"Government is a guarantor of liberty and is compatible with liberty only if its range is adequately restricted to the preservation of what is called economic freedom." --Ludwig von Mises
With an unemployment rate of nearly 10 percent and 125,000 jobs lost in the month of June, Democrats, once again, have chosen to expand another government program to compete with private sector firms rather than consider policies that would create jobs and grow the economy. On Thursday, July 22, 2010, the House is expected to consider H.R. 1264, the Multiple Peril Insurance Act, introduced on March 3, 2009 by Rep. Gene Taylor (D-MS). The bill would expand an insolvent government program by adding windstorm coverage to the Nation Flood Insurance Protection Program (NFIP) financed by the nation’s taxpayers. The bill would broadly define a windstorm as any hurricane, tornado, cyclone, typhoon, or other wind event. The legislation would authorize the NFIP to sell multiperil and windstorm insurance policies to residential and nonresidential property owners. Windstorm coverage would cover property damage caused by wind only and would be available to property owners who also purchased a flood insurance policy from through the NFIP. Multiperil coverage would cover both wind and flood damage. While the bill is being promoted as being necessary to protect homes in coastal areas and to save taxpayers money, most taxpayers do not live in the covered areas but would be forced to subsidize those who choose to do so, including wealthier property owners who can afford to purchase policies offered by the private sector providers.
ISSUES OF CONCERN:
Another Assault on Taxpayers: The NFIP already has an $18.75 billion deficit owed to the taxpayers, and according to the Congressional Budget Office, it is unlikely that the NFIP will pay its debt and will likely exhaust its remaining borrowing authority. The NFIP is currently authorized to borrow up to $20.775 billion. Since 2006, the Government Accountability Office has included the NFIP on its list of “high-risk” federal government programs in need of comprehensive reforms. Currently, there is nothing in the bill to provide a plan for the NFIP to repay its debts to the taxpayers or protect the taxpayers from future exposure. With the possibility of one large windstorm wiping out premiums collected to support the NFIP, expanding the responsibilities of an already insolvent NFIP would be financially irresponsible. Transferring the liabilities for wind damage from the private sector to taxpayers burdened by a national debt of $13.2 trillion would be financially reckless.
More Government Intrusion in the Marketplace: Like the Democrats’ plans that expand the control of government, H.R. 1264 represents yet another ill-advised plan that would negatively impact the private sector at the expense of the taxpayers. Wind insurance provided by the federal government would distort rates from their free market based values and would eventually replace catastrophic windstorm insurance that is currently being provided by the private sector. Additionally, private policy holders who feel they have been harmed by a private insurance provider can seek a remedy in a court of law.
Increases Moral Hazard: Moral hazard occurs when an institution or individual is protected from exposure to certain market risks and behaves without discipline as a result. Rather than having an economic incentive to mitigate risks, expanding the NFIP to include wind coverage would invite risk taking because those who engage in such acts would not bear the full costs of a financial loss to their properties. Currently, prices for private sector wind insurance policies are important market signals.