Mortgage Loan Center

There is a problem I assessing risk

HARTFORD, Conn. – There is a financial crisis this year which is linked to the failure to properly account for risk and charge for it.

At the same time that the government and industry are dealing with this economic crisis, consumers, insurers and policymakers must join together in order to prevent a different catastrophe that results from the improper pricing of risk. If this is not carried out properly the taxpayer may ultimately have to pay for it.

Risk is a part of life. You are at risk as soon as you leave your home each day. You take a risk when you build an investment portfolio. Those who live in coastal areas have learned painfully brought than any of use about risk since they live in the path of natural catastrophes, such as hurricanes. While most risks are insurable, guarding against the largest hurricanes requires a new kind of public-private partnership.

When people disregard risk, as many did leading up to the problems with subprime mortgages, there is a fallout that affects people in all walks of life, even those far removed from the actual disaster. We as taxpayers, will have to deal with that fallout for years. Today, we're acting the same way with regard to the risk posed by natural catastrophes.

It is now the third anniversary of hurricanes Katrina and Rita, we face the damages wrought by Tropical Storm Fay and we are concerned about the approach of Tropical Storm Gustav. All this reminds us that we have overbuilt our coastlines, offering them up as an expensive bull's-eye. There is more to these hurricanes than the human suffering since we also face a growing financial crisis that places in threat not only the coastal states, but possibly all taxpayers everywhere.

No expert is needed to see what history has proved and what we can expect for the future, to see the financial train wreck that is heading our way if we don't change the way that we prepare for and the way that we seek to recover from hurricanes. A frank discussion between the involved parties and a collective effort to develop a long-term solution is called for.

As many coastal homeowners have already become aware, the costs of insurance in hurricane-prone areas have risen in order to more properly reflect this dramatically growing exposure to possible risk. There are states that are pursuing policies that perpetuate risky behavior and while undermining the stability of the private insurance market, as they attempt to assist homeowners. Mixing hope with artificially suppressed rates is not a viable plan. In the end it the taxpayers who are increasingly having to pay for the recovery. This is an ongoing trend that continues amid over-politicized debates about who is at blame for the rising insurance rates.