Thursday, September 4, 2008

WSJ.com - The Inflation Hurricane

New Orleans is still far from being able to withstand a 100-year storm -- in other words, a storm that has a 1% chance of happening next year, a 10% chance in any given decade, and a 30% chance during the duration of a standard mortgage. An individual might accept these odds, but not a rational insurance company for any price most property owners would be willing to pay.

Final liability for more and more of life's risks is being assumed by the federal government, i.e., taxpayers. 

...if homeowners and businesses were expected to pay the full costs of the weather risks they take, we would see a lot more pristine coastline.... What is the function of insurance, after all, but to provide price signals to encourage safe choices over dangerous ones?

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