I was intrigued to learn from a current affairs show that those insured in the bush-fire crisis paid about 40% of their property insurance premiums to government to fund the CFA. Those uninsured - there were many - paid nothing to the CFA but, of course, received the assistance of the CFA during the crisis. Ken Parish at Troppo* points out that so far each of those made homeless has reason to expect $15,000 in community-provided charitable reflief as well as government assistance and insurance payouts.
The moral hazard implication here is to underprovide adequate fire protection and to enjoy the experience of tree-changing without paying the real economic costs of doing so. It is deeply troubling and has disastrous social implications. Unqualified sympathies go out to those who have died and are injured or have lost property - this is unequivocal. I am not criticising these people at all. This is a shocking disaster that rightly touches the soul of our nation. But these unfortunate people are suffering - some have died - partly because society is sending out the wrong cost signals for lifestyle decisions.
The sorts of negative externalities that arise here must be internalised. Those living in high fire risk areas must pay for the expected costs of choosing to live there - not for reasons of distributive justice which are irrelevant and trifling here - but in order to induce the appropriate degree of risk aversion. The monetary subsidies are irrelevant in the scheme of things - nothing compares to loss of life or the hell of loosing your home - but the current policies induce inappropriate risk-taking.
They also induce excessive risk-taking by local government and the green movement and excessive encroachment on green areas by those seeking environments with low population density. I am unsure that local councils should revise rules on tree-clearing. The appropriate resolution may be to deny humans the right to live in these areas entirely - or to charge appropriately large prices - rather than to force human settlements to extensively tree clear in order to protect themselves. An issue remains to protect the environment - it is not only about the rights of people.
It is amazing to me that people in the fire zones plant trees that even touch their homes - they are inviting disaster and I wonder why they do this. Is it due, again, in part to the wrong signals being sent out on the consequences of catastrophic fire?
Of course insurance premiums can and will rise. They should too. Forget Rudd's populist attacks on the insurance companies - higher insurance premiums here will send out a valid social message. All residents of such areas should pay insurance costs for CFA protection by (for example) their rates not via an optional payment to property insurance.
A starting point for reform is to fully internalise the costs faced by households in setting up in disaster-prone areas.
* I would have made this comment at Troppo had their inept comments regime functioned. I tire of trying to comment at Troppo.