Been Busy, Lew Rockwell, and Homeowners Insurance

I've been pretty busy lately, what with work and life and all, so I haven't had time to do much blogging. For those that stop by on a regular basis, thanks for doing so, and I hope in the next day or two to get back to cranking out stuff here.

In the meantime, you've always gotta be excited when a new Lew Rockwell article is published on LewRockwell.com , as there was this morning. Check it out. Here is an excerpt:

Unexpected events occur in life. Preparing for every possible contingency is not only too expensive; it is crazy, as in obsessive-compulsive. We don't drive around in steel tanks because we prefer the lower expense and ease of smaller cars. We prefer driving to the safer alternative of staying home because we need to get somewhere and we willingly take the chance.

In the case of hurricanes, homeowners might actually prefer to pay less for an already expensive roofing job by employing a less experienced or less thorough worker or by requesting cheaper materials. If the roofer bangs in the nails well enough to hold at most times – even if the roof gives way in a hurricane – that is a risk that might be economically worthwhile for the homeowner. Indeed, most homeowners are interested in cosmetics; the underlying construction is something that people would otherwise gladly scrimp on.

Is this a market failure? Not necessarily. Life consists of tradeoffs. Whatever resources are expended in one area cannot be expended in another area. Provided the homeowner is bearing the full liability, choosing shoddy construction is certainly his right. If he makes a mistake, no one pays but the homeowner.

However: liability is a big proviso. Most homes are not owned outright; rather the owner holds a mortgage that is marketed as a financial instrument. And how does the owner of the financial instrument assure the quality of his investment? The critical institution here is insurance. It is the insurance company that provides the market service of bearing the liability in the case of unexpected disaster. It is up to the insurer to make the calculation concerning the likelihood of this or that contingency: whether it is fire, hurricane, flood damage, theft, or whatever.

It is for this reason that homeowners spend far more on construction and upkeep than they otherwise would. Homeowners may only care about landscaping and paint color, but the insurer cares about the thousands of tiny issues that appear in the inspections that take place before the bank approves a mortgage.

What if the inspection is not thorough? Well, there is a competitive market for inspections as well. Insurers work with mortgage lenders to find the best ones. An inspector who does not do his job will be pushed out, while those who do more thorough inspections and catch more issues than insurers and mortgage lenders care will gain reputations.

This is not speculation. This is how the market works every day, when it is allowed to. (emphasis mine -LJ) Homeowners are constantly jumping through hoops that they otherwise wouldn't care a flip about, solely because banks and insurers do care. And it's even true for those homes that do not carry a mortgage. Homeowners insurance is a way for every homeowner to slough off the liability of financial losses coming their way through unexpected events like extreme weather.