Two Wharton professors write in an NYT op-ed today about how the country can better prepare itself for future coastal disasters like Sandy. Most coastal residents do not buy flood insurance, even though the price is subsidized. Wind insurance is covered by homeowners policies, the prices of which have risen dramatically in recent years. Some states pool wind damage risks, which in effect means that those living inland subsidize premiums for those living near the coast.
This is a tough problem, as tens of millions of people live in areas which could have severe storm damage (and this includes Raleigh which took quite a hit in 1996 from Fran). Market pricing is always a good place to start, and certainly would discourage building and living in coastal areas. But there is a close analogy between homeowners and health insurance here; unless you can make them buy it, most coastal residents would drop coverage when faced with market rates. Also, Sandy destroyed homes in all price ranges. The wealthy might afford actuarially-priced insurance; the middle class and the poor, not so much.
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