Flood protection: If it’s not your business, it’s none of your business

From the Daily Camera:

The idea [from City of Boulder officials] is that a new set of codes would apply to new construction and substantial remodels of buildings that are designated as “critical facilities.” Under the city’s definition, those buildings include hospitals, sewage treatment plants, gas stations, nursing homes, police and fire stations, emergency shelters, urgent care centers, schools, day care centers, communications facilities and businesses that store or use hazardous waste.

The Daily Camera solicited its editorial advisory board to submit their views on this.  Mine was printed on August 28:

If it’s not your business, then it’s none of your business. Government has no right to mandate how private property owners protect against floods — let alone commandeer their buildings during emergencies. The proper response to a busybody in your life is “This is private and none of your business.”  The same goes for private properties that the city considers “critical facilities.” These include gas stations, nursing homes, day care and urgent care centers, and private schools and hospitals.

Property owners have the right and responsibility to insure against risk according to their own best judgment. In a free-market, short-sighted owners would pay for lax precautions through repairs, lost revenue, higher insurance premiums, and possibly lawsuits if hazardous materials are involved.

But government sabotages responsible ownership with tax-funded disaster assistance and the monopolistic National Flood Insurance Program. As a Competitive Enterprise Institute analysis discusses, the NFIP has little incentive to accurately asses flood risks. Over several years the NFIP “paid out $806,591 for repeated storm damage to a suburban Houston home that was valued at $114,480,” reported the Houston Chronicle.

Private flood insurers have beneficially balanced incentives. Selling policies that require excessive safety measures risks losing customers to competitors. But lax measures result in paying many costly claims.

Government mandates cannot achieve this balance. Boulder officials should consider the risks of mandates that significantly increase construction and remodeling costs. These can obstruct renovations and new construction, which can result in lost jobs, tax revenue, or continued use of already flood-prone buildings.

# # #

Further reading:

Rethinking Disaster Policy, Scott Harrington, Regulation magazine

Facing Mother Nature, Martin F. Grace and Robert W. Klein, Regulation magazine

Cato Handbook for 108th Congress, Insurance Regulation and Government Insurance.

Reforming the National Flood Insurance Program after 35 Years of Failure, Eli Lehrer, Competitive Enterprise Institute, 2008

Watery Marauders,: How the Federal Government Retarded the Development of Private Flood Insurance, Eli Lehrer, Competitive Enterprise Institute, 2007

Searching for Safety (book), Aaron Wildavsky, 1988.

Books and articles by W. Kip Viscusi, Professor of Law, Economics, and Management.

“Environmental Risk Management Through Insurance“, Martin T. Katzman, Cato Journal

The Liability Maze The Impact of Liability Law on Safety and Innovation, Peter W. Huber and Robert E. Litan, Brookings Institution Press 1991 c. 514pp.

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