Insuring Against the Inevitable

Hurricane Ian renews some perennial questions about recovering from natural disasters.

WaPo (“Florida’s insurance woes could make Ian’s economic wrath even worse“):

he economic devastation left behind by Hurricane Ian in Florida is likely to put further pressure on the state’s fragile insurance system.

About a dozen firms that provide homeowners insurance in Florida have become insolvent in the past two years, according to the Florida Office of Insurance Regulation, leaving hundreds of thousands of property owners scrambling for coverage. Many Florida homeowners in flood-prone areas don’t carry flood insurance, the Federal Emergency Management Agency has said — despite the fact that many policies don’t cover flood damage.

And as insurers assess the impact of the storm and assess future risk as extreme weather events grow more common, coverage could get pushed even more out of reach for Floridians.

“Obviously this is going to be a multibillion-dollar storm, and with the insurance industry already crumbling, this is going to be devastating,” said state Sen. Jeff Brandes, a Republican.

A Fitch Ratings analysis Thursday estimated insured cost losses could be from $25 billion to $40 billion in the state. Brandes estimated that only around 20 percent of residents in the areas under evacuation orders have federal flood insurance and many others don’t have adequate property insurance given the scale of the destruction.

A unique confluence of factors makes Florida an exceptionally difficult place for private insurers to do business, and for homeowners to find affordable comprehensive plans from private companies. As Ian has shown, the state is susceptible to dangerous weather events, something that’s likely to increase over time because of climate change. Insurance companies’ risk models, which incorporate thousands of years of weather data, have proved unreliable when it comes to the most recent storms, said Danielle Lombardo, chair of the Global Real Estate Practice at Lockton, an independent insurance brokerage and consultancy.

“It is the most risky piece of land in the world for insurers from a catastrophe standpoint,” Lombardo said.

Lawmakers and industry officials said Ian could doom private homeowner insurers unless the state legislature steps in, while consumer advocates said residents faced getting completely priced out of the market.

More than 400,000 Florida consumers have lost coverage already this year due to failed insurers or policy increases, according to Mark Friedlander, corporate communications director for the Insurance Information Institute, a research and communications nonprofit for the industry.

Already, some consumers “are now in a position where they are having to attempt to try to locate new coverage, and they just simply aren’t able to find any insurance company that is willing to write them,” said Tasha Carter, Florida’s insurance consumer advocate.

Florida’s laws regarding insurance litigation tend to favor plaintiffs, according to industry officials and independent experts, so that insurance companies are constantly dealing with a barrage of lawsuits. According to the state’s Office of Insurance Regulation, Florida accounted for 76 percent of all homeowners lawsuits nationwide in 2021.

NYT (“Hurricane Ian’s Toll Is Severe. Lack of Insurance Will Make It Worse.“):

Most of the Florida homes in the path of Hurricane Ian lack flood insurance, posing a major challenge to rebuilding efforts, new data show.

In the counties whose residents were told to evacuate, just 18.5 percent of homes have coverage through the National Flood Insurance Program, according to Milliman, an actuarial firm that works with the program.

Within those counties, homes inside the government-designated floodplain, the area most exposed to flooding, 47.3 percent of homes have flood insurance, Milliman found. In areas outside the floodplain — many of which are still likely to have been damaged by rain or storm surge from Ian — only an estimated 9.4 percent of homes have flood coverage.

The small share of households with flood insurance demonstrates the challenges posed by the country’s approach to rebuilding after disasters — a mix of public and private funding that is under strain as climate change makes those disasters more frequent and severe.

If people can’t pay to rebuild their homes after disasters, the financial toll of climate change for households and communities could become ruinous.

Regular homeowners’ insurance policies typically don’t pay for damage caused by flooding, which is why the Federal Emergency Management Agency offers flood insurance. The coverage is expensive, with average premiums close to $1,000 a year, according to data from Forbes. But without it, homeowners hit by flooding are left to rely on either savings, loans or charity to rebuild.

The low takeup rates for federal flood insurance in the areas hit by Hurricane Ian mean it will take longer for those communities to rebuild, imperiling their economies and prolonging the suffering, experts said.

