The moral hazards that contributed to the destruction of New Orleans and other parts of the Southeast were even greater than we thought. We all knew that the National Flood Insurance Program spurred unsafe development, especially in coastal areas, but the Washington Post reported that the states were perhaps evenmore profligate. The state governments themselves, including Louisiana, have their own insurance companies that insure high-risk areas, including coastal barrier islands, at less than actuarially sound costs. (These insurers are now adding surcharges because the .hurricanes overwhelmed them.) According to the Post, state-backed insurers have covered over $400 billion worth of property through 1.9 million policies. (Federal flood insurance covers $764 billion, with 4.7 million policies.) Texas covers single-family homes worth as much as $1.5 million. – making the federal government look like a piker with its $250,000 limit on structures. Oh, how did these state-backed insurance companies get their start? With a federal law in 1968 that allowed states to create companies to provide fire insurance in inner cities.