Disaster Assistance and Government
• require federal government insurance programs to use privatesector underwriting and risk classification techniques, • authorize tax-deferred treatment of private insurers' catastrophe reserves, and • reduce the scope of current government insurance programs and not launch any new federal reinsurance schemes.
Earthquakes, floods, hurricanes, droughts, and other weather-related events since the late 1980s have led to large government outlays for disaster assistance and higher premiums for disaster insurance. By one measure, federal taxpayers provided more than $7 billion a year in disaster assistance payments from 1977 to 1995. Such perennial claims on taxpayers are not simply uncontrollable “acts of God” waiting to happen. It takes a Congress to authorize such fiscal disasters.
Government-provided programs for crop insurance and flood insurance, as well as other interventions in private disaster insurance markets, often are justified as necessary to overcome the failure of private markets to offer adequate and affordable disaster insurance. Defenders of government insurance programs claim that they reduce dependence on “free” disaster assistance and promote efficient risk management by property owners and farmers.
But government policies are the cause of, not the cure for, the limited supply and narrow scope of private-sector disaster insurance. Demand for private coverage is low in part because of the availability of disaster assistance, which substitutes for both public and private insurance. Moreover, a government that cannot say no to generous disaster assistance is