A New Acronym: KTFBOs or CATFEEBOWS

People aren't buying earthquake insurance in Missouri.

Figures from the state Department of Insurance show that earthquake coverage was carried on fewer than 38 percent of the insurance policies for homes, mobile homes and farms last year. 

That was down more than 5 percentage points from 2001. During that same time, the average cost of residential earthquake coverage in Missouri rose by 15 percent, according to the department's figures. (via IJ)

The Governor is worried and has appointed a task force. 

From the article it is not possible to find out what is really happening. The rate of inflation from 2001-2007 (nationally) was 17 percent, so earthquake insurance is about as expensive as it was in 2001.  So price gouging, a usual culprit, is not really on the table.   One possible reason for the drop in coverage is the expectation of a Katrina-type-federal-bail-out (KTFBO).

The effect of potential KTFBOs (cat-fee-bows) on insurance markets will be difficult to measure and I am not suggesting that this is the only reason for the drop in Missouri earthquake coverage, but it should not go unexamined as a possible reason.  If KTFBOs are real, there is nothing the state government can do short of mandatory coverage and we know how popular that option would be.

update: Mike the Actuary weighs in with other factors affecting EQ demand in Missourri