The ghost of Katrina complicates climate-related disaster coverage
Posted on June 5th, 2008By Evan Lehmann
Climatewire: BAY ST. LOUIS, Miss. — Another hurricane season is bearing down, and so is Rep. Gene Taylor. The Mississippi Democrat is angling to finalize his plan to expand a federal insurance program to include wind coverage, a controversial proposal that has placed Taylor in the eye of a political storm.
But he’s used to storms. It’s been almost three years since Taylor took a boat to discover what little was left of his house, and now he finds his effort in Congress is in the peculiar position of possibly moving if Congress is suddenly forced to respond to another devastating storm. Killer tornadoes have already appeared this year as a reminder that the price of wind insurance is sky-high in risky regions.
The aftermath of Katrina left many people along this coast unable to afford wind coverage amid the prospect of continuing intensive storms fueled by warming water near the surface of the North Atlantic. Those collaborating conditions and Taylor’s distrust of the insurance industry are what is driving his campaign to create a federal wind insurance program.
“We got lucky in the last two years,” Taylor explained, sitting inside his newly rebuilt house. “I sure hope it doesn’t take another Katrina for this to become law. I hope Florida doesn’t have to get hammered, and Texas have to get hammered, with their big [congressional] delegations.”
Taylor’s plan is one obstacle preventing Congress from simply reauthorizing the national flood insurance program. But time for action is running short: The massive 40-year-old program expires at the end of September — the fulcrum of hurricane season.
As Taylor maneuvers to convince skeptical senators that his plan won’t turn into a sweeping government handout, the insurance industry is trying to drown Taylor’s provision before House and Senate negotiators are appointed to reshape the competing bills in advance of final passage.
The Senate strongly opposed the wind provision last month. The House, however, passed it overwhelmingly last year, largely because Speaker Nancy Pelosi (D-Calif.) became a forceful advocate.
“We’ve counted on her help to date, [and] we’re gonna count on her help in conference,” Taylor said of Pelosi. “I’m going to sit down once again with [Senate Majority Leader] Harry Reid and [Banking Committee Chairman] Chris Dodd and do everything I can to request their assistance.”
‘Hand of God’
But those leaders are also hearing from the insurance industry, which worries that adding wind could imperil the entire flood program, strip the industry of valuable business and prompt sweeping job cuts. Taylor has been accused of chasing a public policy out of anger, following the denial of his personal wind claim after Katrina.
But the tanned Southerner describes his property loss, and that of former Sen. Trent Lott (R-Miss.), as having occurred by “the hand of God,” an event that gave this region’s people a strong voice in Congress to fight for a better form of weather protection.
He is furious that his insurer and others sometimes refused to pay coastal wind claims after Katrina, instead blaming the damage on water — thereby pushing payments onto the public flood program, and onto taxpayers.
Insurers deny this claim, saying only a tiny fraction of wind claims were denied.
Walking through waist-high weeds where his neighbor’s house had been, Taylor still radiated anger last week at the industry whose adjuster told him two weeks after Katrina that she saw “no evidence” of wind damage.
Taylor and other residents painted signs and placed other “love notes” for their insurers at the entrance to their properties after the storm. Taylor easily recalled his message: “Katrina, Act of God. State Farm, Work of the Devil.”
Yet others call Taylor’s plan a “crazy” design that would encourage seashore development from Texas to Maine, even as climate projections warn against building in vulnerable areas.
Rebuilding slowed by high rates
Taylor’s road is a quiet serpentine strip along St. Louis Bay, a big gulp of water with a mile-wide opening that leads into Mississippi Sound. The four-lane bridge spanning the bay was blown into debris like so much ribbon as Katrina made landfall. Its replacement opened a year ago.
Taylor’s house and hundreds of others along this stretch were ripped away, an event still marked by solitary pier posts, cement house slabs and flood columns holding little more than rusty nails and “for sale” signs.
Three miles from Taylor’s narrow property lot is Cedar Point, where his road dead ends at a marshy boat launch. That length of shoreline provides a snapshot of the rebuilding effort over nearly three years: 11 houses, including Taylor’s, have been constructed. They are surrounded by 41 empty lots pockmarked by the hurricane’s detritus.
Taylor says people are not rebuilding “because they don’t want to pay more in insurance than their mortgage.”
“You pay a big chunk of money every month, and you have about that much confidence they’re gonna pay you [an insurance claim] next time,” he said, holding two fingers closely together. “Remember, these are the guys who didn’t pay you last time.”
Taylor joined Lott in a high profile lawsuit featuring lawyer Richard Scruggs, Lott’s brother-in-law, who is famous for making Big Tobacco pay billions in damages. Taylor won a settlement from State Farm, but agreed to not reveal its details.
He merged his wind settlement with his flood claim and built a 1,450-square-foot house on 15-foot-high pilings. The wraparound porch and outside ceiling fans may blow away in the next big storm, but he hopes the thick-walled house with compact rooms, reinforced floors and steel-buttressed beams is “hurricane-proof.”
“I would like to think this house would survive Katrina, but I can’t guarantee it,” he said. “I don’t want to go through this again.”
A different kind of storm
The insurance industry, meanwhile, hopes it can weather Taylor’s effort to add wind coverage to the national flood insurance program.
The program is known for mismanagement and staggering costs to taxpayers, which critics say is the product of artificially low premium costs for homeowners in high-risk areas. The program owes taxpayers $17.5 billion — the amount it borrowed to pay Katrina-related claims after it failed to accumulate a backstop over the years for severe weather events.
