I’ve written several times about federally subsidized flood insurance, mostly to complain that it is terrible policy.
People are encouraged to build homes in low-lying areas, which then leads to needless destruction during floods.
The monetary cost is significant, but I get even more upset that responsible people are forced to finance other people’s irresponsible choices.
It’s such a bad policy that even Bernie Sanders favors reform.
And it’s such a bad policy that politicians in Hawaii decided it is worth copying. But they chose to subsidize building homes that are vulnerable to volcanic eruptions.
I’m not joking. Joe Kent of the Grassroot Institute wrote about this foolish system.
…the state originally encouraged the building of homes in this dangerous area by offering lava insurance where no private company would. …In response to the absence of private insurance, the state Legislature created the Hawaii Property Insurance Association (HPIA), whose job is to provide coverage for homes in areas that private insurance won’t touch. The law requires private insurance companies to pool their money to subsidize the expense of offering insurance in high-risk lava zones. …This resulted in a boom in the housing market below the active Kilauea volcano. …The moral hazard of this new insurance program gave a false sense of security to homebuilders in Leilani Estates.
And where, pray tell, can you find Leilani Estates?
In the most dangerous path of the most active volcano in Hawaii.
Given my libertarian sympathies, I think people should have the right to build in dangerous areas.
But I also think that they should bear the risks. Including what happened a few years ago.
…that hazard is very real for families watching their homes be engulfed by magma. What was seen as a “market failure” was really a warning sign to those building in Lava Zones 1 and 2. If the state had stayed out of the situation, probably fewer families would have built in the area, and today there might be less housing destruction.
The obvious moral of the story is that we should not have government-subsidized moral hazard.
That’s not a proper role of the federal government, and it’s not a proper role of state governments.
P.S. The same is true for subsidized terrorism insurance.
P.P.S. For more on government-created moral hazard, click here.
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Image credit: Mandy Beerley | Unsplash License.
