Hurricanes, insurance, and the Everglades

2008-01-28

in Economics, Politics, The environment

After being endorsed by Charlie Crist – the governor of Florida – John McCain said something rather unintelligent today:

We’ve got to provide home insurance for every person who lives in the path of a hurricane. We are going to have to work together to save the Everglades and other great environmental treasures of this state.

The first huge problem with this is the transfer of wealth that is being proposed here. People who live on the coast in hurricane territory have every expectation of getting hit by hurricanes again and again. Having the taxes of people sensible enough to live elsewhere used to subsidize insurance for those in the risky area is quite unfair. It is also rather imprudent, as it encourages the continued occupation of hurricane-prone areas, with all the implications for death and property destruction that implies.

I could see some justification for a one-off relocation fee for people living in hurricane areas – especially if weather patterns have changed and made a previously safe area dangerous. I cannot see the logic behind using taxes to encourage people to live in dangerous areas, at a time when extreme weather seems to be getting ever-more-potent.

As for saving the Everglades, it is not at all clear that the people living nearby are helping them. The oil companies are most certainly not doing so. Indeed, the canals cut through the Everglades to allow ships passage to the oil rigs in the Gulf of Mexico may well have exacerbated the storm surges that breached the levees in New Orleans.

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{ 11 comments… read them below or add one }

Milan January 28, 2008 at 8:48 pm

Straight talking up a storm

“In light of rapid recent growth and heightened potential for more damaging future storms, insurance firms reassessed the burden they could face in the event of future strikes. As the perceived risk increased, so did insurance rates.

Which is as it should be, despite pleas by Floridian politicians to stem rate jumps and spread risk across the national population. That higher insurance premiums appear to be deterring some new residents is a sign that they’re working. The addition of millions of new residents to a low-lying, hurricane-prone state amid worsening climatic conditions places billions in life and property at risk. Insurers are right to balk at such exposure, and Americans living in safer places should be likewise wary of the growing potential burden of a federal post-catastrophe bailout.”

. January 29, 2008 at 10:55 am

Should We Still Trust John McCain on Global Warming?

There seem to me to be two fundamental points. One: Anyone who cares about global warming should want McCain to vanquish his Republican opponents in the primaries. If we get McCain versus one of the Democrats in the general election, we’ll have two candidates who want strong action (even if their precise stances may differ). Whoever wins in that scenario, we’ll be better off in the climate arena than ever before—and we can count on action finally happening.

The other fundamental point is this. While McCain’s support of nuclear power and his more cautious approach to greenhouse gas regulation each can be criticized, neither rates, in my view, as an irredeemable flaw. Politics is too messy for purism on these matters—and the climate problem too urgent.

A McCain presidency would certainly be a great step forward on climate, and given our nation’s past history on this issue, well…that’s more than a start.

Brett Banks January 30, 2008 at 9:52 am

First off I dont think it really matters what John McCain views are on fighting climate change. I strongly feel that after 8 years of Bush and the Republicans that no matter who the democrat nominee is that they will win. The last time any one party won three terms in a row was back in the 20’s. Time for a change is a likely consensus in the US right now.

In terms of the McCain’s comments in regards to insurance I agree that such actions would not be the most feasible or just but in my opinion they are not necessarily unintelligent. I feel they are politically motivated rather than a real viable solution. Unfortunately politics creates a enormous amount of policy which intuitively is second rate in terms of overall effectiveness yet is politically advantageous to gaining votes and keeping certain portions of the electorate happy and thus voting for you.

R.K. January 30, 2008 at 1:56 pm

I strongly feel that after 8 years of Bush and the Republicans that no matter who the democrat nominee is that they will win.

“McCain won South Carolina handily, beating Mike Huckabee by 33% to 30%. Added to his earlier win in New Hampshire, this has made him the favourite, albeit an uncertain one, to win the Republican nomination. And the polls, for what they are worth, show him beating either Hillary Clinton or Barack Obama in November.”

. February 5, 2008 at 12:14 pm

Defying one of the oldest political traditions, the Arizona senator is winning by gruffly refusing to tell people what they want to hear. Florida’s popular governor, Charlie Crist, tried to persuade the candidates to back a federal subsidy for home insurance for people who live in hurricane-prone places like Florida. This is a terrible idea. By making it cheaper to build in risky areas, it would ensure that more houses are destroyed in future hurricanes. And why should working stiffs in the heartland subsidise others’ beachfront dreams?

Unlike some of his rivals (Mr Giuliani embraced the plan; Mr Romney fudged), Mr McCain told Mr Crist to get stuffed. Mr Crist endorsed him anyway. It is not that Mr McCain never panders; but he does it less than anyone else who is running.

. February 5, 2008 at 12:15 pm
. September 1, 2008 at 2:03 pm

The decision to abandon a major and historical American city isn’t an easy one, and it is entirely understandable that leaders would choose not to do so. Given that choice, however, it is critical to reduce the risk of disaster as much as possible. One clear way to do that is to charge appropriate prices (as best as they can be determined) for insurance, and mandate that every resident and business have it (since the government cannot credibly withhold support after the fact). In all likelihood, such a measure would have ruled out resettlement of New Orleans after Katrina.

. March 4, 2012 at 7:17 pm

Perverse incentives are also at work. In America, homeowners on floodplains must have flood insurance to get a federally backed mortgage. But federal insurance is often subsidised and many people are either exempt from the rule or live in places where flood risks have not been properly mapped. Some do not buy disaster insurance, assuming they can count on federal aid if their home is destroyed. Once the government declares a disaster, it pays 75-100% of the response costs. Presidents have found it increasingly hard to turn down pleas from local leaders for assistance, especially in election years. Matt Mayer of the Heritage Foundation, a conservative think-tank, says the government routinely takes charge of local disasters that should be well within a state’s capability. The result is that state disaster-management atrophies and disaster funding ends up subsidising disaster-prone places like Florida at the expense of safer states like Ohio.

. March 30, 2014 at 4:58 pm

AT FIRST glance, Foxglove Mead in Chertsey looks like any other housing estate being built in Britain. As many as 98 homes, some worth £600,000 ($1m), are planned. But step onto the show-home’s newly laid lawn, where your correspondent felt his feet sink into the waterlogged soil, and questions over the suitability of this site become clear: these buildings are in an area at high risk of flooding. Pools of water from floods that last month inundated nearby houses (see picture) still cover neighbouring meadows.

Sadly, this is but one of many new residential developments going up on floodplains and tide-swept coasts around the world: 21% of new homes built in London since 2010 are in high-risk areas. Instead of discouraging the building of flood-prone houses, governments are unwittingly encouraging homeowners to flush money down the drain.

. September 12, 2017 at 8:06 pm

Government failure adds to the harm. Developing countries are underinsured against natural disasters. Swiss Re, a reinsurer, says that of the $50bn or so of losses to floods, cyclones and other disasters in Asia in 2014, only 8% were covered. The Bank of International Settlements calculates that the worst natural catastrophes typically permanently lower the afflicted country’s GDP by almost 2%. America has the opposite problem—the federal government subsidises the insurance premiums of vulnerable houses. The National Flood Insurance Programme (NFIP) has been forced to borrow because it fails to charge enough to cover its risk of losses. Underpricing encourages the building of new houses and discourages existing owners from renovating or moving out. According to the Federal Emergency Management Agency, houses that repeatedly flood account for 1% of NFIP’s properties but 25-30% of its claims. Five states, Texas among them, have more than 10,000 such households and, nationwide, their number has been going up by around 5,000 each year. Insurance is meant to provide a signal about risk; in this case, it stifles it.

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