Several days before Sandy made landfall, my home-insurer sent me a love note: "Hurricane Sandy is on her way," said the email, "and you may be impacted." But not to worry: "We've got you covered." Whew!
Who less fortunate, I wondered, is NOT getting such reassuring messages, and is not adequately covered for damage associated with extreme weather such as hurricanes made more frequent and deadly by climate change? More broadly, what is the increasingly risk-exposed insurance industry doing as a whole to prepare and plan for an extreme-weather climate? The answer is, not surprisingly, much, much too little.
Most homeowners' policies now specifically exclude coverage for floods (including mine in a low-lying DC suburb). Property owners in flood-prone areas, officially designated by the federal government, now must purchase flood insurance through FEMA's National Flood Insurance Program. Others outside these zones can buy from NFIP as well. But controversy and some shady local politics have created bizarre situations where small, low-lying wealthier neighborhoods near bodies of water lie mysteriously just outside the boundary of the nearby designated flood areas -- after all, being prone to floods is bad for real estate values. And, illogical beyond comprehension, the oldest most vulnerable properties that flood over and over and over again, year after year, have historically been charged lower NFIP premiums than homes in less-risky areas.
General poor planning and anticipation has created a dire situation in which the NFIP is itself under water, according to a Nov. 2 Washington Post editorial:
At the moment, the NFIP has access to about $4 billion, plus a $20.8 billion credit line with the U.S. Treasury — of which it has already borrowed $18 billion.In other words, sunk. Gotta make that call to
Well, for starters, 2005's Katrina/Rita/Wilma 1-2-3 punch in Louisiana and Texas landed an $18 billion blow to the NFIP that had to be borrowed from the US Treasury. Created by Congress in 1968 through the National Flood Insurance Act, NFIP was designed to be self-supporting and to offer flood insurance to communities prone to flooding that adopted floodplain management ordinances. But hurricanes on steroids weren't anticipated in 1968. The Act has been amended several times, most notably in 2004 to help reduce payouts to "repeat-customers" in flood-prone areas. Congress reauthorized the law again this year, creating a gradual set-aside of a reserve fund (still tiny), a justifiable phase-out of subsidized insurance for second (and third, and fourth!) homes and repeatedly flooded properties, a phased-in premium increase, and funding for flood map modernization (the poor feds had been using brushes on parchment all this time). Congress also gave NFIP permission to secure private reinsurance: a no-brainer.
Another problem is patchwork coverage. A recent analysis by the Wall Street Journal found enormous discrepancies in the percentage of residential units covered under NFIP, ranging from a full 90% coverage rate in Ocean City, Maryland; to 66% in Cape May; down to 40% in Atlantic City; and a paltry 1% in New York City. OOPS. The other 99% are left to fend for themselves. (Sound familiar?) In 2009 the US Global Change Research Program issued a report that noted a disturbing trend: some major insurers have been withdrawing coverage from thousands of homeowners in coastal areas of the Northeast, including New York City. Too risky, I'd guess. And, a lot of folks in this region aren't even aware that they need to buy an extra policy if they want to be covered for flooding. With a 30-day required waiting period, even an advance foul weather warning doesn't give enough time for a last-minute CYA move. Of course federal disaster assistance going to NY and NJ will cover some of the losses from Sandy, but not all. Post-election, post-Sandy relations between Andrew Cuomo, Chris Christie and POTUS could get strained, no matter who wins.
Even with the flood exclusions, insurance companies of all types are doing the "holy crap" dance in response to Mother Nature's recent fits of wrath. Most of them are being caught with their proverbial pants down. In 2011, only one in eight insurers who responded to a survey conducted by CERES -- a national coalition of investors, environmental organizations and public interest groups -- had a formal climate policy in place. There are a few exceptions -- forward-thinking trend-setters like Munich Re and Swiss Re (who convened a "Climate Week NYC" summit in Gotham just a few weeks before Sandy) have been on top of it. In the US the leader of the pack appears to be Allstate. Who knew? Allstate's website brags they are out there raising awareness, educating the public, and fighting for (dare I say) rules and regulations such as stronger building codes and more sensible land use policies to reduce the impact of catastrophes. (Uh, like building further away from the coastline?) People who build big expensive houses right on the beach and get federal disaster assistance when the roof comes off have never met a Libertarian they didn't like. Sooner or later, though, people are going to have to realize that the up-close-n-personal ocean view comes with high premiums and no re-build options.
