Should the taxpayer fund insurance for those on flood plains?

CharlieRabbit01

Thrugelmir wrote: »

That wasn't my question.

I am 100% certain that I wont ever get flooded.

Jegersmart

N1AK wrote: »

Most people would have been covered by FSCS. The government could easily have chosen to allow banks to fail, sell off their books and then, if they wished, covered losses by savers with more than the FSCS limit.

The issue with how the bank bailouts have worked in the UK and Europe is they effectively allowed extremely wealthy investors from around the globe to cash out and hand all the risk over to the various governments.

Should we have allowed any and all banks to fail? Not in my opinion, but some should have closed and others should have been significantly restructured. As it is all that's happened is we rewarded the wealthy for taking risks, taken ownership of those risks and shown them that they can do it again in future.

Banks control "money" and therefore are above the law potentially - but they let Lehman go down so that the taxpayers wouldn't get too peeved that our money is being used to prop up too many failed companies. When you look at how many people move between senior positions in governments and banks and back again, it is no wonder that we have to foot the bill for these things. We have a "Government Sachs" guy coming in to run BOE soon, if you look at these people in more detail you will see what I mean.

Another example of a complete travesty is the GMO issue. You may have heard of a company called Monsanto who are the biggest manufacturer of GM seeds such as soy beans and cotton? Well these seeds are GE to be resistant to pesticide so that a farmer can use more pesticide to control weeds and protect his crop. Monsanto are the biggest glyphosate based pesticide manufacturer in the world and have a pesticide branded "Roundup" that has been around for generations. The fact that their GM seeds can withstand higher usage of Roundup has seen their profits soar from this side of the business. When you consider that Monsanto's seeds (and resulting crop) are invasive - i.e. they "infect" surrounding crops and that the their seeds are patented, it was ruled in the Supreme Court (iirc) that Monsanto could pursue legal recourse against farmers who were found to have Monsanto genes in their crop through infection to force them to use Monsanto seed. As far as I remember the Supreme Court Judge that originally ruled in favour of Monsanto was Clarence Thomas who is a formerAttorney at Monsanto......

http://www.businessweek.com/news/2012-10-05/monsanto-seed-patent-case-gets-u-dot-s-dot-supreme-court-review

This is a bit off-topic in some ways but the system is everywhere and usually affects the taxpayer in a negative way.

I won't hijack the thread further by discussing the potential implications of GMO based food - and what farmers everywhere are saying about the potential health risks etc etc - just google "Danish Farmer GMO" or similar.....suffice to say that I would recommend that NO ONE eats anything with GM ingredients......but there is EU case right now to decide whether GM crops should be approved for use over this side of the pond (besides the very limited test crops currently in use in certain countries).....

J

System

Jegersmart wrote: »

Agreed, an insurance company takes on risk in return for a premium - this is what they do for a living. If they have not taken high enough premiums for the risk then that should be their problem.


J

That's fine, and I agree with it, but in this case the normal risk-assessing process has been distorted by governments undertaking to provide flood prevention measures to offset the insurers' aversion to high risk.
If they now want to withdraw from that undertaking then they can't blame the insurers for declining to pick up the risk.

Clearly what should have happened is:

1) Planning authorities would have designated areas as at risk, so property builders or searchers would have realised that they were assuming all flood risks
2) The previous government undertaking would have had a clear expiry date, so that anyone buying a property in that area would have realised from the usual searches that the house had only time-limited flood insurance eligibility.

In both cases property prices would from inception have discounted the risks and insurance costs.

Jegersmart

Clifford_Pope wrote: »

That's fine, and I agree with it, but in this case the normal risk-assessing process has been distorted by governments undertaking to provide flood prevention measures to offset the insurers' aversion to high risk.
If they now want to withdraw from that undertaking then they can't blame the insurers for declining to pick up the risk.

Clearly what should have happened is:

1) Planning authorities would have designated areas as at risk, so property builders or searchers would have realised that they were assuming all flood risks
2) The previous government undertaking would have had a clear expiry date, so that anyone buying a property in that area would have realised from the usual searches that the house had only time-limited flood insurance eligibility.

In both cases property prices would from inception have discounted the risks and insurance costs.

Are you saying that the Government withdrew flood prevention measures secretly which has resulted in the insurance company being misled? If so, I guess the home owner should default on his mortgage with the bank and sue them and the bank in turn should sue the government as well? I am not sure I disagree with you on this, just getting the process straight in my mind. What were the promises made by the government?

