Well it was a nice lull while it lasted. For better than ten years following the chaos caused by Katrina and other mid-2000s hurricanes, North America has enjoyed pretty tame hurricane seasons, with the notable exception of Superstorm Sandy in 2012. Then along came Harvey last month. Now we’re staring down mega-hurricane Irma about to descend on Florida. As if two major hurricanes in only two weeks isn’t bad enough, Jose lurks out there in the Atlantic though it looks like we may dodge that bullet. All of this and we’ve still got more than a month left in the hurricane season.
Cue the media hysteria. I realize that we live in the era of the 24-hour news cycle, and Jim Cantore would be an utterly lost soul if he weren’t firmly ensconced at ground zero of every major storm. We’ve had never-ending 24-hour coverage of Harvey’s development, Harvey’s landfall, Harvey’s aftermath, Irma’s development, preparations for Irma, and we’ll be hearing about Harvey and Irma for the next several weeks. I do not intend to minimize the human tragedy of these storms, but I am wary of the indictments that will inevitably flow from all this media hype. We’re already seeing it…
Predictably, climate change is already being linked with the current roster of storms, such as in this doozy of an article from Newsweek. The article relies on alleged climate data manipulator Michael Mann. I hope all of you Florida evacuees heading north on I-75 realize that you’re setting the stage for the next Irma as your internal combustion engine idles in the traffic jam. Talk about a Catch-22.
The Wall Street Journal recently highlighted hurricane deductibles as the reason that many hurricane victims will find themselves shouldering 1-2% of their hurricane loss. The slant of the article (and others like it) portrays insurers as greedy companies looking to stick it to their policyholders at every turn. Let me see if I have this straight. My beautiful Florida home suffers a $500,000 hurricane loss, and I’m distraught that I have to cover $10,000 of that loss out of my own pocket before my insurer covers the remaining $490,000? Sure, $10,000 is a chunk of change, but would I have really wanted to pay the actuarially-mandated premium to have hurricane insurance with first dollar coverage (assuming I could even find such coverage)? Nope. Even a $10,000 hurricane deductible is a fair price to pay for living in a beautiful coastal home in paradise. Or at least it should be. The hurricane deductibles were a necessary component to keep the private hurricane insurance market from evaporating after Katrina thus giving us yet another incarnation of the notoriously underwater (pun intended) National Flood Insurance Program. NHIP anyone?
Speaking of flood insurance. There are also hundreds of articles and reports on the uninsured and underinsured flood losses from Harvey, and more will follow from Irma. Yes, the NFIP is woefully outdated and in debt. Even for the minority of homeowners and businesses who purchase flood insurance, the program limits (e.g., $250,000 on a home’s structure, no business interruption coverage at all for businesses) leave many underinsured.
Although a certain amount of media attention is helpful in calling attention to problems that need solving, I fear that what we have in most of today’s media hype is politically motivated hyperbole that exploits the actual victims of these natural disasters in order to advance an agenda (e.g., climate change, anti-capitalist, etc.) It would be nice if we could just tone it down a bit and focus on genuine problem-solving instead of slanted accusation.
In the spirit of genuine problem-solving, insurance guru Bill Wilson recently blogged about the concept of mandatory flood insurance coupled with strict loss control. Is that an idea whose time has finally come (or perhaps is long overdue)? The logic is compelling, but then we’d better be prepared for another batch of media reports on how outrageously expensive mandatory flood insurance has become, how unfair the tax penalties are for those who can’t/won’t buy mandatory flood insurance, how onerous are the loss control requirements, and how the flood insurance exchanges are suffering from unexpected losses and need to be taxpayer-subsidized, and the whole flood insurance system is in a death spiral. Sound familiar?
My sincere thoughts and prayers are with you Florida, and Texas.