Many of the policies where payment has been denied apply to buildings which were flooded. Insurance companies don't cover flooding because the government has set up its own flood insurance program, and kicked the private companies out of the market. Unfortunately many of the people in Louisiana didn't purchase the government insurance, or didn't maintain those policies. Therefore they aren't covered. Now they expect their insurance company, out of the goodness of their heart, to pay claims for which they have paid no premiums.

Why should insurance companies bankrupt themselves paying settlements for losses they are barred from covering?

My question is why would we even want insurers in this state if all they want to do is collect premiums and not cover any claims made, smells of a scam to me?

My question is why would we even want government in this state if all they want to do is collect taxes and not solve any problems, smells of a scam to me?

But again take into account that we had 3 count them 3 State Commissioners of Insurance in jail at the same time for taking bribes from these same Insurance companies for allowing them to raise our premiums rates. So if 3 in a row were doing this how much have we been overcharged through the years for insurance? Why have we not gotten a repeal on rates we pay since they are obviously only as much as they are now because of bribes.

Why have the people of Louisiana not fired the government that led to this level of corruption and deregulated insurance rates and policies so competition can provide fair rates?

Neil Paul | January 24, 2007, 1:46pm | #

Good Lord.

Of course insurance costs more in areas of high claims. Of course insurers look to what the policy actually covers in deciding to pay or not pay claims. The problem is largely that insurance is mandatory, risk pool areas are dictated by beurocracy and folks have the dumb idea in their heads that "insurance" means "affordable."

Insurers should be allowed to draw their own maps. This would result in some property in Gainsville being insured cheap and some in Key West being horrifically expensive. Result? More houses in Gainsville and fewer in South Fla. The problem? Governments always want to subsidize "growth" regardless of if that growth is a good long-term bet or not. Turns out that the sexy growth areas of Florida are also the hurricane areas. This would be too bad for developers except government wants to step in and smooth out the meteorological reality on their behalf. Now everyone in Fla is throwing down big bets on the weather. Ultimately all americans back this gambling with only the few residents of these areas reaping any immediate benefit.

Privatize the benefits, socialize the costs, blah, blah, blah.

carrick | January 24, 2007, 1:56pm | #

carrick: can you come up with anything more useless to say . . .

probably

But going back to the original statement:

The insurance companies, years back, decided that they were going to abandon what insurance is supposed to be -- spreading the risk; . . .

If insurance companies are offering a service it to generate revenue to create profit. I seriously doubt they offer insurance just to meet some noble goal.

As far as spreading risk around. I live in the upper midwest where house are occasionally wiped out by a tornado. My neighbor and I have roughly the same risk for a catestrophic loss of our homes due to a tornado. But even if a tornado comes through it is not a certainty that both of us will suffer a catestrophic loss. And it is highly unlikely that the home owners over the hill would be affected if my house blows down.

So the insurance company can easily distribute the risk of tornado taking out houses over the homeowners in my zip code.

In Florida, however, a hurricane is very, very likely to wipe out hundreds if not thousands of houses at the same time. It is not really possible for the insurance company to spread the risk over a population of people who have similar risks. For an insurance company this is a very bad thing.

Now for those poor unfortunates that own homes in Florida to suggest that their risk of catestrophic loss should be shared by me up in tornado zone . . Well that's not insurance, that's just redistribution of wealth to meet social engineering goals.

Madpad | January 24, 2007, 2:04pm | #

Reason can’t be considered a useful source to evaluate the effectiveness of government because you assume from the get-go that government programs are ineffective.

haywood, I'm not a typical libertarian in that I don't automatically hate government programs just because they're government programs. But as Floridian, I have a problem with this plan because it is fiscally unsound.

It forces premium cuts while increasing the opportunity for the Florida Government to get deeper into the insurance business.

