Natural catastrophes have become the ultimate headache for property-casualty insurers resulting in some insurers pulling out of disaster areas altogether, e.g., Florida and California. This figure does not take into account the uninsured losses and damage to local infrastructure and state and federal facilities. Homeowners would walk away from their properties resulting in massive losses to the banking and savings and loan industries. Efforts by the states to address the problem are insufficient. As long as the cost is high and there is a risk that a sizable quake could wipe out the assets of the CEA, many home owners will simply take their chances and skip the coverage, relying instead on state and federal disaster aid.
Big disasters require big government.
Existing flood insurance would become part and parcel of the disaster policy as would many of the coverages currently being provided by traditional property-casualty policies. The federal and state governments would have to take the position that, with the availability of a disaster policy, there would be no emergency disaster relief for those who chose not to purchase the policy. For this to be implemented, the policy would have to be universally available and mandatory on all loans. This precedent has already been established by the flood insurance program for homes built in flood-prone areas. Premiums would have to be level throughout the U.S. to be fair and equitable to all participants, enabling the law of large numbers and the concept of sharing the risk to ensure the success of the program.