Posted on 02/23/2007 4:30:45 AM PST by PolishProud
Because it will make ME feel better if YOU compensate them. Have you no compassion?
And Lott and others paid for private insurance.
The national insurance is capped, and they were paid.
The private insurance is a different story.
Private insurers do not get to define all of the words in their policies restrictively when the time comes to pay out. They have been promptly paid premia for years, and have a duty to promptly pay out when damages occur.
If things cannot be specifically determined as to wind and flood damage, or if the policy just uses the word "flood" and doesn't define storm surge (a storm surge is not a flood, just like a sunburn is not a chemical burn, even though they're both burns) - if things are MUDDLED and causes cannot be perfectly teased out - then the fair thing to do is for the insurance company to pay SOMETHING, some pro-rata portion, precisely because there is doubt, and in the case of doubt, the policyholder and the company should split the difference somewhere.
The insurance companies choose to interpret doubt 100% in their favor. There is no basis in reason to do that, it is unfair, it pisses people off. Law determines the outcome, law determines what words mean, law determines how contracts are enforced, so if insurance companies behave greedily and unfair, you can expect law to step in and impose a more fair solution. Law is set by politics, and in this case you have whole districts affected, and insurance companies treating vast numbers of people with the characteristic callousness with which they treat individuals. Trouble is, whole districts of people have a countervailing power to be able to counteract the insurance companies' self-serving interpretations. Usually, all of the power is with the company, but in a massive disaster, the numbers of people affected is so great that the political authorities - the people with the power to define words and enforce laws and regulations - are in the picture as well.
It was stupidity incarnate for the insurance companies to play hardball with whole districts hit by Katrina. When they do it in normal individual cases it is unethical and often probably illegal, but individuals can't fight a massive industry. Millions of people backed by the government can, and will, and the insurance companies should have foreseen that and played fair. They CHOSE, instead, to treat this as four million separate cases and to use their usual strategies to try and screw four million people the way they would screw four million diffuse individual claims. It was utterly foreseeable that this would bring intense scrutiny upon them and their practices, and utterly foreseeable that, when exposed to the full light of day through investigations that they could not settle or override with greater lawyer power, that they would be found to have behaved wrongly, and get hammered for it.
Indeed, it was SO foreseeable that the insurance companies failure to foresee it, and to put into place a system of relatively generous partial payouts to "split the difference" with policyholders in all of these ambiguous cases, constitutes recklessness. The insurance companies would have avoided the hatred and scrutiny had they done so. Now they will get the scrutiny, and they'll lose, and lose millions and millions more than they would have paid out had they just played fair. Insurance company stocks will take a beating, and stockholders will have a cause of action for class-action suits against insurance companies for such losses, due to the recklessness and perhaps even fraudulent behavior by the insurance company officials vis-a-vis policyholders.
SCrewing over people in a disaster is a gift that just keeps on giving. The rule is pretty simple: you make billions collecting premia from people. When the time comes to pay, be fair-to-generous. Start lawyering up and finding ways to weasel out, and the large mass of damaged and angry people will rip you a new asshole using the greater power of the law. One would think this would be obvious, but insurance companies seem to have to be retaught it every time there is a disaster. Post-911, you had insurance industry folks speculating that if the attack were to be called an "act of war", they would not have to pay out on life policies and property policies. Wanna bet?
It's that sort of crap that happens every time - and it always gets hammered down every time. You'd think that the insurance companies would learn. But they never seem to.
Lott will win this crusade. The only question is how badly the insurance industry will chose to demolish itself charging into the guns. They're wrong. They should have settled and split the baby. Now they're going to get crucified.
My bad. YOu said "Their home sustained heavy wind damage", and I misinterpreted that to mean heavy damage by the wind, not damage by heavy wind.
Trent should've done his homework when he built that house. Private companies such as AIG, Chubb and Lloyds do indeed offer "extra" flood insurance which covers the value of more costly homes above the NFIP cap. Sure, that coverage isn't cheap, but Trent's a high-roller. He has no excuse for leaving himself vulnerable to that loss.
Just as a side note, I don't think Trent Lott built that home. I think it might have been a family home passed down to him, but I may be wrong about that.
* Lott threatend insurers with new federal legislation. He inserted legislation in to a Homeland Security measure that would have bashed commercial insurers. He used his position as a US Senator to put pressure in insurers to settle the lawsuit brought by himself and his brother-in-law. Lott abused his power.
