So why can’t we have insurance that plans for them?
Today, Laguna Beach was closed to through traffic due to flooding. It has not flooded here in 100 years. Yet today, downtown business owners are devastated by a natural disaster for which they have no insurance. In the words of city councilman and local business owner Kelly Boyd, “This is not good. We cannot get flood insurance in town because it is on a flood plain.”
The plight of Laguna Beach business owners is all too common in the residential sector as well. Insurance companies offer little to no coverage for hurricane, volcanic eruption, landslide, earthquake or tsunami damages. Because they pool the premiums among very few, the price for this type of coverage is outrageously expensive if you can get it at all.
Natural disasters strike with impunity and total disregard for actuarial tables. And while the type of disaster, location and severity are unpredictable, the nation as a whole would benefit greater from the creation of a federal insurance program designed to deal with the financial aftermath of disasters such as these. The concept of federally regulated insurance is simple: share those risks no individual can afford among many, and share them at a cost everyone can afford. Natural disasters are perfect examples of where a national insurance policy could ensure peace of mind for all property owners.
So here is the proposal: create a mandatory Federal Natural Disaster Fund. The cost would be $100 per year per home. With 130 million homes in the country the fund would produce $130 billion a year. If you add premiums from businesses and something from renters – the number gets better. Mandatory is necessary because it would generate a substantial pool of money, payment would be through the IRS (no sales commissions) and would be administered by FEMA.
How much would be raised and would it be enough? The gulf coast oil spill cost $40 billion. Katrina ran $300 billion This fund would raise about $130 billion annually. Whether it is enough depends on what natural disasters occur and how well the fund is managed. Based on my initial calculations it would provide a surplus each year and should be sufficient over time for any natural disasters. Considering that we have no insurance available whatsoever for most natural disasters, this fund would go a long way to providing through the public sector what private sector has failed to deliver.