What does this mean? The prospect of lower premiums is offset by the potential for higher taxes. There are better ways to acheive the desired goal and the method chosen was not one of them.

lunchstealer | January 24, 2007, 2:14pm | #

Can't we just institute a 'for christ sakes, your castle will just keep sinking into the swamp, so stop re-building it' tax on coastal towns that have been wiped out by hurricanes? Something like 1/5 of the total value of the house and any other assets stored at the house per year? That might cover it.

haywood's proxy | January 24, 2007, 2:18pm | #

haywood, I'm not a typical libertarian in that I don't automatically hate government programs just because they're government programs. But as Floridian, I have a problem with this plan because it is fiscally unsound.

That's fine, it very well be a lousy program.

My point was kind of a general one - Reason is not likely to give a fair evaluation to any government initative.

swillfredo pareto | January 24, 2007, 2:31pm | #

Insurance companies do not pay doctors the amount they're charged. They pay whatever fraction they feel like paying.

Sorry if I am feeding a troll but you don’t seriously believe that is the way it works do you Dave B? If the insured is covered under some variation of managed care the insurance company and provider have fee schedules or capitation rates that obviate any urge to “pay whatever fraction they feel like paying.” If it is straight indemnity coverage then the insurance company pays at a pre-determined maximum percentile of Reasonable & Customary rates, and if the Doctor wants more he can explain to the insurance company why he is worth more or the insured can pick it up. Either way this is all spelled out in the contract long before the first claim is filed. It is a game, and the doctors and insurance companies are both doing great.

Dee | January 24, 2007, 3:48pm | #

Haywood- "There are plenty of examples of effective government programs – Social Security, Medicare, Medicaid, the EPA, the SEC and other regulatory agencies, etc.

By effective, of course, I don’t mean they’re perfect. But they address problems that the market itself cannot address at all."

To funny you are Haywood you should be a standup comic. You named 5 programs and I hardly think any of them fit the criteria I asked for when giving your list.

SS - PLEASE! Pyramid Scheme, otherwise if it was so great why aren't all the Federal workers paying into it as well. There is something to be said about a entity that doesn't involve itself/employees in what it mandates the rest of us must pay for. My dad just passed away last year at 63, never collected a dime in SS but paid for over 40 years into the system. My mom gets a check for $250 and the rest goes into thin air. Yep thats effectively ripping my family off if thats what you mean by effective. I think I could effectively manage my SS money for the same rate of return as I will get if I ever collect it. Something tells me it will be long gone by then however. If I was allowed to invest my SS deductions along with my employer contribution and the % I put into 401K I could be putting away 25% of my yearly salary for retirement. In 30 years I would be MUCH better off than with an SS check I might get.

As for the others Medicare/caid they are the same bloated over spending give aways that will never live up to the desired outcome much less do it on budget.

Regulatory agencies effective? Effective at making things cost more perhaps. Granted some things need to be regulated for the general public. However, most of these agencies are much like the Congress in that they create new regs/laws so fast and long winded even they don't know what the regs they themselves wrote say. OSHA for example.

Don't forget these are the same people that brought us campaign finance reform laws. Then when elections rolled around they find out they are in violation of the very law they passed not 2 years earlier. If they don't even pay close attention to laws only pertaining to them how closely do you think they look at laws they create for the rest of us?

Larry- You seem to be missing the big picture. People had hurricane insurance. What was Katrina? A hurricane. So Katrina comes to town and with it brings a big surge of water, water that otherwise would never have been surging were it not for the hurricane. Thus no hurricane no surging water and no flood. How they can split the two is beyond me.

I can say this for sure though. The next time a hurricane hits keep your eye out for all the houses that suddenly catch fire. I have a feeling people will burn it down and take the fire insurance before risking letting the insurance companies decide if the hurricane actually caused the damage or not.

We have not fired the government for the same reason Ted Kennedy is still a senator, people are by and large stupid.

Madpad | January 24, 2007, 3:49pm | #

My point was kind of a general one - Reason is not likely to give a fair evaluation to any government initative.

True enough. Lots of libertarians think government programs are always worse than market solutions. They are very often correct but the reality is that from a scientific standpoint, it is much more correct to say "they tend to be worse."