* Lott has done nothing to fix the huge mess with the FEMA/NFIP "flood insurance" program. As some have pointed out here commercial insurers do not provide flood insurance (with few exceptions). They handle the paperwork for FEMA/NFIP but they are not the insurer. Why not? It's a suckers bet. Commercial insurers simply cannot sell "flood insurance" because they could not charge the huge premiums they would have to for the risk. So, the biggest suckers around pay for Lott's "flood insurance".
Those suckers are you and I! There is no such thing as "flood insurance". It's a FEMA/NFIP contract between the property owner and the American taxpayer. As with all the big disasters in the past involving flooding the Katrina disaster quickly sucked all the money out of the FEMA/NFIP program. This was quickly fixed with new money from the real "insurer", the US Treasury. Isn't that a hoot? A guy on a mountain in the middle of the desert pays for the flood "claims" of people like Lott that build on the water.
FEMA/NFIP will continue to offer "flood insurance" to people that build in bad places and the American taxpayer will continue to pay for it.
When the government steps into something like insurance, trouble is sure to follow.
People should have to pay for the risk in choosing where they choose to build. If somebody wants to build a big house on a piece of property where there is a probability of $500,000 damage within the next ten years, he should be paying something like $5000 a month to insure it. This would act as a powerful incentive to not build something so big in someplace so stupid. Subsidizing insurance just encourages people to take unneccesary risks.
someplace so stupid
How close to the ocean is stupid? Where would you draw the line?
Yep, that's right, the US taxpayers DO pay flood insurance, because practically all of the really desireable areas of America are in a flood zone. Want to shut down the whole tourist industry in Florida and the Gulf Coast, and simply fold up about $3 trillion of the economy?
Then don't subsidize flood insurance down there.
The hurricane coast and the inner river valleys are flood zones, and always will be. But the value of the commerce and communities and agriculture and other activities generated by those fertile or warm and desireable places DWARFS the cost of the federal subsidy to provide insurance for people to live in these places where, yes, we WILL have to keep rebuilding their properties, from time to time, at taxpayer expense.
It's true.
Individuals will never have the individual wherewithal to stand the sort of losses that a flood or hurricane would bring. Private insurance will never be profitable, or affordable, given the CERTITUDE of floods and hurricanes and massive destruction.
So, the options are that we, through the government, subsidize people living in hurricane zones and flood plains, and keep paying for that subsidy, or people don't live there. You cannot replace the fertility of flood plains with unflooded areas. And you cannot replace the incredible desireability of the warm ocean coasts by moving everyone inland.
If you don't supply the subsidized insurance, you will have tens of millions fewer people living in Florida, on the Gulf Coast, and up the river valleys. And you will have an economy that is trillions of dollars smaller, because you will not have a tourist industry or retirement and vacation industry or housing industry with anything like the Florida values, or an agricultural industry with anything like the flood plain productivity, if you abandon these areas. Individuals cannot bear that risk, private companies cannot profitably insure the risk at a price individuals can afford, but the country's overall economic power and prosperity would be sliced by trillions of dollars if we abandon those areas and don't live there because of floods. They are not REPLACEABLE with other areas, because it is the proximity of the rivers that makes the land the best for crops, and the proximity of the warm oceans, which makes the place so desireable - Nevada will never, ever, ever be as desireable as the Florida keys.
So, the only way to get the HUGE, TRILLIONS OF DOLLARS of economic advantage out of these areas, which are flood-prone and which will HAVE to be constantly be rebuilt - is to use government to PUBLICLY SUBSIDIZE the cost of insurance so that individuals can afford to go there, risk the elements, and take advantage of those natural elements that make the places so desireable in the first place. The benefits of having the extra 2 or 3 trillion dollars in the US economy that having big populations in Florida and the Gulf Coast and all up the river valleys positively DWARFS the pennies we pay as a nation for the inevitable cost of having to keep on rebuilding, using public subsidies, the loss of private property built there.
It would be idiocy beyond compare to cut off public insurance subsidies for living in those floodplains. It would be like refusing the build the Interstate Highway System or the airports because they have to be built with public money and they never directly pay for themselves. That is TRUE. The roads and airports do NOT directly pay for themselves. They cost a fortune to build, and you always pour more money into them. Just like public insurance to people who build in floodplains.
