Trashing insurance contracts in Mississippi.

OpinionJournal wrote President Bush has promised to rebuild the Gulf Coast "higher and better" than before. But that task is going to be far more difficult if Mississippi Attorney General Jim Hood and his tort lawyer pals succeed in rewriting private insurance contracts after the hurricanes have hit.

I doubt that they will be successful.

For decades private insurers have had flood exclusions in their contracts--which is one reason the federal government decided to offer its own flood insurance. Yet Mr. Hood now says these exclusions are "unconscionable," and he is suing private insurers to cover all of Katrina's costs. Hot on his heels is tort kingpin Dickie Scruggs, whose own home was damaged and who promises to sue the industry for what he claims are deceptive business practices.

I definitely believe the Federal Government should NOT be in the business of offerring flood insurance that private insurance companies won't write. If no one is willing to write insurance for it, then prehaps people will stop building in flood prone areas.

Wading through this muddled thinking takes some effort, but the first thing to understand is why insurers have flood exclusions. The simple reason is that floods are not a typical insurable risk. The entire point of insurance is to spread risk by collecting premiums from a large group of people who pay into a pool, which is then used to compensate the relatively few who suffer accidents. Floods don't work that way. The only people who buy flood insurance are those who are very likely to be flooded, making it impossible to spread risk. Floods also tend to wipe out entire regions, causing extraordinary losses. And they often result in repeat losses, because people rebuild in flood-prone areas.

What the government should do is urge insurance companies to cover flood along with all other damages, the first time it happens, but that once an area has been flooded, make it a pre-existing condition, not to be covered in the the future, and if people are stupid enough to rebuild in an area that has been flooded, then they are on their own. Darwinism at it's finest.

Flood insurance has instead been offered by the federal government for 37 years, and FEMA, which administers the National Flood Insurance Program, spends millions of dollars annually to promote this coverage in the Gulf Coast and other areas. It's true that few Mississippians actually bought this flood insurance--which explains Mr. Hood's populist suit--but that was because either they didn't bother or didn't want to spend the money because they assumed the feds would bail them out anyway if disaster struck.

And that is what MUST come to a stop.

It was not because the public didn't realize they weren't covered by their private policies, which practically scream about the exclusion on the declaration page.