"...if government feels it must assume the liability..." Taxcutter agrees: That is not a valid function of government. That's what insurance companies do.
This topic could have it's own thread...in the USA it's impossible to clearly define, with consensus from a majority of Americans, what the federal government duties should be. Interesting that if we can't define government's role then obviously we can't expect much efficiency. In the USA we demand our individual privacy yet most of our actions directly or indirectly effect all Americans...like voting. So if the US has some significant percentage of Americans who don't have the means or ideas to get themselves out of situations like tornado damages, then this leaves only two choices; let them fend for themselves or let the government be involved in whatever way...what government should and should not do is greatly complex and very subjective...
What you reward, you get more of. In this case high-risk housing is rewarded by federal liability. What you penalize, you get less of. In this case if high-risk housing people were left to fend for themselves, you'd have less. Either Mother Nature gets 'em or they repent their high-risk ways.
If only we could ask or expect people to make better decisions and be more responsible for their actions...but we can't. Whether it's a conditioned behavior of letting government take care of them, or perhaps they simply don't know how to take care of themselves including the affordability of life. If we assume that there will always be some percentage of people in this category, then as population increases so do the number of people in this category which means the government costs for them will always be rising. I think the only thing we can hope for, and even this is a long-shot, is for government to means-test every penny they provide in welfare programs to minimize welfare fraud. One thing that pisses me off, which is an indicator how government operates today, is why do Americans allow government to spend $60,000 per year per prisoner? I believe we have about 65 million kids in public education, and if they spent $60K per kid, this would be a budget of $3.9 trillion!!