In other words, libertarians tend to have an absolute view of government solutions as always bad. The reality is that the market place can be just as turgid and unwilling to change or solve certain problems.

For those situations, the libertarian fallback complaint is about "denying people choice." A valid complaint, I suppose, but that doesn't salve the problem at hand. I think libertarian ideas would get a lot more traction in the world if the proliferators would stop being so absolutist and try influencing the debate in smaller, more calculated ways.

Madpad | January 24, 2007, 3:51pm | #

SS - PLEASE! Pyramid Scheme

Dee, Social Security would more accurately be described as a Ponzi Scheme.

lunchstealer | January 24, 2007, 4:01pm | #

My point was kind of a general one - Reason is not likely to give a fair evaluation to any government initative.

That's a bit like saying that eSkeptic isn't going to give a fair evaluation of an Intelligent Design book. Reason isn't likely to give a favorable evaluation of a government initiative, but that's not the same as saying that Reason won't give an honest evaluation. Reason is going to cherry pick government programs that are especially poor, so I think that it is reasonable to say that Reason can be fair to those programs, even if they are ideologically unlikely to come out in favor.

Reason may not be fair to government in general, but that doesn't mean it can't be fair to individual bad programs.

Seamus | January 24, 2007, 4:07pm | #

Thats like saying you shouldn't build where there might be forest fires or earthquakes.

Well, if you do, you should expect to pay higher insurance premiums than those who build where there won't be forest fires or earthquakes. And your probability is of damage from forest fires or earthquakes, the higher your premiums should be.

Shannon Chamberlain | January 24, 2007, 4:08pm | #

Well, to be perfectly cynical about it, who do you think elected Charlie Christ and pays the majority of his salary? The modest-income types who can't afford beachfront property or the multimillionaire retirees on the coast who have a lot of free time on their hands come election day? The risk of incurring significant property damage during a hurricane drops (almost) exponentially for every five miles one travels inland. Absent a strong financial incentive, you know, like the one provided by a big insurance bill every month, the semi-rich are going to continue to build their luxury condos two feet from the surf and expect everyone inland to foot the bill for their careless insouciance. Properly considered, an insurance premium is a part of living in a place, but since house prices and rent are generally non-alterable, the retirees are trying to use political pressure to negotiate a lower insurance premium. That's all this is.

And as for this "what does an insurance company do?" debate above, an insurance company's responsibility is to maximize profits for its shareholders by accurately defining and assigning risk. Whenever a government program dashes to the rescue and prevents an insurance company from rating on some actuarially relevant category, the insurance company is less able to assign that risk to the people who should be bearing it. Then you end up with a system of cross-subsidies like the one Florida just approved, wherein the poor will subsidize the building decisions of the rich. Usually it's the other way around, but as Jacob Sullum points out, this case is particularly interesting because of the reversal.

Madpad | January 24, 2007, 4:13pm | #

Lunchstealer, you were doing well until you got to this graph:

Reason is going to cherry pick government programs that are especially poor, so I think that it is reasonable to say that Reason can be fair to those programs, even if they are ideologically unlikely to come out in favor.

The act of "cherry picking" pretty much means it's not going to be fair.

You completely fell apart at the end:

Reason may not be fair to government in general, but that doesn't mean it can't be fair to individual bad programs.

Calling them "bad" because they are government progams also pretty much means it's not going to be fair.

For what it's worth, Reason makes no pretense of being fair to government programs. I don't demand they (the staff) be fair. They will be what they are and the market will determine their value. Very free market.

The market tands to look for balance and fairness and for the most part, Reason articles meet the standards of good, balanced journalism. But it also has a commitment to a free-market ideology and part of that idoelogy sees government solutions as anti-thetical.

carrick | January 24, 2007, 4:14pm | #

Larry- You seem to be missing the big picture. People had hurricane insurance. What was Katrina? A hurricane. So Katrina comes to town and with it brings a big surge of water, water that otherwise would never have been surging were it not for the hurricane. Thus no hurricane no surging water and no flood. How they can split the two is beyond me.

