More Federal Flood Insurance? The Wrong Response to Hurricane Sandy

It’s been almost fifty years since the first billion-dollar hurricane hit American shores. In 1965, “Billion Dollar Betsy” meandered through the Bahamas, changing course like a drunkard, devastating Key Largo, and gathering strength as it headed for landfall at Grand Isle, LA. When was over, 77 people were dead, and costs mounted to $1.42 billion – or $8.5 billion in equivalent current dollars.

Of course, insurance companies reacted to the staggering losses by carving out flood damage from their policies. And Congress responded by creating the National Flood Insurance Program (NFIP) to fill the gap they left behind. For the last 43 years, the Federal government has been the primary provider of flood insurance in the country. And in hindsight, Betsy's losses look like small change, dwarfed by modern monsters like Katrina ($108 billion in losses), Ike ($38 billion) and Wilma ($29 billion).

We’ve written twice about the NFIP: first, about the huge losses that are mounting as taxpayer-subsidized insurance lures ever more people into harm’s way; and second, about states like North Carolina, which have embraced plans to suppress sea-level science, leaving the damage from unchecked coastal development to be paid for by the rest of the country.

When we wrote those posts, we had never heard of Hurricane Sandy. That now seems like a long time ago. Since then, we’ve replaced two roofs and repaired two more at Good Hand Farm; endured two weeks without water, light or heat; and cut up hundreds of tree branches lying on homes and power lines. Few of us imagined that northern cities like New York would be so vulnerable to a “tropical” storm.

Tuckerton, NJ, awash during Sandy storm surge

To be clear, we’ve repeatedly warned our readers – and our personal friends – about the risks of sea-level rise to New York and the Eastern Seaboard. We’ve highlighted the OECD’s projected $2.1 TRILLION cost to New York City, and the surprisingly high toll ahead for the Tidewater region.

But, to be honest, we never imagined it would happen so soon.

When we bemoaned the $19 billion dollars that the NFIP has had to borrow from taxpayers to honor its flood claims, we never imagined that in the span of a few weeks, the number would be hovering at $25 billion. To be fair, no firm numbers are in yet. But the cost of Hurricane Sandy has been estimated at $52.4 billion, and NFIP’s insured losses have been ball-parked at $7 billion. It could be better; or it could be much worse.

Our fiscal-hawk friends will be pounding the table at this point, and who can blame them? $25 billion of taxpayer money has been poured into the sea, mainly to rebuild vacation homes and seaside condos largely owned by wealthier Americans.

But our concern is much more basic: American policy is actively luring our citizens into harm’s way. Many of us have friends who are investing their retirement savings in attractive coastal properties, financed by mortgages that rely on Federal flood insurance. There should be no doubt as to whether these policies will still be available in ten or twenty years. They won’t.

They won’t because sea levels are rising, and coastal storms are gaining intensity – two well-documented consequences of global climate change. Most coastal states are planning on sea-level rise of 1-2 meters this century. Add a meter to Hurricane Sandy’s storm surge, and you have almost inconceivable damage and loss of life. Two meters? It’s beyond counting.

Not just projections: The sea is rising

No Federal program has the money to make good on such losses. For the sake of all Americans living on or near coastal flood zones – and particularly for those considering a move – we simply must remove the enticement to wander into harm’s way. When you’re stuck in a hole – they say – the first rule is this: Stop digging.

So what should we do? Here’s a plan that might serve as a starting point for people smarter than me:

1. Over the next decade, NFIP premiums should gradually increase to reflect the full cost of coastal and flood zone risk – to levels that would be supported by private insurers.
2. Over a very short time, the NFIP should impose a moratorium on policies for new development in zones that will be flooded by a 5-foot rise in global sea levels. 
3. No new policies should be issued for development on barrier islands.
4. Vacation homes should be phased out of the NFIP program as soon as is practicable.
5. After major losses, NFIP should provide incentives for claimants to relocate out of floodplains, rather than rebuild in harm’s way.
6. Repetitive-loss properties should be carefully examined for immediate exclusion from the program.

If there’s any silver lining to the horrors of Hurricane Sandy, it’s that ordinary people have begun to accept that the climate has changed. Perhaps our leaders will now begin to realize that our coastal policies must change with it.

Thanks for reading, and may God bless you.

J. Elwood

Follow @John_Elwood