Lava is flowing straight for the village of Pahoa on the Big Island of Hawaii, and many residents are fleeing their homes.  It’s a dramatic disaster, with losses projected in the millions of dollars, and many folks are about to lose property that’s been in their family for generations.  However, as more than 1,000 people flee the area, it’s helpful to remember where the disaster came from originally — and it’s not the volcano.
More than 20 years ago, there was another disruption on Kilauea Volcano on the Big Island of Hawaii.  No, it wasn’t an earthquake, or a lava flow, but a government agency that was created out of nowhere, as if it came from the active volcano itself.  The agency was called the “Hawaii Property Insurance Association”, and its job was to insure homes in areas that private insurance wouldn’t touch.
In the 1990s, the town of Kalapana was swallowed by lava, and private insurance companies stopped insuring land near the active volcano, called “Lava Zone 1“.  Private insurance also pulled out of “Lava Zone 2”, which meant that it was impossible to get insurance anywhere near this high hazard area.
Now, this might sound like a good idea, if you don’t like the idea of waking up in the middle of the night surrounded by lava.  If private insurance companies want to stay out of the area, it’s a pretty clear signal that everyone else should stay out of the area too.
However, in 1992, the government created the Hawaii Property Insurance Association, which provided government insurance coverage to Lava Zones 1 and 2.  This resulted in a boom in the housing market in this area.
By 2008, there were more than 2,400 HPIA policies in the area, and many more to come.  The situation became so dangerous that the Honolulu-Advertiser warned, “Development Soars in Risky Hawaii Lava Zones“.
In economic terms, this created a moral-hazard.  While private insurance companies were warning, “Don’t build here, it’s too dangerous!”  The public insurance agency said, “Go ahead and build all you want!”  And without that warning signal, many people flooded into the area.
As people flee Pahoa from the approaching lava, let’s keep them in our thoughts and charitable wishes — and also remember the real disaster: a government created moral hazard.

Join the discussion 6 Comments

  • NHConstitutionalist says:

    There is little difference then when lack of proper zoning laws permit people to build on cliffs that that get washed out during heavy rains in CA, or those that build too close to river banks and shore lines that flood. Use of common sense should make buyers and money grubbing builders and realtors think twice; But hey, anything to make a buck including the government, states, and towns that allow it.
    Stupidity comes at a high cost no matter what you pay for it.

    • Bisley says:

      Wrong! It’s not about zoning laws (which, in most cases, shouldn’t exist); if people wish to build things on the edge of a cliff, a river bank, or where ever, there is no reason for government to forcibly prevent them from doing as they please. Neither should government encourage, or subsidize their actions by underwriting their potential losses. People should be free to do whatever they like, so long as the aren’t violating the rights of others in the process, and are willing to bear the responsibility themselves (or buy insurance in a free market, if any is available).

      • Tionico says:

        So true.. zoning laws should not exist, and in some states they don’t. Further, building codes should be optional…. if I want to build haning off the side of that cliff, let me build however I want to. If I can build a shack out of nothing, and am willing to live in it, so what? Now, if I DO want insurance, fine…. let the underwriter determine whether he’ll bind coverage on my shack, and when I go to sell it, let the buyer determine what he’ll pay for the “substandard” structure I put together. No wonder so many are homeless…. instead of governments allowing folks to build and occupy “substandard” housing, with its attendant set of pros and cons,, many canot afford the “standard” buildings…… and so end up living in tents squatting on pubilc land, at times getting shot for the priviledge. Get Nanny OUT of our lives. WHO SAID government, that is, the other folks smart enough to NOT build downstream from the volcano, has to replace the home whose builder/occupant exercised bad judgement in locating there, knowing (or should have known) the attendant risks? One more instance of equality of outcome, when our nation is built upon the concept of equality of opprtunity.

  • JRHowosso says:

    “Hawaii Property Insurance Association” still a better idea than sending my warriors to a Ebola ridden Country…!

  • firstpriorities says:

    I grew up in St Paul MN. One of the families that went to the same church mine went to, lived on the ‘river bottoms’ of the Mississippi. The part of town I lived in was more than 100′ above the river bottoms. This family would get flooded out every few years. They kept rebuilding, with the help of people who cared about them. But did not care enough to help them figure out that though their location was beautiful, serene and private most years, every few years, the house would get wiped out by flood waters.
    Problem with government ‘insurance’ programs of course is that the ‘investors’ are not given a choice in the underwriting. I’m no fan of insurance companies of any nature, government insurance is by far the worst of the breed.
    One of my sisters lives about a mile or two from the lava flow. If I were her husband, I’d pack up and come back to Iowa full time.
    Equality of outcome is the rule of thumb for collectivists. It’s actually a very selfish world view which in full awareness, places others at financial risk.
    So, how do I exercise my personal responsibility in matters such as this? I cease to make taxable income, thus avoiding legally, income taxes. I refuse to participate in this folly any longer. I do not consider it a sacrifice, I consider it an honor. An adventure. To figure out how to live with out the collectivist imposed financial risk and still have a full life, is an adventure. A full life no longer means to me, flying around the country (TSA and all that). I have my family and friends, that is a full life to me.
    I am pleased to have found this site and hope my initial excitement of it does not fade away.

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