Harvey’s Test: Businesses Struggle With Flawed Insurance as Floods Multiply

This WSJ article provides a fairly comprehensive look at the financial implications for #Harvey for small business. What’s particularly disconcerting is that NFIP is already for all intents and purposes technically insolvent (current debt to the US Treasury stands at around $25 billion) and Congress is supposed to reauthorize funding for the program’s next five years by September 30. On the lighter side of things, it’s fun to see a couple of academic colleagues’ names in print in this article; specifically, Erwann Michel-Kerjan of the Organization for Economic Cooperation and Development Board on Financial Management of Catastrophes and Ben Collier, who is a faculty member at Temple University’s Fox School of Business.

Hurricane will strain a National Flood Insurance Program out of step with needs of small businesses in era of extreme weather.

One thought on “Harvey’s Test: Businesses Struggle With Flawed Insurance as Floods Multiply”

  1. The key position pointed out by the article is that there is not a large market for flood insurance in general and loss of business flood insurance in particular. The article mentioned several reasons for the lack of private sector insurers including the low prices of government insurance, the lack of expertise in measuring flood risk and potential payouts, and the fact that only those who are very likely to be flooded buy flood insurance. While there is no apparent quick-fix, it seems that a good first step would be to eliminate subsidies and increase government insurance rates to a market rate using the best available analytics. This would create more space for private insurers, which would increase research into better analytics and provide more coverage options, and it would allow those in flood-prone areas to face the full costs of the risks and plan accordingly. Obviously, the issue at hand is to help those impacted by Harvey to restore their lives. Moving forward, however, the federal government should attempt to solve some of these underlying problems before the next major flooding disaster.

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