After Sandy, a Taxpayer Bailout for Flood-Prone Developments?
The catastrophic damage left by Hurricane Sandy has once again underscored the costly shortcomings of the way we—that is, federal taxpayers—insure property owners against the monster storms that are becoming ever more predictable as the planet warms and sea levels rise.
Storms, not terrorists, present the biggest threat to the coastal cities and communities that are home to more than half of all Americans—not to mention critical conduits for international trade. And yet the FEMA-administered federal flood insurance program, which took a bath after Hurricane Katrina six years ago, is still foundering. As the New York Times reported this morning:
The federal program collects about $3.5 billion in annual premiums. But in four of the past eight years, claims will have eclipsed premiums, most glaringly in 2005—the year of Hurricanes Katrina, Rita and Wilma—when claims totaled $17.7 billion. Private insurance companies have long avoided offering flood insurance to homeowners.
"It's like rat poison to them," said Tony Bullock, an insurance industry lobbyist, explaining how the risk outweighs the benefit for private insurers. "You need the federal backstop."
While Sandy's overall financial toll has yet to be tallied, Gov. Andrew Cuomo has estimated damages in New York state alone at $50 billion. No more than $20 billion of the overall cost will be covered by private insurance, says Cynthia McHale, director of the insurance program at Ceres, a sustainable-economy coalition consisting of companies, investors, and public-interest groups. This puts most of the remaining burden on state and federal governments.