Question
nsurance companies now refuse to offer hurricane or earthquake insurance in many parts of the world for these relativelynon-diversifiablerisks. When Nationwide Insurance Company announced that
nsurance companies now refuse to offer hurricane or earthquake insurance in many parts of the world for these relativelynon-diversifiablerisks. When Nationwide Insurance Company announced that it was sharply curtailing sales of new policies along the Gulf of Mexico and the eastern seaboard from Texas to Maine, a company official explained, "Prudence requires us to diligently manage our exposure to catastrophic losses." In response to such decisions, the U.S. government has stepped in to partially replace private insurers and provide subsidized insurance. But the major argument against programs that subsidize insurance is that they provide incentives to engage in an excessively risky behavior, such as building or buying homes in areas that have a high probability of being flooded. What is your opinion about the issue - Should the government provide subsidized insurance or should the free market be left to provide such insurance?
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