Sandy, Part 3: Equity and Affordability

In their New York Times Op-Ed, Erwann Michel-Kerjan and Howard Kunreuther make the following propositions about car insurance :

First, premiums should reflect risk.This makes transparent the magnitude of the hazards one faces, and could limit driving by lead-footed, distracted drivers in dangerous cars.  Careful drivers of safer vehicles could receive discounts for their use of technological innovations making their cars safer for themselves and everyone around them. 

Second, we should address equity and affordability.  If premiums are risk based, then those who drive dangerous cars recklessly and cannot afford insurance will require assistance.  We propose establishing a federal auto insurance means-tested voucher program similar to the food stamps program.

This sounds like a reasonable plan, right?  Some drivers take more risk than others, so we need to make certain they face higher insurance premiums, right?  But, that could make their premiums very expensive.  Maybe more than they can afford.  How can we expect drivers to get to work if they cannot afford their auto insurance.  Heck, they could live far from their workplace, so they have to speed to get there. 

So, premiums reflect risks but not the actual premiums people pay, just the premiums we tell them they ought to pay.  The feds will pick up the difference with vouchers.

Maybe John Colbert will wag a finger at them while they receive their voucher.  That will really send a message.

This is nuts, right?  Could the New York Times have really published this? 

No, I lied. 

Here's what they really wrote, and it's about homeowners insurance for people in flood prone areas:

First, premiums should reflect risk. This makes transparent the magnitude of the hazards one faces and could limit new construction in high-risk areas. Residents would be encouraged to reduce risk by getting discounts for, say, elevating a house or strengthening the roof.

Second, we should address equity and affordability. If premiums are risk-based, those who live in hazard-prone areas and cannot afford insurance will require assistance. We propose establishing a federal disaster insurance means-tested voucher program similar to the food stamp program.

What's the difference?  I dunno.  You tell me.