Not saying I agree, but the argument is:

The hurricane brought surge waters.

The surge waters did NOT overtop the levees.

The levees failed after the hurricane passed through.

Flooding resulted from the failure of the levees.

Therefore the federal flood insurance program is reponsible for paying damages not the homeowners insurance against hurricanes.

haywood's proxy | January 24, 2007, 4:15pm | #

My dad just passed away last year at 63, never collected a dime in SS but paid for over 40 years into the system. My mom gets a check for $250 and the rest goes into thin air. Yep thats effectively ripping my family off if thats what you mean by effective.


Sorry about your dad, but his contributions did help keep some Americans out of abject poverty. That’s worth something, and I think it’s probably worth a few bucks out of each paycheck to make sure there’s a safety net for people.

I think I could effectively manage my SS money for the same rate of return as I will get if I ever collect it. Something tells me it will be long gone by then however. If I was allowed to invest my SS deductions along with my employer contribution and the % I put into 401K I could be putting away 25% of my yearly salary for retirement. In 30 years I would be MUCH better off than with an SS check I might get.

There’s no doubt that SS is a low risk/low reward system. Certainly you’re correct that if you could not contribute into SS and instead use that money as a retirement investment you’d probably end up with more money. Or else you’d lose it all, depending on how well you foresee the future.

But I think SS counts as an effective government program because it does what it was intended to do – it provides a safety net for people who otherwise wouldn’t be able to survive the harsh realities of the market.

CharlesWT | January 24, 2007, 4:24pm | #

Dee: "You named 5 programs and I hardly think any of them fit the criteria I asked for when giving your list."

Perhaps he meant that those programs were huge political successes. :)

fyodor | January 24, 2007, 4:26pm | #

Lots of libertarians think government programs are always worse than market solutions. They are very often correct but the reality is that from a scientific standpoint, it is much more correct to say "they tend to be worse....libertarians tend to have an absolute view of government solutions as always bad."

A rolled pair of dice "tend to" come up with a 7 more often than they do a 12. For that reason, a 7 is always a better bet than a 12, not just some of the time. From a...scientific standpoint! :-)

creech | January 24, 2007, 4:30pm | #

Shannon's analysis looks good, but then why did this bill pass unanimously? Wouldn't legislators from the in-land areas whose consituents are likely to get ripped off have voted "no?"

By the way, insurance companies normally end up paying out in claims more than 100% of the premiums they collect. (disclosure: I'm a director of an insurance company). Insurance companies make their profits by investing momentarily idle cash in bonds, equities, etc.

carrick | January 24, 2007, 4:36pm | #

. . . but his contributions did help keep some Americans out of abject poverty. That’s worth something, and I think it’s probably worth a few bucks out of each paycheck to make sure there’s a safety net for people.

I contribute a substantial amount of money -- at least to me -- to a variety of charitable causes. I do this because I believe that it is the right thing to do.

SSI on the other hand is something I am forced to do under threat of prosecution for failure to do so.

Can't you tell the difference?

Lamar | January 24, 2007, 4:41pm | #

"My dad just passed away last year at 63, never collected a dime in SS but paid for over 40 years into the system. My mom gets a check for $250 and the rest goes into thin air. Yep thats effectively ripping my family off if thats what you mean by effective."

I had the exact same experience. Do I ever feel bad ripping the gov't off if I can? That's not even a question.....

lunchstealer | January 24, 2007, 5:02pm | #

Madpad, my point was more that Haywood's dismissal of everything Reason says about a government program because Reason can't be 'fair' to any government program is inaccurate. Reason has an announced bias against government. They will pick particularly egregious examples of government failure to back that claim up. That's unfair to government in general, because it will tend to ignore more effective (or just less ineffective) programs.

