It is a sad truth that hurricanes keep threatening coastal communities, leaving behind destruction, and causing significant economic losses. To respond to the ever-present danger better, a Florida politician has made headlines by raising crucial issues concerning inadequate hurricane damage prevention measures – questioning whether flood and wind insurance is a desirable public good that people need access to nationwide. However, implementing such policies may raise unintended severe long-term consequences. This evaluation endeavours to examine whether or not weather-related insurances qualify as public goods. The paper will also discuss the appropriate role of the government in providing such a good and examine the potential unintended consequences of implementing this policy in the long term.
According to theory principles found within most evolving societies today, initiatives taken towards hurricane damage prevention can generally be categorized as public goods based on their non-excludable characteristics combined with their lack of rivalry attribute (Peck et al., 2021). The whole community benefits from resilient infrastructure development or early warning systems deployed for hurricane preparation without individual discrimination, making exclusions practically impossible. On the other hand, flood and wind insurance plans are excludable products sold in the commercial market since policyholders are entitled to exclusive coverage while those without remain vulnerable (Peck et al., 2021).
Non-rivalry: Hurricane damage prevention efforts do not diminish the benefits available to others (Peck et al., 2021). For example, if a community invests in storm surge barriers or flood control systems, the protection provided to one property owner increases the availability and benefits for other property owners. However, flood and wind insurance is a private good because its provision to one property owner reduces the availability or benefits for others. Insurance coverage is contingent on individual policies and premiums, and providing it to all residential property owners in the state would require substantial resources.
Government roles
The government can significantly mitigate the impact of natural disasters like floods and winds on individuals’ finances and communities. Firstly, the government needs to regulate existing insurance providers’ opaque dealings by establishing oversight mechanisms covering ethical practices relating to standardization of coverage, offering premium charging rates, and ensuring claims are handled reasonably transparently (Baumol & Blinder, 2012). Doing so will protect insured parties against exploitation while guaranteeing transparency within the overall market operations.
Proactive involvement from our governmental institutions is another effective way of promoting risk reduction and mitigation measures. One such intervention could be incentivizing landowners to invest in structural reinforcement or sustainable building practices as preventive actions against natural disasters; this step will reduce damages and offer long-term economic gains through increased sustainability practices. It may also involve investing more funds into researching flood/wind hazards resulting in innovative insurance policies that best cater to needs addressing disaster management issues (Baumol & Blinder, 2012). Overall, aiding citizens through access to valuable resources while empowering them with mitigation strategies has proved successful mechanisms at both individual/community levels against financial burdens derived from catastrophes.
Unintended consequences
Implementing a government-provided flood and wind insurance policy for all residential property owners in the state could lead to several unintended consequences over 5-10 years. As a result, the parties must exercise responsible stewardship. The value of responsible stewardship emphasizes the careful and ethical use of resources (Saint Leo University, n.d.). In this context, it asks for a careful examination of the costs and advantages of government-provided flood and wind insurance. Assessing unintended consequences and long-term financial ramifications is critical to ensure responsible stewardship of public resources.
Some consequences that may arise over time are moral hazard and fiscal burden (Zhao et al., 2020). Moral hazard refers to a situation in which individuals are insured against specific risks, leading them to take on more risky behaviour because they believe any potential losses will be covered by their insurance policy. This can cause people to choose where they live carelessly or not plan adequately for catastrophic events, ultimately making matters worse. Another consequence is the fiscal burden (Marcoux & Wagner, 2023). Providing insurance to all residential property owners would place a substantial financial burden on the government. The costs associated with insuring against flood and wind damage can be significant, especially in areas prone to hurricanes (Zhao et al., 2020). This burden could strain public finances, potentially leading to increased taxes or reduced funding for other essential public services.
To conclude, hurricane protection is undoubtedly a matter of utmost importance for everyone’s well-being. Still, providing flood and wind insurance coverage to all residential property owners does not necessarily constitute a public good but a private good. The government holds the power to regulate insurers efficiently by promoting risk-mitigation schemes and ensuring fair business practices under its jurisdiction. However, considering the potential hazards of this action entails exercising prudence while contemplating this policy change and its financial repercussions over time, ultimately minimizing moral hazard problems effectively. Therefore, addressing them with an eye towards responsible stewardship ensures effective long-term outcomes.
References
Baumol, W. J., & Blinder, A. S. (2012). Economics: principles and policy. South-Western Cengage Learning.
Marcoux, K., & H Wagner, K. R. (2023). Fifty Years of US Natural Disaster Insurance Policy.
Peck, J., Kirk, C. P., Luangrath, A. W., & Shu, S. B. (2021). Caring for the commons: Using psychological ownership to enhance stewardship behaviour for public goods. Journal of Marketing, 85(2), 33–49.
Saint Leo University. (n.d.). Saint Leo University Core Values. Saint Leo University Ministry. https://ministry.saintleo.edu/saint-leo-university-core-values
Zhao, J., Lee, J. Y., Li, Y., & Yin, Y. J. (2020). Effect of catastrophe insurance on disaster-impacted community: Quantitative framework and case studies. International Journal of Disaster Risk Reduction, p. 43, 101387.
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