The US National Flood Insurance Programme (NFIP) provides subsidised flood protection insurance to properties located in designated special flood hazard areas. In addition, the government was not allowed to purchase reinsurance. As a result, it had accumulated debts of US$17.8 billion by 2007. Legislation requires the NFIP to offer subsidised premiums even to homes that suffer repetitive losses, thus decreasing or negating risk reduction investment for those properties and resulting in an estimated 25–30 percent of claims paid for repetitive losses.

In addition, policy-holders often stop paying their insurance and instead rely on the government’s relief support as soon as mortgage lenders, who are supposed to control this, have transferred their account to capital markets and thus lose oversight. In such cases, debt-based private ownership—in this case, housing at risk of flood damage—once again increases public liabilities. The government recognised this problem and in June 2012, passed legislation that will phase out NFIP subsidies on properties with repetitive losses, introduce minimum deductibles as well as allow for a rezoning of areas to correspond more closely to new risk assessments, all which are expected to avoid moral hazard and have positive impacts on risk reduction investment.

In contrast, the California Earthquake Authority has proven a successful public-private partnership (PPP), where risk-based pricing and cost-effective structures have ensured a solvent programme that offers affordable premiums. Actuarially sound methods were used while benefitting from government reinsurance and support. Recently, the adoption of a building code for retrofitting existing structures is trying to link with lower insurance premium offers to lower the cost of insurance in general.In doing so, a double incentive for insurance purchase and risk mitigation strategies would be created that would ultimately benefit the insurance market, the insured and government budgets.