Posted On: August 18, 2006, 6:18 am CDT

Posted By: John A. Marsh

The sad part of all of this discussion is that most of the posters have been correct.

The true issue here is incredibly unsound development and socialistic solutions that just won't work. As insurance professionals we all know that the free market solution, while best, will never be allowed to happen. A free and competitive marketplace would solve this problem but how many of the homeowners in a coastal wind a flood zone will pay a $5 rate with a 20% wind deductible? At that rate structure there are carriers that would offer coverage and probably do OK over a spread of risk and period of time.

They don't offer coverage at a rate structure barely above what a carrier gets in a midwestern state without any of these broad cat risks.

The other issue here is that instead of the financial penalty that generally goes along with a poor economic decision we have consistently rewarded these clowns that choose to build in these unsound areas by giving them free government aid or by give them replacement cost coverage (whether intended by the underwriters / actuaries or not). Until the last couple of years most have upgraded every time a storm made landfall and they filed a claim. Many have much better property after a storm than they did before.

In a true capitalistic system these individuals would incur a severe financial penalty for the poor development or they would pay considerably more for insurance as a hedge to protect some of their investement. Right now they incur neither and complain that the insurance is cost prohibitive or not broad enough to eliminat all of the pain.

The obvious solution to every person that chooses to build in the ridiculous locations is to create a nation "cat fund" and have all of the rest of the US subsidize their poor decision.

As any poly sci 101 student will tell you... these type of programs that benefity a very small portion of the population at the expense of the majority can, and will cause govermental infrastructure issues. This is a nice way of saying if you want to push the silent majority into action this is a great way to do it.