A more recent, Nov 2 email from my friendly home-insurer assures us: "Please know we're committed to helping you get your life back to normal." Really? What does normal even look like? Musician and activist Bruce Cockburn's lyrics come to mind: "The trouble with normal is it always gets worse." The unfathomable -- a major late-season cyclone hurling up the Atlantic Coast to the Big Apple, for example -- becomes not just the fathomable but the feared, in our lifetimes. It's the new normal. Get used to it.
Consider this: the northeast is already doing a headspin over 2011's Hurricane Irene which caused 56 deaths and $4.3 billion in insured losses, and Sandy just one year later. Governor Andrew Cuomo's new "joke" is that New York now gets 100-year storms every couple of years. Even a senior VP, John Miksad, of ConEd was incredulous in a CNN interview:
[The storm] was sort of on steroids and I would have never expected it. I mean, this is New York City. This is not Florida or North Carolina. We'd have never expected to have two years in a row with this kind of damage to our system.Never would have expected? In the late 1990s the US Global Change Research Program conducted a national assessment of regional climate impacts that included the metropolitan northeast and predicted just this: more severe, more frequent weather patterns that could mean storm surges, power outages, and inundation of NYC's subway system. The reports were deep-sixed by the incoming Bush administration in 2000. We knew, or had reason to know. George W. Bush and his team, for one reason or another, thought it was important for us NOT to know. Rick Piltz, a federal whistleblower who founded Climate Science Watch under the Governmental Accountability Project has covered this extensively, referring to Bush's suppression of the National Assessment and related scientific reports and information as “the central climate science scandal of the Bush administration.”
So far, this mega-metropolitan region with heavy population densities hasn't had the pleasure of experiencing an Andrew-caliber hurricane (Florida, 1992, Cat 5, $27B in damages), the likes of which haven't dared to venture north of the Mason-Dixon. Yet. But it could, and scientists say it will: like our own death, it's not a question of whether, but when.
An editorial in today's Palm Beach Post captures an appropriate reaction to the Irene-Sandy one-two punch:
"The news is not just Sandy. The news is that Sandy comes one year after Hurricane Irene hit the Northeast. Freakish weather is becoming dangerously less freakish. Enough disbelief. Let’s figure out why it’s happening."
Excellent idea. The IPCC, I am told, has a fairly good handle on that-- something to do with smokestacks, auto emissions, and denuded forests. (Didn't Al Gore do a movie?)
By-and-large, insurance companies are sweating bricks figuring out how they are going to manage to stay afloat and still provide various types of coverage for entire economic enterprises increasingly vulnerable to "weird weather," frankenstorms, prolonged droughts, storm surges, water and wind damage, and so on - symptoms of an increasingly chaotic, carbon-steroid-hyped climate system.
If we are indeed going to be able to "avoid the unmanageable and manage the unavoidable" consequences of climate change, we're going to have to recognize some basic laws of physics and just face the reality that an atmosphere super-satured with CO2 and other greenhouse gases is essentially blowing the lid off of life-as-we-know-it. And insurance companies don't quite know what to do about that.
A more sophisticated way of saying that is offered by Ryan Tate at Wired Magazine.
...all too many insurers lack sophistication about the new prevalence of extreme weather, critics say, raising and lowering rates cyclically in reaction to loss-making events rather than through careful analysis of risk. If the industry can learn to approach climate change more systemically, as individual companies like Swiss Re have begun to do, it would have better data with which to influence policymakers. Ultimately, insurance company pressure around climate change could influence zoning decisions, building codes, and infrastructure design – nothing less than how and where people live.The industry itself is sounding the horns. An editorial published just this week in the trade journal Business Insurance rallies the troops:
It's high time the insurance industry makes a bold move — to bring together business leaders, the smartest weather scientists and local, state and federal regulators to start working toward a comprehensive infrastructure assessment and a unified hurricane mitigation plan for the Northeast.It's great that the sleeping giant industry of insurance and reinsurance is waking up to smell the climate chaos coffee. But my question is this: If getting some multidisciplinary smart people in a room to figure out how to get our collective insurance coverage act together for the new normal that climate chaos promises and has begun to deliver is "bold" - then what does wimpy look like?