Thanks
J

GDB2222

Jegersmart wrote: »

Agreed, an insurance company takes on risk in return for a premium - this is what they do for a living. If they have not taken high enough premiums for the risk then that should be their problem.

Someone mentioned a drought earlier, well that is a different scenario unless someone has paid a premium to an insurance company who has underwritten the cost of supplying water on these circumstances.

I agree that we should help each other as fellow taxpayers, but to effectively absolve a corporation of their responsibilities because they screwed up would seem irresponsible and just plain wrong.

imho

J

I have not seen anywhere that the insurance companies will not pay existing claims. The point is that the economic premium for some properties could be as much as say £10,000 to £20,000 a year in future. So, how much of that should the individual policyholder pay?

My own view is that we cannot simply throw away the entire stock of houses that ought to have hugely increased premiums – which is effectively what would happen if policyholders had to take on the whole of the cost.

On the other hand, if policyholders do not have to pay anything for their increased risk, it simply encourages more properties being built in unsuitable places. So some sort of compromise is sensible, such as policyholders paying up to 5 or 10 times the normal premium, with the rest of the cost being spread around.

CLAPTON

N1AK wrote: »

Most people would have been covered by FSCS. The government could easily have chosen to allow banks to fail, sell off their books and then, if they wished, covered losses by savers with more than the FSCS limit.

The issue with how the bank bailouts have worked in the UK and Europe is they effectively allowed extremely wealthy investors from around the globe to cash out and hand all the risk over to the various governments.

Should we have allowed any and all banks to fail? Not in my opinion, but some should have closed and others should have been significantly restructured. As it is all that's happened is we rewarded the wealthy for taking risks, taken ownership of those risks and shown them that they can do it again in future.

The issue/question was should banks be allowed to fail with the loss of people deposits i.e. no FSCS payouts on the basis that if you put money somewhere it should be at your own risk.
True moral hazard!

System

Jegersmart wrote: »

Are you saying that the Government withdrew flood prevention measures secretly which has resulted in the insurance company being misled? J

Not quite so blatant as that, but I suspect that their commitment to flood prevention work has not been quite so whole-hearted as householders and insurers had assumed was intended in the agreement.
Indeed in some coastal areas they have semi-officially actually abandoned certain hard to defend areas or properties.

Now they have been rumbled by the insurance companies, and the resulting situation has come as a nasty shock. It may in fact be the case that a large area of recent flood-plain building is not economically worth protecting, although all sides have connived at pretending that it is.

N1AK

CLAPTON wrote: »

The issue/question was should banks be allowed to fail with the loss of people deposits i.e. no FSCS payouts on the basis that if you put money somewhere it should be at your own risk.
True moral hazard!

It's a fair question although theoretical as we do have the FSCS. If the government did abolish the FSCS then I imagine many investors would effectively 'insure' themselves against that risk. Ultimately it would be the common man who loses because they don't have the time and financial knowledge to source effective insurance. Personally I think the limited FSCS protection is a good policy.

gadgetmind

GDB2222 wrote: »

The point is that the economic premium for some properties could be as much as say £10,000 to £20,000 a year in future. So, how much of that should the individual policyholder pay?

I'd put the exact figure at somewhere between £10k and £20k per annum.

CLAPTON

N1AK wrote: »

It's a fair question although theoretical as we do have the FSCS. If the government did abolish the FSCS then I imagine many investors would effectively 'insure' themselves against that risk. Ultimately it would be the common man who loses because they don't have the time and financial knowledge to source effective insurance. Personally I think the limited FSCS protection is a good policy.

I didn't really intend to go so far off the main topic but it's an interesting government protection and raises the same issues of moral hazard as insuring against flooding.

In the 2007/8 scenerio if the government had let the banks fail, in my view the FSCS would have failed too so in effect the guarentee is a government one. I think this was quite clear from Browns comments at the time.
If the government had let RBS and HBOS (then Lloyds) fail and withdrew the deposit protection I would have expected a total collapse of the banking system as everyone rushed to withdraw all their funds from banks and building society.


On the matter of insurance for flood damage my view is that we should all insure our own property as far as possible.
If that means that people pay a reasonable premium for living in places liable to flood then so beit.

If and I say if, insurers refuse outright to offer insurance for the future, then subject to the precise details I think it right that the government should offer equivalent support.
The reasons I see it as ultimately a government resposnibility is that only the government can offer flood protection on any significant scale, the the loss to the individual is enormous and potential there would be huge losses to the community if large numbers of properties were involved