Friday, June 18, 2010

Another triumph of government!

Evidently, the national flood insurance program is about $19 billion in debt. Apparently not only did they not figure out that there was a reason insurance companies were charging high rates for flood insurance in many areas, they also didn't bother to hire any good actuaries to figure out what the proper rate ought to be.

It's as if people will be more likely to live in a flood plain if you subsidize their house insurance or something, and that change in behavior will tend to bankrupt the subsidy program.

Memo to Congress; incentives matter!

1 comment:

pentamom said...

Well, the whole point was to subsidize people over and above what actual actuarial figures would warrant. But given that, they should still have been able to figure out expected costs and budgeted enough taxpayer money to make up the difference between premiums and payouts, if that was the purpose. Since its possible to predict what payouts will be, there's no reason for a government-funded program to be in debt, apart from the whole issue of the government as a whole being in debt.