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A false sense of security

Insurance is all about security. Insurers' advertising speak of good neighbors and being in good hands. The national flood insurance program was created after severe floods in the 1960s destroyed large numbers of homes and the federal government stepped in to give protection to many people who lived in areas prone to flooding.

The flood insurance program has been a lifesaver to millions who have been flooded out of their houses. But it may have had the unintended consequence of giving people a false sense of security and making people believe that they can build anywhere and the government will literally bail them out after the next flood.

The flooding in Louisiana this summer was an extreme example of this, due to the incredible storms that dropped feet of rain within a few hours. This caused widespread flooding and an estimated $8.7 billion in damage. Some suggest that some of that damage was more severe because of the growth of housing and infrastructure into areas prone to flooding in the last 50 years. 

The irony is that flood control structures must become ever larger and more expensive and create the likelihood of ever worse flooding. Roads and structure increase runoff, diminish the ability of the landscape to absorb heavy rain and place more people and structures at risk.

Minnesota, too, has experienced extreme flood events in the last few years. People love to live on lakes and streams, but those watercourses can swell and leave devastation in the wake of a severe weather event. As the weather becomes more volatile, those innocent looking creeks and streams can rise with amazing speed and cause loss of life and property in a very short time.

Troublingly, in places like Louisiana, structures are being rebuilt ignoring flood risk and some communities are allowing exceptions to requirements to make it more affordable to rebuild. This may see a good idea in the short run, but will only increase the risk to life and property in future events.

In addition, the flood insurance program is massively in debt, meaning the government will either raise premiums even more severely than it has already or it will enforce draconian building standards that will effectively leave many people outside the program.

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