|
| ||
|
Wash away the risks | ||
|
By DAVID MOON, Moon Capital
Management Critics of TennCare used to describe it as a medical insurance program that didn't require you to enroll until after going to the doctor. I am afraid we are about to see federal flood insurance work the same way in reconstructing homes along the Gulf Coast.
Since 1968, the federal government has been responsible for underwriting residential flood insurance in this country. The insurance is grossly under priced, so all taxpayers are already subsidizing the cost of homes in flood prone areas, including multi-million dollar waterfront properties.
Although the insurance is supposedly mandatory, The Economist magazine reports that only 20 percent of Mississippi coastal residents and less than half of the damaged homes in New Orleans carried any flood insurance. These homeowners were betting that if a perfect storm ever did sink their homes, the federal government would bail them out.
I hope not.
By paying these negligent homeowners a nickel, we are feeding a stray, rabid dog who will keep coming to the back porch looking for food. Why would anyone buy flood insurance if paying the premium is not a prerequisite for filing a claim and getting a check? Sign me up for some auto coverage like that. I'll call if someone steals my truck, and the guy from the federal truck insurance plan can send me a new one. Otherwise, I'll just keep my 350 dollars every six months.
This is not an attack on poor people. People who can't afford automobiles to evacuate probably don't own houses. These are middle and upper class folks ' people who can afford flood insurance, or they shouldn't be buying waterfront houses.
We must not hold harmless those individuals who were warned and financially capable of protecting themselves against flood losses. Those folks must be made to live with the financial consequences of their business decisions, or else countless others will die in future natural disasters. The federal largess in passing out dollars for the reconstruction of residential New Orleans might impact the number of people who die in the next similar natural disaster.
According to the Southern California Earthquake Center, there is an 80 to 90 percent chance Los Angeles will experience a (Richter) magnitude seven earthquake in the next 20 years. The US Geological Society says that an earthquake of that size in Los Angeles would kill 18,000 people, yet folks continue to build homes on cliffs and other unstable areas that will, most likely, not survive this massive earthquake. Yet insurers estimate that less than 20 percent of quake-prone Californians purchase earthquake insurance. If people believe they have no financial risk from earthquakes, they will continue to build expensive tinker toy mansions. By absorbing the financial losses incurred by irresponsible homeowners in New Orleans, we will encourage even more risky behavior in Southern California ' and these risks will eventually cause additional deaths.
This column isn't about New Orleans or flood insurance. It is about priorities and the problems of short-term thinking. Investors are more concerned about the last six months than the next 20 years. Retirement is less important than driving a BMW. And the gorgeous view from our homes is more important than the seemingly remote possibility the house might fall off a cliff. If we remove the financial disincentive from these risky construction decisions, we just encourage more short-term, risky behavior. David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).
|