“These people, many of them believe that their homeowners’ insurance policy will cover them,” said Nancy Watkins, principal and consulting actuary at Milliman. “Or they might think that federal disaster aid is going to swoop in and make them whole.”

Humans have lived near the water since our origins. Initially, it was a matter of survival: access to food and water. Eventually, it became about commerce: a means of transporting people and goods. It’s still all of those things, of course, but also something primordial: people are just drawn to the rivers and seas. Even a lake will do.

Flooding has always been an associated risk but it’s one that has increased in magnitude as our lives have gotten more modern. We build massive structures that are very expensive to rebuild or repair. And, yes, climate change has increased the frequency of severe events.

Regardless, events like Ian refocus our attention on the questions of Who should bear the financial cost of these events? And should we rebuild in flood plains and the paths of hurricanes at all?

There’s no easy answer to either of these questions.

We have a flood insurance system funded through the Federal government but, as noted in the reports above, they’re rather expensive and most folks either don’t know they exist or don’t participate. It’s expensive to insure against flooding and challenging to weigh the risks. And, it turns out, flood insurance doesn’t come close to making you whole even if you’ve paid for it.

It’s easy to say that those folks made their choices and should have to live with them. But they’re not all yacht owners who’ve lost their beach house; most of them are living paycheck to paycheck and happen to live in places where hurricanes and tropical storms are a fact of life.

The federal taxpayer often steps in to help but it’s on a seemingly random basis, depending on the whims of Congress. Back to the NYT report:

FEMA offers some limited emergency assistance to homeowners without insurance, such as paying for temporary housing in a hotel, motel or mobile home, or making basic repairs to make a house habitable.

But FEMA typically won’t pay to rebuild homes, as The New York Times reported in July. Aid is limited to less than $40,000 — a fraction of what it costs to rebuild.

Congress can decide to provide extra money for disaster survivors, usually by giving funding to the U.S. Department of Housing and Urban Development, which can then set up what it calls Disaster Recovery grants to states. States can then use that money to pay for rebuilding homes.

But Congress has no guidelines for determining which disasters merit that extra funding and whether it provides the funding depends as much on the political clout of a state’s congressional delegation as on the actual level of damage. Even when Congress makes extra money available, it often takes years before that funding reaches homeowners.

Disaster survivors who lack insurance, but who can’t wait years in the hope of aid, can apply for help from the Small Business Administration, another federal agency that plays a role in disaster recovery. The agency loans to renters, homeowners, businesses and nonprofit organizations. But those loans must be repaid — what amounts to a new mortgage, which can be challenging for disaster survivors.

The fallback option for storm victims is to look for help from charities. But as disasters multiply, and as the economy slows, those charities are being stretched thin, with no guarantee that they’ll be able to help all those who need them.

I suppose that’s why they call these things “disasters.” But they’re common enough that we should have figured out how to deal with them more efficiently by now.

The related question that comes up is What level of risk is worth bearing? How close to the water should we be building or rebuilding, let alone subsidizing with tax dollars?

To some degree, living right on the water is a luxury good. There are more people who want to do it than there is land by the water. It may be that we should rethink the risks and build that into our zoning and construction codes.

FILED UNDER: Natural Disasters, , , , , , , ,
James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College. He's a former Army officer and Desert Storm veteran. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Sleeping Dog says:

    Federal flood insurance has received a huge subsidy from the government and despite that, those who should buy it complain about the cost, which can be several thousand dollars a year. Despite that, we continue to allow people to rebuild in high risk areas, It’s nuts. Flood insurance should be a requirement in flood zones and the cost should reflect the risk. Yes this will price some, maybe many, out of living in places like Florida, but no one is entitled to live in a particular location.

    From here on, we know the drill, DeSantis and the FLA congressional delegation will come hat in hand, begging congress to authorize billions to rebuild and the legislation will pass and it will likely pass without significant safeguards that we’ll not be in the same situation next year in the same or neighboring counties.

    I live in a beach community that suffers significant flooding during King Tides and from nor’easters, so what to do is a regular conversation. My answer is consistently, RETREAT, move to less vulnerable geography.

