That federal program is broke as a joke, and it generally comes with extremely high deductibles and poor payouts.
It’s easy for states to regulate insurance companies for political points, which you’re seeing in California and Florida. However, insurance markets collapse slowly and then very very quickly when the math stops working out.
The national flood insurance program shows one of the downsides with government participating in the private market (there are some plusses as well) - their rates were set too low, and that created a group of people who were politically motivated to agitate to keep them low. It's very hard to find the political will to raise insurance prices on those people, even though the majority of people/voters understand that it's a subsidy that doesn't make sense - first because its not fair, second because it encourages outsizes risk taking.
That federal program, even with high deductibles, completely subsidizes their customers at the cost of taxpayers. They massively underprice the hazards, at the taxpayers ends up being on the hook at the cost of people who decided to built
(and rebuilt) "their house on the sand"
Isn't the essence of pooled-risk insurance that a vast minority of policies will represent a disproportionate number of the claims in any given time period?
Yes. But not from the same group of people over and over again. At least not in the laissez faire style systems where the market would stop assuming uniform risk and increase insurance rates to the expected values based on the probabilities of the specific circumstance. In a dirigiste economy, state would choose certain social factors to protect and keep the distribution of costs uniform for the betterment of the whole society. But even in those systems, I am not sure we should have beachfront properties or similar as factors.
(Sorry about my lack of proper vocabulary and jargon in this comment, I seem to have forgotten all of my vocabulary relating to sociology and economics.)
> even in those systems, I am not sure we should have beachfront properties or similar as factors
If beachfront properties have substantial risks that inland properties don't (such as flooding from storm surge*), then not using is_beachfront? as a factor will end up being a subsidy to the owners of beachfront properties.
Which ends up being the issue with any insurance programs for the uninsurable. 100 percent of the time, it will end up being a subsidy to the policy holder. If it weren’t, they’d be insurable.
Exactly. And a market in general wouldn't ever create those programs themselves if they don't provide any direct or indirect profits. So these would be state directed.
I am not sure we have any disagreement anywhere. :)
It’s easy for states to regulate insurance companies for political points, which you’re seeing in California and Florida. However, insurance markets collapse slowly and then very very quickly when the math stops working out.