If you thought Katrina was the biggest disaster the insurance industry ever faced, think again. On the contrary, profits are at record highs but the industry still says it needs more government assistance, reports the Los Angeles Times.

The apparent paradox of record disasters and record profits is explained by reinsurance. That is, the insurers all bought reinsurance from companies based off-shore. Reinsurance allows the companies to shift losses to high-stakes partnerships and companies that promise to cover the worst losses.

The other explanation is that despite the massive losses, the insurance industry typically does not cover “flooding” which caused much of the damage on the Gulf Coast, particularly in New Orleans. So those losses went uninsured or were covered by government policies.

The latest report from the National Association of Insurance Commissioners shows the industry covered last year’s losses with only its premiums, had a good year on its investments and boosted reserves by 7 percent. And that’s all part of a long-term trend to limit risk that the industry’s own trade group admits has been going on since the early 1990s when Florida was hit by massive hurricanes in heavily populated areas. Even with the policies they write, companies narrow the coverage to limit their losses.

And that continues. Already Allstate is refusing to cover homeowners who might face storms on the Southeast and Gulf coasts. And the company is calling for more federal and state programs to cover those folks. Hmmm. It’s long past time we stopped insurers from capitalizing on good risks and socializing the bad risks to the taxpayer. If it’s that dangerous, homes should not be built there and if it’s that valuable so many people want to live there, then insurance should be part of the price of the home.