However, unfairness to government in general does not preclude fairness to the chosen examples, in their own context. What Haywood's Proxy is doing is analogous to saying that it's unfair for someone who doesn't like communism to point out that Kim Jong Il isn't such a nice guy. The dislike of the general concept doesn't preclude fairness in a specific case.

I guess my point is that dislike of a general concept is insufficient to prove unfairness to a specific example of that concept.

kevrob | January 24, 2007, 5:05pm | #

I find heywood's proxy's logic a bit wobbly. :)

Kevin

Eliza | January 24, 2007, 5:28pm | #

"So reading this, I have no idea if this hurricane program is a bad idea because it will produce poor results or if it’s a bad idea because it must be, it’s the government."


All you really need to know is that in Hartford, Hereford, and Hampshire, hurricanes hardly happen.

Shannon Chamberlain | January 24, 2007, 6:56pm | #

An interesting question, creech. Apparently nationalizing (state-a-lizing?) the insurance market in Florida gave people in the inland a small rate reduction and the people on the coasts a big giant one. The people in the interior believe they are paying too much for insurance (everyone thinks that, of course) and they're willing to take this short-term decrease in favor of essentially making Florida completely unprepared for its next spat of hurricanes. It has something to do with a bill that passed last year, which was supposed to reduce rates for people in the interior but didn't. Now they feel they're entitled, and they're also sure (again, as Jacob Sullum pointed out) that even if they do tap out the reserves of the companies and the Hurricane Fund, the feds will step in to pick up the mess.

Also, people don't understand their economic interests.

Ammonium | January 24, 2007, 7:31pm | #

"Can't we just institute a 'for christ sakes, your castle will just keep sinking into the swamp, so stop re-building it' tax on coastal towns that have been wiped out by hurricanes?"

How about if the federal government didn't pay out $200bil to rebuild houses that will be destroyed again in the future? That would be a start.

madpad | January 24, 2007, 10:09pm | #

A rolled pair of dice "tend to" come up with a 7 more often than they do a 12. For that reason, a 7 is always a better bet than a 12, not just some of the time. From a...scientific standpoint! :-)

You apparently slept through statistics. It's a better bet...except for the times when the dice comes up 12...or anything else. Then it's NOT a better bet. Your example proves my point. ;-)

What Haywood's Proxy is doing is analogous to saying that it's unfair for someone who doesn't like communism to point out that Kim Jong Il isn't such a nice guy.

I think you're overthinking this. He made a very straightforward and pretty accurate assessment...Reason has a predisposed bias toward government solutions and is likely to be unfair in its criticisms. Bias tends to lead to that sort of thing.

The dislike of the general concept doesn't preclude fairness in a specific case.

Sure it does. What constitutes "fair" in this case? Even if a government aid program is effective and efficient, Reason still has a built in bias because it's not free market. That automatically makes it unfair on a major level.

I'm not knocking Reason for being unfair or biased, BTW. And I'm not saying the reporting isn't good, informative, balanced or accurate. But come on...hasn't the dust-up over the last few years with Fox News-types bitching about Main Stream Media made a dent? Fairness is a bit illusory and is somewhat audience-specific.

Fox News calls itself "Fair & Balanced". IMHO, that's a righteous crock of smelly shit. But their audience sees NBC news as unfair.

Ultimately, I don't really care...but this is a delightful debate. Time for a margarita!

Pro Libertate | January 24, 2007, 10:44pm | #

Florida's economy is collapsing? We're shrinking? I don't think that's correct.

Tampa hasn't been hit directly by a hurricane in forty years and not by a major hurricane in about eighty years. Which makes the Bay Area the safest spot in the state. I'd like a refund of my premiums, please :)

Although I don't like some of the nonsense pulled by the insurance companies, I think the government has played a role in creating this mess. However, please don't pay attention to the man behind the curtain!

grumpy realist | January 24, 2007, 11:18pm | #

1. People like having beachfront property. Rich people can pay a lot for beachfront property. Rich people can pay a lot for other things as well--such as taxes, money for boats, meals in restaurants, lawyers, top-notch medical treatment, etc., etc. and so forth. Result from lots of rich people moving to Florida for retirement--> economy grows. Politicians like this.