BUT, the overall economic tidal wave of prosperity unleashed by linking up the whole country through highways and airports, and by fully exploiting all of those beautiful, hurricane-driven coasts of the South, utterly dwarfs the public costs of subsidies and perpetual expenditures that make the prosperity possible.
Florida in one year produces more revenues in taxes, and more jobs and economic value unique to it being FLORIDA, in those beautiful tropics, than the combined total of all the money ever spent out of federal and state coffers for flood insurance, disaster recovery, interstate highways in Florida and airports there.
Yes, flood insurance does indeed cause people to build in flood and hurricane zones. That's what Florida is. In one year Florida's existence in that flood zone pays for 10,000 years of flood premia. And no, Florida's unique advantages which MAKE it so valuable CANNOT be recreated in Arkansas or anywhere else outside of a flood zone. Florida is desireable precisely BECAUSE it is located where hurricanes hit: on warm tropical oceans.
It would be economically BRAIN DEAD for us to cut off, reduce, or limit national flood insurance. It pays us ten thousandfold over, in economic prosperity, what it costs us.
Federal flood insurance is probably the best single investment the US federal government ever made into the economic prosperity and health of the United States. It will ALWAYS pay out a lot of money, and as such, will ALWAYS "lose money" and as such can NEVER be done by the private sector. But it allows for trillions of dollars of economic activity to be done on the coasts that would not exist AT ALL were it not there. People won't go on vacations to inner Georgia if they can't go to Savannah or Orlando. You either build in the flood zone and insure it publicly, or you slice $3 trillion off the economy.
Flood insurance has to be public.
It means people will build in floodplains and hurricane zones, and that we will constantly have to rebuild, at our taxpayer expense.
And we are all a lot richer because we subsidize that. The whole economy would be smaller if we only lived on safe, less desireable and less fertile ground.
It's not even close.
Not to mention all the foreign goods that come into this country come via the ocean. Which then leaves the coast via river barge, train, long-haul trucking, etc.
Right now, nobody draws the line, because stupid decisions are subsidized. The US Army Corps of Engineers draws some lines, but I wouldn't say they are Holy Writ. They are a good place to start, though.
If private industry was backing up this insurance, you can bet there would be really good models to determine the risk of different locations, so they could minimize their exposure. Your premium would be based on your risk. If somebody proposed putting a Million Dollar house on Trent Lott's lot, they would be in for a heck of a monthly bill.
But the government relies on data that is out-of-date. At my property, we're relying on lines put on the map by the Army Corps back in 1951. A lot has changed in my neighborhood since 1951.
??????????
Building right on the ocean is what makes that property so valuable in the first place, and is what drives the building industry, the tourist industry, the retirement industry, everything that makes Florida not Tennessee and not Arkansas and not Oklahoma. Same thing on South Padre Island for that matter.
It's the ocean that MAKES the place valuable, and building on the ocean makes it more valuable.
Some of that stuff will get knocked down from time to time by weather. Never all of it. Hurricanes destroy a stretch of coast, not the WHOLE coast. The differential in value of being right there, by the sea, dwarfs the insurance costs. The ocean IS the driver of the Florida economy. It's why Florida has all of those people, while Louisiana, with its swampy coast and mostly inland living space, doesn't.
Private insurance companies would indeed draw all those lines, just like you said. And that would rule out building in about 90% of the most valuable areas in Florida.
The insurance savings would be dwarfed by the overall loss to the economy of NOT developing the places people WANT the most, and will pay a premium for.
It's just like the Interstate Highway System or the railroads before that. Just linking the interior lifted the interior tremendously, made vast stretches of previously worthless land very valuable, was an ENGINE of economic growth. But the roads themselves had to be built entirely with government subsidies, and the Feds had to coordinate it all, because you could never get seven million little principalities to act with the sort of concert needed to get the roads built. To get the railroads built, the government had to give away thousands of square miles of land. Just flat give the railroads their profits for the next 30 years. It worked, and it was cheap at those prices, because in the end it caused the whole of the continent to bustle with activity.
Flood insurance lets millions of people live and work where they really WANT to, even though it is not economically viable, from an insurance perspective, to do so. Sure, if the insurance companies recaptured the WHOLE economic value of the massive inflation in land prices for coastal lands, and the massive influx of tourist revenues, and retirees, and building, and services, etc., all made possible by the desire people have to live precariously beside the ocean, then the insurance companies would be gung ho!
