The “Ill Wind” of Government Policy The federal government encourages development in hazard-prone coastal areas by lowering the risks to residents with policies such as subsidized flood insurance. The National Flood Insurance Program (NFIP) charges premiums that are not sufficient to provide a catastrophe reserve for heavier loss years and thus encourages development in hazard-prone areas. When the NFIP was began in 1968, it was intended to guide development away from flood-prone areas, thus reducing federal disaster relief payments arising from loss of life and property. Unfortunately, the program, which has become an “ill wind that blows nobody any good,” promotes the outcome it was meant to prevent by shifting part of the cost of building in hazard-prone areas to citizens at large. Ordinarily, individuals respond to the rising costs associated with storm damage by moving out of harm’s way, if ever so reluctantly. Governmental policy thus increases damage costs from storms by neutralizing the market incentives that encourage a retreat from the sea and discourage excessive building in high risk coastal zones. In addition, state government policies subvert the message of insurance premiums. Wind damage caused by hurricanes (which is not covered by the NFIP) has imposed heavy costs on insurance companies, thus causing insurance premiums to increase. As coastal residents have seen their wind and hail insurance premiums soar, state governments have been pressured to intervene. All Southeastern state governments have created state-run Windstorm Underwriters Associations, called “wind pools,” that offer coverage where private insurance is not available and generally at lower rates than provided by individual insurers. In addition, there are other government policies, such as beach nourishment and the replacement of public infrastructure, that subsidize coastal development. A better approach is to allow market signals such as insurance premiums to encourage property owners to undertake activities to adapt to living in a hazardous area or to avoid building in such areas altogether. As insurance companies increase property insurance premiums in order to pay for increasing damage costs, homeowners will increasingly build more storm resistant homes and look for less risky locations....