Insurance Subsidies Exacerbate Climate Change Risks
WASHINGTON (July 21, 2016) – Years of government involvement in property insurance markets have led to artificially low rates that mask the true risk of living in regions prone to dangerous weather, according to a new policy short by R Street Texas Director Josiah Neeley.
”It cannot be ignored the extent to which government policy at both the state and federal level has encouraged people to live in flood-prone and storm-prone areas. Government subsidies have distorted market signals, leading many into a false sense of security about the risks they face,” writes Neeley. “Artificially low rates provide signals that living in a specific location involves less risk than it actually does, leading more people to live and move to vulnerable areas.”
According to data from 2010, more than 123 million people – nearly 40 percent of the U.S. population – live in coastal counties, making the issue one with broad-reaching implications.
Contributing to the problem is the federal government’s National Flood Insurance Program (NFIP), which has suppressed the creation of a private flood insurance market, even as its own rates fail to reflect risk, both because of explicit subsidies and outdated flood maps. Neeley also looks at the Texas Windstorm Insurance Association, whose below-market rates have encouraged development in Texas’ coastal counties
“Subsidizing people to live in disaster-prone areas is wrong in fiscal, environmental and moral terms,” Neeley concludes. “To the extent lawmakers recognize climate change and sea-level rise as real problems, they need to stop government action that exacerbates these risks and leads more people to put themselves in harm’s way.”