2. Property in Florida is now tending to be hit with hurricanes, at least in the short term. (Discussion as to whether this will be long-term, due to global warming, El Nino, etc., not relevant.)

3. If insurance companies believe that lots of hurricanes will tend to hit Florida, they will raise insurance premiums.

4. If insurance goes up across the board in Florida, it makes the cost of living higher. Sometimes much much higher.

5. Retirees, because they are not limited in location, can move to other places with lower cost of living. Result: rich retirees move out of Florida. The rest of the Florida economy supporting these people go down....result is that the economy shrinks.

6. Politicians don't like this. They want to keep rich retirees attracted to Florida. Result? Go after the insurance companies.

7. What no one knows is whether the insurance companies been undercharging all these years, based on the actual risk of hurricanes. What people DO know is they hate having drastic increases in their insurance rates. There also is the skepticism that insurance companies are using hurricanes as an excuse to raise the rates beyond what is needed. There is also the worry that the rates will continue to rise.

8. Note that if insurance payments are a sizable expense, it drags down the market for real estate. Lots of real estate agents get very unhappy as well. Note also that if the cost of living in Florida is very high, companies find it difficult to attract employees without raising salaries. Result: higher expenses for the company, company may chose to relocate in a different state. (Politicians really, really hate this!)

kevrob | January 25, 2007, 2:35am | #

....the Bay Area the safest spot in the state. - Pro Libertate

Excepting the tornadoes, lightning strikes and waterspouts, right?

Kevin
(Not a Floridian, but like seemingly everybody, I have relatives there. Actually lived and worked in Pinellas County for nearly a year.)

jeffiek | January 25, 2007, 8:30am | #

"You apparently slept through statistics. It's a better bet...except for the times when the dice comes up 12...or anything else. Then it's NOT a better bet. Your example proves my point. ;-)"

Talk about sleeping! A "bet" occurs before the dice are rolled, in which case the 7 is always better. Once they come up 12 it's history not gambling.

lunchstealer | January 25, 2007, 1:22pm | #

Sure it does. What constitutes "fair" in this case? Even if a government aid program is effective and efficient, Reason still has a built in bias because it's not free market. That automatically makes it unfair on a major level.

I tend to think that most Reason writers would just not write about effective and efficient programs, except possibly to say 'In libertopia, this would be handled privately, but if you're going to do a program, do it this way.' That's entirely different from finding an actual inefficient program and pointing out the serious drawbacks.

Again, I don't like Communism as a form of government. But I can still say that of the four nominally Communist governments that I can think of off the top of my head, Vietnam, China, Cuba, and North Korea, that North Korea is the worst. I have a bias against Communism, but pointing out that North Korea is bad is not unfair. Otherwise everything any non-Communist ever says about Communism is unfair. And I think that's patently ridiculous. It is possible to be fair in discussion of something you don't approve of. Therefore it is possible for Reason to be fair to a government program.

Madpad | January 25, 2007, 1:49pm | #

All right, allright, lunchstealer...my only point is that fairness is somewhat subjective and ultimately doesn't matter. For example, Kim Jong Il would probably see your opinion about his worker's paradise as unfair. I find NPR pretty fair but they are at the top of every Fox pundit's Media Bias list. Still you make a good point so round to you.

Pro Libertate | January 25, 2007, 2:16pm | #

kevrob,

Well, the tornadoes here are usually small, not the Midwestern behemoths. Lightning is a problem, sure, but we've been losing electronics to lightning for decades, and the number of people injured by lightning is, of course, quite small. So, yeah, I stick by "safe".

Of course, we have bugs, sharks, alligators, and intense heat and humidity, but we're used to all of that. Frankly, I'm perfectly willing for people to think that Florida is a scary place if that means that they will stop moving here :)