OT flood insurance
The first time I really saw the impact of the federal involvement in flood insurance was in the 1990s, when several rivers in Texas flooded simultaneously due to prolonged, severe rain. At the time, the scandal story was that operators at a dam may have manipulated water flow to prevent flooding in relatively recently built multimillion-dollar waterfront homes, which caused large numbers of people in cheaper properties to be flooded. These properties hadn't previously been flooded, because historically there was no reason to operate dams against their favor.
It turns out that nobody had wanted to build in the lowest-lying riverfront properties, because they were well-known to be easily inundated. The only thing that made it economically attractive to build in these flood plains was the availability of federally-priced flood risk coverage, which was relatively free from the rationality that would be imposed were rates set by ordinary market forces.
In this case, federal subsidy allowed multimillionnaires to foist upon the general public the risk their idiotically placed mansions would be destroyed by expected weather. It was federal subsidy of the bad decisions of the most wealthy. It also created an economic and political incentive to cause damage to less-wealthy households, which were unsurprisingly less capable of tolerating financial losses.
I have an in-law, living in Florida within a stone's throw of the Gulf, who thinks that the federal flood insurance plan should push more flood risk onto people in, say Arkansas and Arizona, where people bought homes that don't have the benefit of being near salt water but also don't offer any risk of storm surge. For some reason he thinks he's got a right to a subsidy of the cost of the risk he accepted to enjoy the smell of salt air. Why should I bear the risk of the questionable decision to build a home on a fault line? Why should anyone have to pay for his decision to live close enough to the water to get sprayed when the wind kicks up? Shouldn't people who deliberately build on high ground far from the sea be entitled to some kind of break for not being an idiot? Isn't there any personal responsibility any more?
Crazy.
Between federal promotion of stupid home development siting through irrationally-priced insurance programs, and federal prevention of universal health coverage, I think we've seen enough of federal involvement in the insurance industry. There's a reason states generally implement model laws drafted by the National Association of Insurance Commissioners: it creates uniform national law in areas of law for which uniformity is desirable (and obviates the need for federal regulation on grounds of promoting uniformity, though this canard is still flown despite the facts), and it enables diverse views to be aired in an environment of insurance-specific regulatory expertise so that informed decisions can be made -- before the nation suffers from acting on ignorance -- on the difference between serious problems that genuinely exist and mere fluff alleged by lobbyists but not borne out by any observed data. The fact that the NAIC can't pass laws keeps it from being dangerous, and the fact that it's full of expertise from different parts of the insurance business -- consumer advocates, regulators, insurers, reinsurers, you name it -- means that when it does offer guidance through a model law it's a fairly well-considered piece of regulatory guidance. The cool thing is that the NAIC has only the authority of the quality of its output: no state need adopt a thing it suggests. NAIC regulations become uniform national law only to the extent that its ideas are GOOD.
Contrast this with the situation in D.C.
So yes, federal involvement in the flood insurance program is a boondoggle. I would go further: federal regulators do not understand insurance, do not understand why insurance is different from other regulation, and have no concept what they are doing. Federal judges all the way up to the United States Supreme Court regularly get insurance issues dead wrong, in ways that make it clear they haven't even passing familiarity with general insurance law. (There are some reasons this is the case, and that it's not altogether bad -- but now that the federalization of everything has dragged more and more insurance issues into federal court other than simply on grounds of diversity of citizenship where state law is applied, and now that federal law is getting applied to more things related t the insurance business, the situation is becoming really revoltingly bad.) The things that make insurance law different from ordinary contract law, and different from a taco stand or an auto dealer's manufacturer's warranty, and so on are just lost -- utterly lost -- on federal regulators. They sometimes talk the talk, but when the chips are down so are their pants.
Take care,
--Tex.
