Flood insurance cannot be actuarially self-supporting because risk is unpredictable
Evidence
(3) There was considerable controversy at the hearings as to whether the insurance and reinsurance programs should be set up on an actuarially “self-supporting” basis (many insurance industry representatives maintaining that this was impossible for the very reasons which prevented private inurance companies from entering the flood insurance field) or whether this should be recognized as an area requiring government subsidies. Assuming the latter to be the case, the further question was raised whether such subsidies should come wholly from the federal government, or whether the states should be required to carry a part of the burden. — Henry M. Hart, Jr. and Albert M. Sacks, The Legal Process, 1781
Categorization
- DEFINE: A foundational idea toward later policy debates: why private markets fail at some catastrophic perils and what subsidy structure results.
- SHARE: The actuarial self-supporting vs subsidized dispute in flood insurance foreshadows modern NFIP debates — worth sending to someone interested in housing/climate policy.
- XREF: connects to: Cheap flood insurance creates moral hazard by encouraging settlement in flood-prone areas — Henry M. Hart, Jr. and Albert M. Sacks, The Legal Process: Basic Problems in…, 1786; Reliable long-run flood loss data did not exist to price the program — Henry M. Hart, Jr. and Albert M. Sacks, The Legal Process: Basic Problems in…, 2527; Neoliberal risk thinking undermines the actuarial categories classical insurance requires — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 336 (+2 more)
Broader Connections
- Neoliberal risk thinking undermines the actuarial categories classical insurance requires
#corroborates(0.80) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 336 - Extreme default risk makes rational profit calculation impossible.
#expands(0.75) — Diego Gambetta, Trust - Making and Breaking Cooperative…, 2380 - The financial system failed to foresee crisis because its risk theory denied catastrophes
#corroborates(0.72) — Mark Blyth, Austerity, 100