hurricanes

Hopes for Federal Property Insurance Expansion: Gone with the Wind

by Michelle Minton on July 23, 2010 · 5 comments

in Bailout Watch, Insurance

Insurance industry members are wiping there collective brow after a bill was pulled from the floor of the House of Representatives before a vote. However, every taxpayer in the US should be breathing a sigh of relief. The bill, H.R. 1264 proposed to add wind insurance coverage to the National Flood Insurance Program (NFIP), which provides federal coverage in the wake of a catastrophe. A persistent idea on the hill, the effort to add wind and other perils to the Federal insurance program has, in recent years, been championed by Rep. Gene Taylor, D-Miss., who lost his home during Katrina in 2005.

Whatever their intentions, adding another peril for the federal government to deal with is clearly a bad idea on all fronts–whether from a fiscal, public safety, or free market perspective. The NFIP is already more than $19 billion in debt and counting–a debt that is paid for by every American, regardless of where they live. Estimates claim that the addition of just wind would increase that liability 5-fold. Of course, as we can see by looking at other government run insurance programs, the longer they operate the greater the liability becomes–this is due in part to inefficient underwriting and in part to the moral hazard that subsidizing risky behavior represents.

On July 21, just days before House members planned to vote on the measure, the Obama administration announced its opposition to the addition of wind to the NFIP (as the Bush administration had done in 2008).

The Administration recognizes that the availability of hazard insurance is a key element in the ability of individuals and communities to recover from disasters. However, the Administration opposes House passage of H.R. 1264, which would expand the Federal Government’s role to provide windstorm insurance that is already readily available in the private sector and through State insurance plans without Federal aid….expanding NFIP to cover windstorm insurance would unnecessarily duplicate available insurance products and could “crowd out” such products where they are offered, while offering little to no savings to the American public. At a time when the NFIP is already facing serious challenges, the Administration cannot support such an expansion

There are several fundamental reasons why adding wind insurance to the NFIP is a bad idea.

1. It would undercut competition and increase the national debt:

Private insurance is available. It might not be as inexpensive as people living on the coasts would like, but private insurers are willing to underwrite almost any risk for an adequate premium. When the federal government provides a cheaper version of insurance (under-priced through the miracle of taxes) it prompts consumers to leave their private insurance company for the less expensive option.  This puts increasing pressure on the federal insurance and American taxpayer.

2. Government run insurance programs can’t spread risks as far as private insurance

Private insurance  companies can spread risk by holding policies around the world that are unlikely to occur at the same time. This means that while they are paying claims for a hurricane in Florida, they are still collecting money from premiums on Japanese earthquake insurance policies. The US government is necessarily limited to pooling all of its risk within the USA which makes it much more likely that events will occur at the same time.

3. Cheap insurance doesn’t discourage bad behavior

When priced correctly, insurance provides feedback for the relative riskiness of a person’s decisions. If someone buys a house on the SC coast, they are more likely to have their home destroyed in a storm surge than someone living in the middle of Wisconsin. Therefore, their private insurance company will charge them more money for hurricane insurance. When we remove this feedback (aka remove the expense of insurance from the decision to move to a home on the beach) we encourage more people to engage in risky behavior. If the federal government provides cheap insurance for homes on the beach more people will build their homes there–putting themselves and their homes at risk and increasing the likelihood that everyone else in the country will end up bailing them out.

While the bill could still be brought up, it is a good thing that the Administration and a large number of Representatives have expressed their opposition to this expansion of government. Of course, all of the arguments against federal wind insurance apply to all other forms of insurance as well.

Obama Speech to the UN: The Data

by Iain Murray on September 22, 2009 · 2 comments

in Energy, Environment, Global Warming, International, Regulation

Myron has already pointed out how most of what the President claimed were the threats from global warming are exaggerated.  Here’s the data to back that up.

“…[T]he threat from climate change is serious, it is urgent, and it is growing.”  Reality: global mean temperatures increased slightly from 1977 to 2000.  Temperatures have been flat since then.

“Rising sea levels threaten every coastline.”  Reality: sea levels have been rising on and off since the end of the last ice age 13,000 years ago.  The rate of sea level rise has not increased in recent decades over the nineteenth and twentieth century average.

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“More powerful storms and floods threaten every continent.”  Reality: there is no upward global trend in storms or floods.

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“More frequent drought and crop failures breed hunger and conflict in places where hunger and conflict already thrive.”  Reality: there is no upward global trend in major droughts.  Reversals in large-scale cycles have meant that the southward march of the Sahara Desert into the Sahel has been reversed in recent years and the Sahara is now shrinking.

