Uninsurable Irene

In many a coastal locality
There's a state-run insurance modality,
Though critics insist
That in lowering risk,
The hazard is one of morality.

As Hurricane Irene bears down upon the U.S. East Coast, millions of households are making last-minute checks: food and supplies, evacuation plans… and homeowner’s insurance. The Wall Street Journal reports that 677,000 households in Irene’s path live in coastal areas considered too risky by private insurers, and are therefore covered by state-sponsored “insurers of last resort.” Insurance pools such as the North Carolina Beach Plan have $196 billion total exposure. Should an especially severe storm exhaust their resources, they will draw on both reinsurance and privately insured state residents to cover any shortfall. Therein lies the Moral Hazard: by spreading the risk of living in hurricane-prone areas, the states end up encouraging more construction in harm’s way and increasing the overall financial risk of natural disaster.