But of course private insurers do NOT capture all of those benefits. They just get a premium, and given that destruction of the property is CERTAIN, in time, the premia they'd have to charge to make a profit just on INSURANCE would have to be huge, so high that private individuals couldn't afford it.
The government DOES capture the overall benefit of the whole economy rising to spectacular heights because people want to live by the sea. The government gets the taxes, the property taxes, the benefits of all the employment, the happy citizens, the big populations - everything. So of course the government needs to find a way to encourage people to do that overall profit-maximizing behavior and go ahead and build at the beach. To lose the huge added values of building at the beach just because occasionally those houses will be knocked down would be a great net loss. It would be the equivalent of refusing to spend money on the Interstate Highway System, because the roads will have to be constantly repaired and will never directly bring in any money.
The beach is the reason there is such wealth there. That's the resource. Letting INSURANCE concerns choke off exploiting the most valuable resource is crazy, and it will, because private insurance can't make a profit in a certain-knockdown market, and can't capture all of the OTHER benefits of building on the beach.
Government insurance is the answer. It's always going to be a drain, and it's rewarding people for building houses we all know will get hit at some point. But it's still a great investment of government funds.
A bungalow built for $100,000 inland, fifteen miles from the beach, on a postage stamp of property, and rented out captures $300 a week. The same bungalow built on the beach where it will certainly get knocked down someday will rent out for $3000 a week. The parcel of land it sits on will generate vastly greater tax revenues. The presence of all of those bungalows together creates an economy, jobs, and human happiness. A line of bungalows in the backwoods looks like the Bates Motel. It's not comparable. And the place on the beach isn't economically insurable, because it MIGHT get knocked down this year, and probably WILL get knocked down in the next 20 years. So, the insurance company has to recoup that $100,000 over 20 years ($5000 a year) AND has to front load the value of that income stream up front because the shack may go down THIS year. Result: with private insurance, the price would be so high nobody'd buy, or nobody'd get insurance and couldn't get the mortgage.
Gov't insurance allows the building, and building the building generates so much wealth that the price of the gov't subsidy, including the rebuild, is trivial compared to the overall benefits.
Examined just on the issue of insurance profits or cash flow, neither federal flood insurance or the Interstate Highway system makes any sense at all. Examined from a global economic perspective, they are very shrewd investments in the overall growth of the economy.
Federal Flood Insurance is a good thing, precisely BECAUSE it encourages people to build all along the Gulf Coast houses that will be knocked down. It's a SUBSIDY for living there and building there. The behavior is subsidized because, overall, the economic benefits of developing that seafront overwhelm the cost of paying out the rebuilding claims. It's a sophisticated government investment decision, with the understanding that structures built there are impermanent, and the government has to subsidize their rebuilding in order to exploit the advantages of the seacoast.
Well worth it globally. Not a going concern as an insurance investment. Like highways or, for that matter, public education. Just GIVING kids 13 years of instruction for free costs more of the combined government budget than anything else. Worth it? Of course. And not just on moral grounds. Give it, and you have a first world $15 trillion-odd economy. Don't give it, and you have illiterate Laos, where nobody can do anything but slop hogs and chew beetlenut. You can't make a profit in public education: it's a GIFT, from the perspective of the institution. But from the overall perspective of the society, it's an investment that pays the dividend of an advanced economy that dwarfs the cost paid to give the education away.
Same thing with Flood Insurance.
Government subsidized flood insurance is a good thing, because it encourages people to build in hurricane zones where their houses will get knocked down and the government will have to pay to rebuild them. That's a good thing, because although building on a seafront is architecturally irresponsible, it is economically very, very, very profitable. Responsible gov't weighs the advantages, and sees that the cost of subsidizing rebuilding of inevitable devastation is far, far outweighed by the premia people pay to live on the beach, and the economic activity that beaches generate.
The Federal Government Flood Insurance program is a brilliant economic investment.
Good points.
The premium they should be paying is an insurance premium. If somebody wants to put $1,000,000 worth of building on a piece of land that floods every ten years, he should be willing to shell out $10,000 a month for insurance. At those prices, the insurance companies will beat a path to his door.
The problem is, folks on the coast want to pay premiums similar to what they pay in Arkansas or Oklahoma or Tennessee. They want to be subsidized in their pleasure palaces, and politicians are only too happy to accommodate them, with somebody else's money.