    6
  2. OzarkHillbilly says:

    Regardless, events like Ian refocus our attention on the questions of Who should bear the financial cost of these events? And should we rebuild in flood plains and the paths of hurricanes at all?

    There’s no easy answer to either of these questions.

    There is an answer. We just don’t like it. Because it’s not easy. We want somebody to wave a wand and make all the problems go away. And with climate change and Florida’s geology, things are only going to get worse. Large parts of the state are going to go under the water and we can’t stop it from happening. The longer we put off acknowledging that reality, the more expensive it becomes.

    It’s easy to say that those folks made their choices and should have to live with them. But they’re not all yacht owners who’ve lost their beach house; most of them are living paycheck to paycheck and happen to live in places where hurricanes and tropical storms are a fact of life.

    Hurricanes and tropical storms have a habit of going where ever the F they want. But that doesn’t mean we should subsidize people continuing to live in floodplains. Our flood zone maps are a joke, completely out of date. Partly due to climate change but also due to interventions people take to avoid floods. In the last round of flooding we had here, a number of towns had problems with high water when they never had in the past. A large part of the reason was because of new dikes being built or raised. The Corps of Engineers is supposed to manage and regulate dikes and other flood control measures to ensure these problems don’t occur, but they aren’t very good at it and a lot of times people just do what they want and the Corps doesn’t even know about it.

    The related question that comes up is What level of risk is worth bearing? How close to the water should we be building or rebuilding, let alone subsidizing with tax dollars?

    To some degree, living right on the water is a luxury good. There are more people who want to do it than there is land by the water. It may be that we should rethink the risks and build that into our zoning and construction codes.

    To some degree? I worked with a carpenter who lived in West Alton, MO. It is right at the confluence of the Missouri and Mississippi rivers. It is a small enclave of a handful of houses amidst many mobile homes. So many I’m surprised they haven’t been targeted by a tornado. I guess the gods have decided that getting flooded every 5-10 years is punishment enough for their sins (whatever they may be). During the 80s, I sand bagged up there twice. The 3rd flood in that decade, I sat it out. God was trying to tell them something but they just weren’t listening. ’93? ’93 wiped them off the map. There was nothing left but a few foundations and a whole lot of sand and mud. But they rebuilt it. And this time…

    The guy I worked with? He loved it there. You couldn’t blast him out of there with a nuclear bomb. OK, fine. Live there, but yeah, it’s on him.

    5
  3. Stormy Dragon says:

    I suppose that’s why they call these things “disasters.” But they’re common enough that we should have figured out how to deal with them more efficiently by now.

    Attempts have been made but the Republicans always block it because doing anything about problems is “socialism”.

    5
  4. Stormy Dragon says:

    Another aspect that needs to be addressed is how Florida’s lax building codes make structures more susceptible to being destroyed in disasters like this.

    5
  5. Sleeping Dog says:

    @Stormy Dragon:

    Actually Florida has one of the most robust building codes in the country. These were instituted after Hurricane Andrew. But a building code, no matter how demanding and strictly enforced will not produce a building that will resist a storm surge several feet high that is flowing through the front door or a yacht or vehicle being hurled into the building. The issue is geography and building codes don’t address that, those would be zoning issues.

    7
  6. Jay L Gischer says:

    Florida, you say? Isn’t that the place where there was a highrise condominium collapsed because the homeowners didn’t attend to basic maintenance costs?

    I mean, yeah, hurricanes are terrible. But they shouldn’t be a surprise to Floridians, who should just wrap it in to the cost of living there.

    2
  7. Jon says:

    @Sleeping Dog: It also only affects homes built after the new code was in place, so only houses built in the last 30 years.

    1
  8. gVOR08 says:

    I thought I checked in to say we’re OK on Thursday’s Forum, but I don’t see it. Poor 5G internet or I once again forgot to hit Post. We’re OK. Lost a tree, had to dry out a carpet, took some dings and holes in the shed when the neighbors fence slats went through. Everybody’s safe and dry.