“On shrinking islands, families are already being forced to flee their homes as climate refugees.”  Reality: some Pacific islanders may want to emigrate to New Zealand or Australia and are claiming that their islands are disappearing as the reason, but shrinkage has been minimal in recent decades because sea level rise has been minimal.

droughts-atollsCharts from SPPI’s Monthly CO2 Reports and from Indur Goklany, “Death and Death Rates Due to Extreme Weather Events: Global and U.S. Trends, 1900–2006,” 2007.

CEI’s RRM Suggests Additional Questions for Florida Insurance Commissioner

by Kevin Hilferty on August 26, 2009

in Insurance, Odds & Ends, Precaution & Risk, Regulation

Yesterday in a press release from CEI’s Center for Risk, Regulation, and Markets, the Center raised many questions that should be brought to Florida Insurance Commissioner Kevin McCarty’s attention. The questions mainly surrounded doubt over whether or not Florida has enough capital to pay out insurance claims in the event of a catastrophic hurricane.

As Christian Cámara, director of CEI’s Florida Insurance Project, said in the release, “There are a lot of very serious unanswered questions.”

There was one question that was unfortunately left out of the release. Since this is indeed hurricane season and of course a timely issue, the RRM team would like to pose the question here:

Gov. Crist recently claimed that divine intervention has kept hurricanes away from Florida. If this is the case, is the State of Florida taking proper action to appease the various storm gods? What types of sacrifices are being offered to these deities? Are OIR high priests following proper sacrificial rites? What types of objects or animals are being used and what is the cost of these sacrifices to Florida taxpayers? Would you be amenable to privatizing these sacrificial rites?

These are important questions that need to be answered for the sake of the safety of Floridians. These issues may actually be important to those who aren’t Florida homeowners, though, as the horses of Florida may in fact be in danger due to possible sacrifices to the storm gods. Could there be a connection between the recent horse poaching in Florida and these offerings to the storm deities? Could privatization of the insurance market and legalization of the sale of horse meat solve both of these issues?

The Center for Risk, Regulation, and Markets and all those concerned about the citizens and horses of Florida are waiting for your answer, Mr. McCarty.

Hurricane Activity Increase Due to Better Monitoring

by Ivan Osorio on August 17, 2009

in Environment, Global Warming

The potential threat from more frequent and stronger hurricanes is a favorite scare scenario of climate alarmists. They point to disasters like Hurricane Katrina as examples. However, such anecdotal evidence, while dramatic, says little about overall cyclonic activity. A greater document of documented storms does not necessarily mean that more storms have occurred, only that more have been recorded. As Gabriel Vecchi and Thomas Knutson of NOAA state:

Two recent papers (Vecchi and Knutson; and Landsea et al) suggest that, based on careful examination of the Atlantic tropical storm database (HURDAT) and on estimates of how many storms were likely missed in the past, it is likely that the increase in Atlantic tropical storm frequency in HURDAT since the late-1800s is primarily due to improved monitoring.

Vecchi and Knutson find this increase among moderate-duration storms (storms lasting longer than two days). Their adjustment for “missing” storms is shown in the chart above . They go on:

Existing records of past Atlantic tropical storm numbers (1878 to present) in fact do show a pronounced upward trend, correlated with rising SSTs (see Figs. 1 and 9 of Vecchi and Knutson 2008). However, the density of reporting ship traffic over the Atlantic was relatively sparse during the early decades of this record, such that if storms from the modern era (post 1965) had hypothetically occurred during those earlier decades, a substantial number would likely not have been directly observed by the ship-based “observing network of opportunity.” We find that, after adjusting for such an estimated number of missing storms, there is a small nominally positive upward trend in tropical storm occurrence from 1878-2006. But statistical tests reveal that this trend is so small, relative to the variability in the series, that it is not significantly distinguishable from zero (Figure 2). Thus the historical tropical storm count record does not provide compelling evidence for a greenhouse warming induced long-term increase.

As for greater economic losses from storms, there are simply more people living on the coasts than ever before, which means more buildings along the coasts than ever before.

For more on hurricanes, see the segment and comments on the topic from Marlo Lewis’s film, Policy Peril. (Thanks to Margaret Griffis for the tip.)

Policy Peril Segment 3 – Hurricanes (updated 8/19/09)

by Marlo Lewis on July 30, 2009 · 5 comments

in Global Warming, Odds & Ends

Is global warming making hurricanes more destructive? Did global warming contribute to the devastation of New Orleans by Hurricane Katrina? Would Kyoto-style energy rationing help avert future weather-related catastrophes?

Well, just ask Al Gore! In An Inconvenient Truth, Gore claims there’s a “strong new emerging consensus” that global warming is increasing the duration and intensity of hurricanes (AIT, p. 81), he depicts New Orleans as a global warming victim (pp. 94-95), and the threat of increasingly powerful storms is a major part of the alleged “climate crisis” that Gore proposes to solve by restricting our access to carbon-based energy. [click to continue…]