Wednesday, August 16, 2006

The right flood insurance ruling

A judge in a Katrina-related case has ruled that insurance policies that don't cover flood damage don't, well, cover flood damage.

There is some legitimate complaint about the ambiguity of the policy in question. And agreeing on what is flood damage and what is wind damage can be a contentious matter, with the insurance company wanting to attribute all of it to flood damage (and thus not covered) and the homeowner wanting to attribute none of it to flood damage (and thus be fully covered).

But insurance works by covering specific risks for a specific amount for a specific premium. The system breaks down if insurers can be forced to cover uncovered costs after the fact.

If people want to be covered for flood damage, buy flood insurance.

Speaking of flood insurance, it's time to end the taxpayer subsidy of such insurance. Such insurance should be market-priced. If homeowners can't afford those prices, or If private insurers are unwilling to sell such policies at an affordable price, perhaps that's a sign that people shouldn't be building homes in flood plains and hurricane-prone coastal zones.

A positive side effect of such a policy would be the reversion of many fragile coastal and riparian areas to their natural state, providing habitat for animals and buffer zones for rivers and coastlines -- making future flooding and storms less severe and costly.

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