    We’re in the heights, 15 ft above sea level and 20 miles from salt water, Evac zone E. They evacuated A and B. We had no risk of storm surge but I’ve always wanted water front property, now I have it. We’re between the Myakka and Peace rivers, which go upstream NNE. The storm went NNE. All that water is trying to drain to Charlotte Bay through here. The nearby drainage channel is over it’s banks and a foot deep on our street. A lot of people are suffering flood damage who had little reason to expect it.

    Fixing FL home insurance is one of several routine governance things the Republican lege and DeUseless haven’t been able to get to. p

    9
  9. OzarkHillbilly says:

    @gVOR08: Good to hear. This, “I’ve always wanted water front property, now I have it.” gave me a chuckle.

    3
  10. Stormy Dragon says:

    @Sleeping Dog:

    It would stop cheap prefab houses that collapse because they’re not attached to their foundations. And if the building code is as good as you say then it’s not being enforced

    1
  11. Stormy Dragon says:

    @Stormy Dragon:

    From https://en.m.wikipedia.org/wiki/Florida_Building_Code:

    The Miami-Dade and Broward County norms, are both included in the High-Velocity Hurricane Zones (HVHZ) and contain more stringent requirements.[3] Other counties such as Palm Beach County do not require the same HVHZ building standards for compliance with the Florida Building Codes.[4]

  12. EddieInCA says:

    @OzarkHillbilly:

    There is an answer. We just don’t like it. Because it’s not easy. We want somebody to wave a wand and make all the problems go away. And with climate change and Florida’s geology, things are only going to get worse. Large parts of the state are going to go under the water and we can’t stop it from happening. The longer we put off acknowledging that reality, the more expensive it becomes.

    This. This. This.

    My wife and I had this discussion last night about South Florida and New Orleans. Several Florida Keys islands no longer exist. The ones that do, including Key West, get smaller every year due to rising tide. Miami Beach has “Sunny Day Flooding” or “Tidal Flooding” where the tide literally comes up through the sewers. Miami Beach will cease to exist due to global warming. We’re just putting off the inevitable. Another storm like Katrina will breach the levees again. It’s just a matter of time. Had Ian been few hundred miles west, it might have happened last week.

    It’s just a matter of time.

    We sold our house in Bradenton, FL, for this very reason in Jan. of this year. “Just a matter of time”, we thought. The house we sold suffered significant damage on Wednesday.

    11
  13. Sleeping Dog says:

    @Jon:

    I’d thought of that, but had a brain fart and left it out. Thanks for mentioning it.

    2
  14. Michael Cain says:

    The media “rediscover” the insurance problem — more accurately, the lack of insurance problem — pretty much every time a disaster hits an area with a high proportion of retirees. There was a huge fuss made after the Bastrop County fires in Texas a decade ago when the media discovered that only about 20% of the houses destroyed were insured.

    I’m sure there’s a PhD dissertation (or several) if someone were to do the research. The most likely cause would seem to be that retirees buy a house in a place they think to be low cost of living. When it turns out not to be as low as they though, or grows faster than their income, they look at their annual budget and that sizeable monthly payment for homeowner’s insurance is one they think they can get rid of.

    4
  15. Sleeping Dog says:

    @Stormy Dragon:

    Taking a travel trailer, placing it atop blocks on leased lot isn’t covered by building codes anywhere in the US, this would be a zoning issue.

    2
  16. Sleeping Dog says:

    @Michael Cain:

    That, and the retiree is likely sitting on a sizable amount of cash that came from the sale of the family home “up north,” and they buy the Florida or other warm weather destination for cash. That avoids a lot of requirements that a bank would impose on insurance. The retiree, being ‘thrifty,’ chooses to go without, even when they can afford it. What can go wrong?

    2
  17. Richard Gardner says:

    Ages ago I lived in an apartment in Orlando for 6 months. Its parking lot and some ground floor apartments were flooded by Ian. 15-24″ of rain on very flat ground, lakes everywhere. This is far from the ocean. Next up, earthquake insurance.

    1
  18. Just nutha ignint cracker says:

    @EddieInCA:

    We sold our house in Bradenton, FL, for this very reason in Jan. of this year.

