Monday, September 29, 2008

More Government Risk Subsidies

It seems like everywhere you look these days, people are looking for the government (i.e., taxpayers) to cover the costs of risky behavior. One of the most important lessons of economics (in my humble opinion, of course) is that if individuals don't pay the full cost of their risky behavior, they will engage in more of it. And, for some reason, we seem to have developed a fairly wide concensus in this country that it's not "fair" for people to pay higher prices to cover the cost of risky behavior.

Here's an article from Business Week that discusses the case of Citizens Property Insurance, a quasi-governmental insurer in Florida. Originally planned to be an insurer of last resort, it has become Florida's top underwriter of homeowners' insurance. What happened to the other insurance companies? As the article notes: "Faced with state-imposed limits on raising rates to cover their risks, insurers began to pull out of Florida." Isn't it obvious why rates needed to increase? Perhaps to cover the likely costs of damage? Instead, you will have taxpayers subsidizing the risky behavior of their fellow citizens (assuming the company can come up with the money to cover these risks in the event of future claims).

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