It is not insurance concerns that would choke off development of the coast. It is the cost of the losses that would choke off development of the coast. And why not?
People have managed to take their subsidies and make nice little lives for themselves. You can't blame them for that. The government is giving money away, so somebody is going to take it. Of course, if the government decided to subsidize my lifestyle to the tune of $10,000 a month, I could live pretty well, too.
But what has happened to poor, poor Trent Lott is that the government is not subsidizing his lifestyle enough. The rest of us paying of subsidy of $2500 a month to Trent Lott to cover the actual cost of his risk is not enough for him to live the lifestyle he would like to. He needs more, so he can live even more extravagantly. A $350,000 house on the beach is not enough. He wants a $1,000,000 house, and you and I are supposed to just pony up to cover his losses.
"It is not insurance concerns that would choke off development of the coast. It is the cost of the losses that would choke off development of the coast. And why not?"
Why not?
Because the cost of all the losses are a pittance compared with the annual surpluses generated by all of that economic activity on the coasts. People like to live by the ocean. Seacoasts have a LOT more people, and warm seacoasts have bustling economies. Those economies cannot be recreated in Arkansas, Oklahoma or Tennessee, because none of those places have a tropical seacoast. The seacoast IS the draw, and that draw generates a huge economy, because the sea is there.
The sea will periodically reach out and destroy things. The sea draws people. It draws many more people than the Maine coast because it's WARM. Warm seas have hurricanes. Hurricanes will periodically and certainly ravage seacoasts, and knock a lot of stuff down. It's inevitable, and we all know it.
Buildings are built on credit, because people don't have the cash. Creditors require insurance. Even people who build with cash require insurance. Very few people can or will pay $10,000 a month for insurance. If they can't, they won't build there.
But if we don't build on the seacoasts, you'll still get houses - people have to live - but you won't have the whole INDUSTRY of tourism, trade, travel, vacation, retirement, and all of the recreational and medical facilities that go with the latter. The same size house built in upland Mississippi is worth a fraction of the value an exposed house on the Biloxi Coast is. The lack of insurance would make the coast unbuildable. You don't REGAIN that lost tourist and development revenue and land value by building somewhere else. You just have the loss. It isn't as though there would still be a huge vacation, retirement and tourist sector in Florida if there were no Florida. What would happen, instead, would be that the Bahamas and Mexico would be a lot richer, because Americans would go THERE. They would not stay and rebuild the same huge cities and concentrations of wealth in MAINE as are built in Florida. Maine's cold.
If economic success or failure were determined by comparing building costs, maintenance costs and insurance costs, all land everywhere were worth the same and people would do the same things and form the same economies everywhere indifferently, then subsidizing insurance for coastal settlement would be senseless.
But that's not the way it really is. Seafront property is ENORMOUSLY more valuable than inland property. People like living by the see, and living by the sea creates an economy of greater size and vibrancy than anything that grows up where there is no sea, especially a warm sea.
Properly priced insurance would put seacoast development out of reach, and that would harm the economy far, far more every year than the costs of rebuilding (which such rebuilding itself generates economic activity). Subdizing the insurance allows people to live there, and you get Miamis and Fort Lauderdales and Biloxis and St. Augustines and Pensacolas, which generate more money and activity than would be generated without the tourist pull, and certainly more than the insurance and rebuilding costs entail.
You already subsidize these folks.
YOU pay social security tax on every dime you earn.
THEY stop paying social security taxes once their remuneration hits $90,000. Whatever they get paid above that, they DON'T get hit with the Social Security flat tax.
This is a MUCH bigger tax subsidy for the wealthy than insurance is.
But there's still a difference, beyond size. It's the insurance that makes the coastal development POSSIBLE, and that contributes immensely to the whole economy, from which you benefit. But the rich guy having to pay less a percentage of his income in social security taxes than you do? That doesn't generate a Tampa, Miami or Fort Lauderdale.
If you can afford a $1,000,000 house, you can afford a $500,000 house, with a $5000-a-month insurance bill. That way you would be paying your own way, instead of asking people of more modest means from the rest of the country to subsidize your extravagance.
People always want something for nothing. Beach front property owners are no different.
That is because it is subsidized. I could sell my dog's house for $1,000,000 if I promised to pay the buyer $10,000 a month in perpetuity.
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