    You may want to put your lawyer on alert to expect the purchasers to sue for recovery under some sort of “failure to disclose risk” scam. It won’t be true but doesn’t need to be to file. As the host of “Handel on the Law” used to say, “can I sue?” is the wrong question. Anyone can sue and pretty much on any grounds. The question to ask is “can I prevail/get a hearing?”

    1
  19. Just nutha ignint cracker says:

    @Sleeping Dog: Years ago before they moved to a retirement death camp, my parents considered buying a condo on the Sammamish River (IIRC) with great views, nice amenities all the stuff that aging parents of boomers want for their golden years. My mom was concerned that they were low enough that the river might flood into their home, but the RE agent reassured her by noting that they qualified for Federal flood insurance. She finally asked me just before they signed the papers and I noted that Federal flood insurance is normally offered because an area is likely to flood, not in case it does. Her concern had been that she didn’t want to put up with flooding aftermath, so they pulled out.

    1
  20. Sleeping Dog says:

    @Just nutha ignint cracker:

    Wise woman, your mother.

    Our house is about 0.3 miles from the ocean, when we were planning to make an offer, I asked the RE to get me the flood maps and a topo map. Conveniently she already had both and the topo was on vellum and of the same scale, making an overlay easy. The edge of the flood plain is about 100 yards from the front door, at the base of a 30′ embankment*.

    We’re at ~55′ above sea level, so I don’t worry about flooding or the ocean, my concern is the many trees that are close to the house and one falling in a storm. We dodged a bullet last winter, when in a nor’easter, an 80′ section of a 120′ pine fell into the back yard. I called a tree service within minutes of that going down as I knew another section was likely to fall and that was aimed right at the house.

    * On colonial era maps, that area is shown as a tidal basin and I’m pretty sure part of it is at or below sea level and the land between it and the ocean is described as an island.

    2
  21. Gustopher says:

    To some degree, living right on the water is a luxury good.

    And then there is the guy living in a van by the river.

    3
  22. Just nutha ignint cracker says:

    @Gustopher: If conspicuous consumption were that easy, no one would ever build an ocean-front mansion. 😀

  23. Gustopher says:

    I halfway think that we should be putting a lot more of the post-rescue, rebuilding costs on the states and let the market figure it out.

    Offer the states interest free, 50 year loans, to smooth out the costs, and logistic support, and maybe some cost sharing, but give the people of disaster-prone areas some incentives.

    (Alternately, we could tie the federal funding to student debt cancellations, because in each case people should have “known better” and it would just piss the Republicans off while helping a lot of people)

    1
  24. Sleeping Dog says:

    @Gustopher:

    At least the guy living in a van has the ability to drive his home to higher ground 🙂 Sort of having your cake and eating it.

    1
  25. Sleeping Dog says:

    @Gustopher:

    For those in the flood zone, flood insurance should be mandatory, for those out of the flood zone but in an are that has some risk* of flooding, federal loan assistance should only go to those who purchased flood insurance. Then the property can only be rebuilt once with a public subsidy, after that property owner should collect whatever insurance is owed and the state should buy the land for the assessed value and placed in a trust where it will never be built on again.

    *This will need to be defined.

    1
  26. Kurtz says:

    @OzarkHillbilly:

    But they rebuilt it. And this time…

    Dude, I make this joke about Florida all the time. I suspect I may have posted it here at some point. I almost didn’t even click on the link I was so sure I knew what was coming. All I saw was a still frame of Herbert before an ad started, and I thought, “Yup…Ozark and I are like two horses in a harness on this one.”

    1
  27. steve says:

    We need functioning ports. I can see having some form of subsidized federal insurance to cover port facilities. Maybe even support for people who work at those places. Homes built for others than those workers should have insurance and they should bear the costs of the risk. Individual states can decide if they want to subsidize those costs. Adjacent areas will need to be reassessed as storms get worse due to climate change. If an area has not been hit but is deemed likely they need to have insurance. This should be set at a very low percentage of risk. No one “has” to live in Florida.

    There should also be limit. There may be now but cant remember. Any insurance over say $300,000 should be private or subsidized only by the state.

