Talk:Flood insurance

Bias

"Unfortunately, in flood insurance, the numbers of claimants is larger than the available number of persons interested in protecting their property from the peril, which means that most private insurers view the probability of generating a profit from providing flood insurance as being remote."

Objectively the above statement does not make sense. By definition, a claimant must be someone who has previously purchased that particular insurance policy. It stands to reason, then, that anyone who is a claimant would have been "interested in protecting their property from [flood] peril...". Therefore, you cannot have more claimants than people who have purchased or is interested in purchasing the policy. This statement is thus factually incorrect and ambiguous in meaning.

I think what the author meant to say or communicate is that the proportion of claimants to the total size of the insured pool is high enough that generating a profit is unlikely. In other words, most people who buy flood insurance will end up using it thus making the policy economically unviable.

SBR249 (talk) 17:56, 27 August 2017 (UTC)

Who wrote this? An insurance industry PR person? "Private insurers are unable to insure against the peril of flood due to the prevalence of adverse selection, which is the purchase of insurance by persons most affected by the specific peril of flood." Unable? This cannot be the right word. As described, this issue is easily addressed by pricing the coverage correctly.

Also, is there a reference to *why* insurers are allowed to exclude flooding and other specific types of damage?

Tswann01 (talk) 12:15, 23 September 2009 (UTC)tswann01

Agreed; adverse selection stems from assymetric information held by the purchaser of insurance; for example taking out health insurance specifically to cover the cost of an impending knee reconstruction.

Taking advantage of living on a flood plain is not so easy, unless one plans on commiting insurance fraud by overinsuring a relatively worthless asset. Furthermore, with the exception of areas prone to annual flooding, (where insurance would not be available), the policy holder cannot predict which year flooding is likely to occur. If anything, the actuaries at the insurance company are likely to have an advantage, as they are more likely to have information on topography, climate and past events. — Preceding unsigned comment added by 27.32.226.136 (talk) 07:24, 15 July 2011 (UTC)

- Although adverse selection is an issue with flood insurance, it is an issue with all types of insurance. In the article I don't see the more important issue related to flood insurance, namely that of systematic risk vs specific risk. When the payoff events are uncorrelated (knee surgeries) compared to situations in which they are correlated (floods in many cases) it drastically affects the size of potential payouts in any given time period, therefore making it much more difficult for private insurers to handle the eventuality of huge simultaneous payouts. — Preceding unsigned comment added by 24.19.227.166 (talk) 04:24, 9 November 2013 (UTC)

Controversial

Why is the US Federal Flood Insurance program here said to be "controversial" ?

What is the controversy ?

As the insurer of last resort, this program effectively sanctifies risk prone areas that other insurers won't touch. It basically leaves the US taxpayer on the hook to cover risks that no one else will. See moral hazard for more on this.--Hooperbloob 06:31, 13 February 2007 (UTC)

An interesting view. Three things --

1. Moral Hazards - Considering its behavior towards its insureds generally, when was the insurance industry concerned with moral behavior at all ? It appears that for-profit insurers cannot, virtually by definition, indulge in moral behavior toward both its insureds and its stockholders as those insurers and their relationships to those parties are presently constituted.

2. Political Hazards - When their is no insurance at all, those who are in effect insured by the taxpayers are those who can wield sufficient political muscle to open the gates of the treasury. How is that superior to the situation in which the insureds at least contribute something to the kitty.

3. Structure - Federal Flood Insurance could be structured to present the true costs to the insured. Assuming that it does not (I do not know one way or the other, for a fact), then is this not just an example of another form of political hazard ?

I use the term "moral" in the economic sense -- but I think that we need a different term for "morale" -- since both insured and insurers do engage in immoral conduct. —The preceding unsigned comment was added by 68.220.21.92 (talk) 08:47, 13 February 2007 (UTC).

That is all better discussed at the main article specifically on the US govermment flood insurance program. To directly answer one of your questions, one of the concerns with that program is that today, homeowners are encouraged to build in floodplains (because they know that the gov. will cover the cost, which results in injuries and deaths that would not occur otherwise), and secondly, these homeowners also get both disaster funds and insurance funds, rather than just disaster funds, which exacerbates the first problem. Some good sources discussing this are needed for this article.--Gloriamarie 01:52, 9 October 2007 (UTC)

Cost

I've heard that most people avoid flood insurance because it is cost preventative. 169.233.57.251 (talk) 19:58, 3 June 2009 (UTC)