Insurance requires risk transfer but that's different from cross-subsidization. It's fine for 100 equally flood-prone houses to all pay the same insurance premi

Insurance requires risk transfer but that's different from cross-subsidization. It's fine for 100 equally flood-prone houses to all pay the same insurance premiums even if only 1 of them floods in a given year. But people in a less flood-prone area, all else being equal, should be paying less for flood insurance. The alternative (aka the status quo) creates market distortions, making it artificially cheap to live in flood-prone areas and encouraging more building there. Plenty of people would still live in those areas even if they were paying actuarially fair prices for insurance. And lots of places are safe enough from natural disasters that they're affordable to live in without cross-subsidization - in fact, eliminating cross-subsidization would make most people's cost of living go down, at the expense of a minority of people who live in very high-risk areas.