    Steve

    Steve

    1
  28. Michael Cain says:

    @Sleeping Dog:

    For those in the flood zone, flood insurance should be mandatory, for those out of the flood zone but in an are that has some risk* of flooding…

    One of the problems that has to be dealt with is what to do when the flood zone(s) change. After the floods along Front Range Colorado in 2013*, the flood zones were expanded significantly.

    * A strong monsoon flow in early September up the east side of the Rockies provided the moisture, and a backdoor cold front shoved it all to the west. When the foothills and first set of mountains pushed all that wet air straight up, the moisture came out as rain. Some areas got the equivalent of a full year’s worth of precipitation in four days.

    1
  29. Michael Cain says:

    @Sleeping Dog:

    For those in the flood zone, flood insurance should be mandatory, for those out of the flood zone but in an are that has some risk of flooding…

    One of the problems that has to be dealt with is what to do when the flood zone(s) change. After the floods along Front Range Colorado in 2013*, the flood zones were expanded significantly.

    * A strong monsoon flow in early September up the east side of the Rockies provided the moisture, and a backdoor cold front shoved it all to the west. When the foothills and first set of mountains pushed all that wet air straight up, the moisture came out as rain. Some areas got the equivalent of a full year’s worth of precipitation in four days.

  30. Kurtz says:

    @gVOR08:

    We’re OK. Lost a tree, had to dry out a carpet, took some dings and holes in the shed when the neighbors fence slats went through. Everybody’s safe and dry.

    I saw you post between then and now. I had wondered aloud…er, well, I mentioned it here…how you were doing. Glad you made out okay.

    I also hope @CSK’s family in Venice is okay. It was already a tragic week for them.

    I’m at the corner of two different floodplains and evac zones. Just far enough inland that coastal surge would have to be Bruckheimer movie size to be a threat. We do have a river ~1.5 miles away that could potentially flood the neighborhood, but from what I understand, it would likely require a particular sequence of events for it to happen.

    Irma was worse for my immediate area, but Ian was much more devastating to the areas just to the North and South of me.

    Still, I gotta get out of this place.

    1
  31. Kurtz says:

    I’m slightly hesitant to point this out, because it could be (mis)construed as flippant, or even callous. So let me emphasize, that I am referencing a particular subset of those affected.

    In my area, and I would hazard a guess that this is also at least somewhat true of @gVOR08’s area, many of the homes houses destroyed were not primary residences. This is especially true along the coastline. Some of them are seasonal residences, and many others are vacation rental properties used to finance holidays down here.

    Maybe I am callous, but I have very few tears for the former and absolutely none for the latter. I feel ever so slightly bad for people losing irreplaceable, personal things they kept down here. But even then, it’s pretty limited, because major tropical cyclones are a real risk every year, so it’s not the best place to keep those things given that alternatives are available to them.

    [Feel free to skip the following anecdote, but it reveals something about many who live down here.]

    A couple years ago, there was controversy around here about defining property lines along the beachfront in reference to the mean waterline. One particularly nasty commenter on one of the articles made it clear that they felt their property ended at the water line and no one else had a right to the beach because they bought the house that sits on the water.

    The thing is, this person was condescending, and vile toward those who supported a different definition. (I did not get involved.)

    Perhaps the ‘we paid for it’ line of reasoning may have been persuasive to some, but I suspect that it was undercut by the admission that it wasn’t even a seasonal home, but a house the poster visited a couple weeks a year. The rest of the time, it was on the rental market. And having some familiarity with the particular location, I can say that much of the time, it likely sat empty. That attitude of entitlement is pretty galling.

    1
  32. OzarkHillbilly says:

    @Kurtz: Oh brother… It is a thrice told tale.

  33. OzarkHillbilly says:

    @Michael Cain: One of the problems that has to be dealt with is what to do when the flood zone(s) change.

    Just want to note, again, that the CoE is supposed to be tracking this stuff. I suspect they haven’t been sufficiently budgeted for it, but what else is new?

  34. Sleeping Dog says:

    @Michael Cain:

    Flood zone maps need to be updated, at least once a decade. So some folks will find themselves in a flood zone when they weren’t before, but it is what it is. Will there be floods in places that never had them? Yes, and those can be handled as one off events unless it proves to be a permanent change.

    1