Spreading the Risk or Passing the Buck?

Tim Haab at Environmental Economics has a post which refers to efforts in Congress to develop reinsurance which would reduce some of the insurance costs paid by coastal residents. His post brings up a good point: does this effort subsidize coastal residents (he appears to think so) or does it spread risks across a larger pool of people. If the program is similar to the NFIP, it may very well subsidize some of these coastal residents. This would be problematic since it reduces the costs associated with living in high risk areas. If the program is actuarially fair, however, it may spread risks across different regions of the US.

Many would argue, however, that government should not get into the insurance business.