So Taylor’s wind provision comes at a delicate time. Some fiscal conservatives in the Senate already disapprove of the costly program, which they believe benefits affluent coastal residents through government subsidies.
Taylor’s plan to expand the government’s role could push them to oppose the flood program entirely, said Paul Kangas, the top flood lobbyist for the Property Casualty Insurers Association of America.
“They could just pull the plug on the program,” he said. “It’s not the people in Gulfport, Miss., who some of these senators are thinking about. They’re thinking about people in the Hamptons who could then buy wind insurance cheaper through the federal government.”
If the flood program disappears, more than 40,000 people could lose their jobs nationally, according to a report by the association, whose member companies are paid to sell flood insurance for the federal government.
Critics say the problem with Taylor’s plan could come when a catastrophic weather event makes landfall. When Katrina struck, taxpayers took the hit on the ailing flood insurance program. The critics warn that the burden on taxpayers could be much more severe if wind coverage is added on.
Premiums soared after Katrina
“We just don’t see the point,” said Nancy Grover with the National Association of Mutual Insurance Companies. “Putting wind coverage in it will just exacerbate that situation further. The private market is fully capable of providing wind coverage.”
But the price for that protection blasted upward after Katrina. Taylor’s premiums, for example, rose from about $2,000 a year for a complete homeowner plan to about $5,800 for just wind. It no longer covers fire and other damages. His old house was about twice as large as his new one, he said.
Taylor believes a national wind program would offer lower premiums, because a large pool of customers could get a better price for insurance. His bill would prohibit a bailout by taxpayers, but skeptics say that is bound to disintegrate in the event of a catastrophe. Critics also say wind coverage would drive up the cost of flood insurance for inland residents.
But with no change, says Taylor, taxpayers are bound to pay for emergency relief in the future — like the billions they paid after Katrina. Under his plan, he argues, the premiums would pay for claims.
The insurance industry is backing the Senate bill, which omits the wind provision and seeks to forgive the flood program’s debt to taxpayers. The House plan doesn’t provide debt relief.
Higher risk, higher cost
Higher insurance premiums makes sense to some people.
“If it’s true we’re going to see more storms in coming years, it makes sense the cost of wind insurance will go up,” said lobbyist Kangas.
Others say higher insurance rates could cool coastal development, acting like a built-in hazard sensor and preventing dangerous and costly seaside habitation.
When the flood program was enacted in 1968, it lent people a false sense of security, prompting development in flood-prone areas, said John Echeverria, executive director of Georgetown University’s Environmental Law and Policy Institute.
“The fatal federal policy mistake 50 years ago was the federal government moving in and forcing out the private sector,” he added, noting that private insurers would not write policies for frequently flooding areas. “What many of us are doing today is trying to prevent the federal government [from] making the same mistake with respect to wind.”
That effort comes amid warnings of stronger storms. The Intergovernmental Panel on Climate Change projects that increases in intense cyclone activity are likely over the next 100 years, potentially causing private insurance companies to withdraw coverage, spurring human migration and resulting in property loss.
Barry Keim, a climatologist at Louisiana State University’s Hurricane Center, said centuries-long climate change isn’t needed to cause stronger storms. It’s already happening as surface sea water warms in the north Atlantic, an effect that fuels passing hurricanes. The cycle is reminiscent of a past period that lasted 40 years, until the mid-1960s.
The current phase began 13 years ago, sharpening the frequency and intensity of storms.
“Nobody knows when it’s going to change, but it’s probably going to last one decade, two decades or three,” Keim said. “To keep building these structures right in the heart of harm’s way doesn’t make sense to me.”
Retreat from the sea
One school of thought involves the government buying coastal land to prevent adventurous development in vulnerable areas, said Georgetown’s Echeverria. But that could mean taxpayers are buying shore land that might disappear in a century, he noted.
Other ideas involve strengthening building requirements, imposing government restrictions and increasing the cost of insurance to limit construction.
But in this Gulf Coast town, talk of retreating from the shore is eclipsed by anger at the insurance industry. Insurance offices here had armed guards at their doors after the storm, according to residents.
Jolynne Tripani, 39, lost her house and restaurant during Katrina. Her insurance company questioned her wind claim, she said, until an eyewitness testified seeing the seaside restaurant blow away before the storm surge burst ashore.
She declined wind insurance for her restaurant’s temporary location a mile or two from the shore because of the high cost. But it won’t stop her from rebuilding her restaurant across the street from Mississippi Sound, where she will have to buy a wind policy. She hopes it’s a government plan, of the type pursued by Taylor, because she believes private insurance companies send their adjusters to “scam school.”
“I’m rolling the dice here,” Tripani confessed. “I’m going to rebuild my restaurant on that beach and I’m in a casino playing craps.”
Joe Henderson, who owns a Ford dealership, doesn’t insure about 60 used cars on his lot because the “premiums are just astronomical.”
Although he lost 180 cars during Katrina, he said it is more economical to decline the costly new insurance. His insurer wanted to charge him $100,000 a year to insure an inventory worth $400,000. He keeps that money in the bank instead.
Ask Taylor about leaving this winding waterfront road, overlooking the bay about which he boats, and he laughs.
“Tell people in New York to leave, tell all those folks in New Jersey to leave, tell the folks in Boston to leave,” he said. “L.A., San Francisco, and we could go on. Let’s don’t start with Bay St. Louis. Let’s let everybody pack up and leave at the same time, and then maybe Taylor would consider it.”