California Flood Insurance Hurts Everyone

California is considering adopting its own flood insurance scheme, according to this news report: California Considers Ditching Federal Flood Insurance For State-Run Program SACRAMENTO (CBS13) – California is overpaying for flood insurance, according to a report from a UC Davis research group. And now the Department of Water Resources is considering a state-run flood insurance program that could save billions of dollars. “I was afraid to add it up. Apparently, California residents have paid more than $3B more into the program than those residents have received since the NFIP started. So the plan is to exit the NFIP statewide, and

Expanding the Market Through Fear

There’s a good article in Vanity Fair about the scandal at Valeant, the pharmaceuticals maker. NPR has also covered this for those not interested in reading. http://www.vanityfair.com/news/2016/06/the-valeant-meltdown-and-wall-streets-major-drug-problem The part that has everyone up in arms has to do with their pricing strategy. The examples given are Syprine and Cuprimine, for treating Wilson’s disease: [F]or years, Merck, the big pharmaceutical giant, owned these drugs and sold them for a dollar a pill. And then Merck sold these two drugs to another firm, who then in turn sold them to Valeant, and Valeant began to hike the price of the drugs. Today

Hazard, Risk, and Expected Losses

NewHumanist has a great article on the difference between hazard and risk: Does everything cause cancer? This article is a preview from the Summer 2016 edition of New Humanist. You can find out more and subscribe here. If I told you that the World Health Organisation (WHO) had recently declared a chemical weedkiller widely used on our crops and in our gardens to be “possibly carcinogenic”, you’d rightly be alarmed. Basically, the gist of the article is the hazard is what can go wrong. The risk is how likely it is to go wrong. There’s another important metric they neglected

Flood Insurance Profits? Maybe Not

NPR has made a lot out of a report that insurance companies made $400 million in profit from flood insurance. This does not seem likely. When I wrote my text on flood insurance, I was unable to disaggregate profit numbers. Also, some of the figures given in the NPR report are simply incorrect. For instance, they show that 1/3 of premiums go to insurances companies. Insurance companies receive 15% to manage record keeping, sales, and claims processing. In addition, companies that sell well get up to 2% more, capping the amount insurance companies are paid at half of the 1/3rd

The Private Flood Insurance Bill

The House of Representatives just passed a bill allowing private insurance to meet the flood insurance requirement for homeowners. In most cases, if you have a federally-backed mortgage, and you are on the 100-year floodplain, you have to have flood insurance. Federally-backed, in this case, means a conforming loan for Fannie Mae or Freddie Mac, or one issued by an FDIC or NCUA insured depository institution. There are some other cases, but that’s most of them right there. The purpose of this requirement is to protect taxpayers from liability through implicit liabilities through the GSE or depository insurance, after a