Insurance Fires and Puerto Rico

This is a difficult piece to write, and so I hope it will be taken carefully, and will be read thoroughly and with an open mind.  Please take your time.

There are a number of joking categorizations, some rather insensitive, of a type of insurance fraud that has been used to cover up failing businesses.  A store is failing, and the owner arranges for it to be burned down so he or she can collect the insurance money, dissolve the business and start over again rather than going bankrupt.

In any representation of that scam -- and it is, or was, a pretty common thing -- the problem is where there is failure and debt, no obvious way to recover, and something is staged that allows a destruction of the business covered by insurance, and an owner who walks away made whole again to start over.

Staged.  That's the big thing.

Our universal reaction is that our morality tells us something.  No matter what the status of the business at the time was, if it gets burned down by a lightning strike, or is washed away by a flood, we think the business owner deserves to collect on the insurance.  We don't think the owner's business should be any better than it was before, but if the owner bought insurance, he or she should be paid accordingly to cover the loss.

And our morality also tells us that a staged incident is fraud, and the insurance company should not pay, and the owner should end up in prison.  Right?  We all understand that.

And then there is Puerto Rico, the commonwealth of the USA that just got assaulted by Hurricane Maria.

I am not saying that this was not a horrific storm, not saying that there is anything other than that, as to what happened.  But I am saying that there is a huge prospect for financial decisions that affect a lot of us outside Puerto Rico, and we have to decide what morality applies here.

You see, Puerto Rico was a horrific mess before Maria visited.  The island's power authority was already six billion dollars in debt, and power plants were functioning erratically when they functioned, in places on the island.  I had already written on this problem over a year ago; it wasn't yet imaginable that a hurricane would devastate the island when Congress was already having to look at an imminent bankruptcy of the territory.

If you have indeed read carefully, and not been judgmental, you know where I am going.

The right and moral answer is that the good works of the Federal government can only be to restore the infrastructure of the island to where it was before the storm, or a comparable level of advancement, and to ensure that innocent people who have lost their homes and have no place to sleep and nothing to eat can be housed and fed in an emergency situation for some period of time.

What I do not want to see is that the specific part of our generous and compassionate response as a nation that comes through congressional authorization ends up making the infrastructure better than it was before.

OK, let me clarify.  Please.  I would be happy to see Puerto Rico have a roaring economy and a sound infrastructure, good roads and reliable power and water systems.  I would be happy if their people all had a bed to sleep on and three squares a day.

But they didn't have a roaring economy, good roads or reliable utilities before Maria.  The people of the USA, as represented by their elected representatives, already recognized that corruption and incompetence in the island's government had caused the problem, and refused to fund the same people to fix it.  I totally agreed with them.

And I agree today that, as money starts to pour in to help the island recover, we need to understand a few things.  The same people who caused the problems before the hurricane are in power now, with the exception of the governor, who is new since January.  President Trump has said that the governor is doing a very good job overseeing the recovery and I am willing to believe him.

I want the island to recover and I want it to be better than it was.  But I want that to happen because the people themselves there elect leaders (hopefully starting with this governor) who will plan a recovery that separates them from the corruption of their past.  I don't want Maria to be the "insurance fraud" that wipes out the island for a rebuild that the rest of the USA will have to pay for; I want a clear delineation -- and this is just for taxpayer funds through Congress, not charity -- between humanitarian aid helping people recover from losing homes and livelihoods, and aid that ends up replacing elements that were broken before.

I hope you understand the point.  It will be easy to characterize the above as insensitive.  But as Mick Mulvaney, the OMB director said yesterday, "We will help Puerto Rico rebuild from the storm.  Puerto Rico has got to figure out how to fix the errors that it has made for the last generation, from its own finances."

That's exactly right.  We are a sympathetic and generous country.  We will help with the storm.  But we cannot be expected to replace what was failing before the storm.

Copyright 2017 by Robert Sutton
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