Government insurance programs are often necessary because certain perils are difficult to insure privately, and coverage may not be available at affordable premiums from private insurers. Two government property insurance programs merit discussion here:
National Flood Insurance Program
Buildings in flood plains are difficult to insure by private insurers because the ideal requirements of an insurable risk discussed in Chapter 2 are not easily met. The exposure units in flood plains are not independent of each other, and the potential for a catastrophic loss is present. Also, adverse selection is a problem because owners of property who believe their property is ...