Eli Lehrer already has told us why North Carolina needs a major overhaul of its coastal property insurance Beach Plan.
If you need more evidence to convince you, perhaps the following passage from Thomas Sowell?s new book Applied Economics might help:
As private insurance companies have been withdrawing from insuring properties along Gulf coast and east coast shorelines, where government regulation often prevents them from charging premiums high enough to cover the risks in such places, both state and federal insurance programs have been acting increasingly as insurers of last resort, transferring the risks to taxpayers.
Here, as elsewhere, the incentives facing political decision-makers are very different from the incentives facing economic decision-makers. Private insurance companies must either charge enough to cover the cost of dangerous situations or impose requirements to reduce those dangers, while political decision-makers can base their decisions on what will make them look compassionate ? and hence more re-electable ? while leaving the costs of future disasters to be paid, perhaps long after stage one, by taxpayers. If insurance companies followed the same policy, reactions from investors and financial institutions ? which monitor business much more closely than voters can monitor government ? would immediately cause the value of the company?s stock and the ratings of their bonds to drop dramatically, putting the jobs of the company executives in immediate danger. In short, both the political decision-makers and the business decision-makers are protecting their own jobs, though that requires very different decisions in these different institutions.
