August 25, 2016
http://www.counterpunch.org/2016/08/25/the-louisiana-catastrophe-proves-the-need-for-universal-single-payer-disaster-insurance/
Of the tens of thousands of
Lousianans who had their homes flooded this month, most do not have flood
insurance. They weren’t supposed to need it, because flooding had never been a
problem where they live. And now it is clear that the federal emergency help
they receive will be wholly inadequate.
Louisiana’s flood victims are
in a terrible predicament, and they are not alone. In the America of 2016,
thousand-year catastrophes seem to be occurring on a monthly
schedule, while we remain stuck with pre-greenhouse home insurance. That is
leaving countless families economically devastated.
In the greenhouse era, it’s
obvious which communities around the nation and world are under direst threat
of climatic disaster. But with the big capitalist economies unwilling to stop
their assaults on the Earth’s atmosphere and surface, it’s no longer possible
to say that in the future any place or anyone will be disaster-proof. Even if,
against all odds, the world starts turning the global ecological crisis around,
we will all be needing robust disaster protection for decades to come.
In our book How the World Breaks, we
propose the United States tackle these problems with a universal public
insurance program to cover not just floods but all geoclimatic disasters. (We
also propose a disaster-protection strategy for the global South, but here we focus
on our domestic proposal.)
Private disaster insurance is
full of sinkholes
It’s the nation’s flood
insurance program that was already receiving the most bad
press even before Louisiana. But any type of insurance that covers a single
type of (un)natural
disaster is burdened with inherent contradictions that always threaten to
scuttle the system.
The root of the problem is
that the only people who buy flood insurance, for example, are those who are
likely to be flooded. (It’s as if we had special medical coverage that was only
for Tommy John surgery and only for major league pitchers.) Flooding is
inevitable, and the risk is spreading beyond mapped flood zones—as in
Louisiana—thanks to growing climatic chaos. So payouts over time are inevitably
frequent and large. An insurer would have to charge exhorbitant premiums to
fully cover its losses, so the government has
to subsidize premiums to make them affordable. However, making insurance
too cheap creates serious blowback, encouraging greater risk-taking by
developers and policyholders and making future disaster losses worse.
The dilemmas of private
disaster insurance are illustrated best by the National Flood Insurance Program
(NFIP), which is administered by the Federal Emergency Management Agency (FEMA)
but carried out by more than eighty private insurance companies. The program
was crippled by Hurricane Katrina in 2005 and Superstorm Sandy in 2012 and
required bailouts. Now comes Louisiana.
Recently, Frontline and NPR found
that between 2011 and 2014, the private insurance companies providing coverage
under FFIP were themselves bleeding the program and its policyholders,
extracting an average profit of 30 percent. The New York Attorney General
recently released a report
accusing the companies of fraud. Now the nameless Louisiana storm has put the
flood insurance system completely underwater.
Flood insurance isn’t the only
hazard zone for customers. For example, the hottest earthquake insurance market
in recent years has been the state of Oklahoma, which has been plagued by
home-damaging quakes resulting from oil drillers’ injection of wastewater. In
2015, insurance companies were accused of stiffing
policyholders, denying more than 90 percent of claims on the grounds that
the quakes were human-made and not “acts of God” as specified in the policies.
Meanwhile, the oil companies were also refusing to take responsibility,
claiming that the earthquakes were “natural disasters.” Homeowners were caught
in a Catch-22.
With privately administered
disaster insurance and market-based pricing of premiums having largely flopped
as a means of protecting homeowners and encouraging disaster prevention, the
need for universal, single-payer disaster insurance is more obvious than ever.
Responding to disasters as we do now—through a cobbled-together nonsystem of
private insurance, public insurance for “uninsurable” risks, reinsurance,
presidential and gubernatorial disaster declarations, catastrophe bonds, and
charity drives—makes recovery highly inconsistent, with lower-income areas and
families often bearing the worst burdens.
Public insurance covering
geoclimatic disasters would have two big advantages: it wouldn’t have to make
profits for investors, and it could spread risks across all types of disasters
and an entire population. Furthermore, governments have the unique ability to
make insurance universal and compel risk reduction, including the prohibition
of development in high-hazard areas.
NFIP, in contrast, faces three
age-old problems: it covers a single class of hazard, its customer base is made
up largely of property owners who are highly likely to suffer damages and file
claims, and it has to make money for the private companies providing the
insurance. A more comprehensive public insurance program should cover all types
of geoclimatic hazards, and it must be universal—so that, as with universal
health insurance, risks and premium burdens could be shared broadly enough
across regions, demographic groups, and types of hazards. That way, coverage
could be made affordable for all.
Covering communities at low
risk of disaster would not be as odd as it might seem. The New Zealand
government’s Earthquake Commission, for example, provides nationwide coverage
for damage from earthquakes, volcanic eruptions, tsunamis, storms, floods, and
fire to all of the country’s residential property insurance policyholders; the
system is paid for through a surcharge on insurance premiums.
In Spain, all holders of
private property insurance policies are required by law to have coverage for
“extraordinary risks,” including geoclimatic hazards; the coverage is provided
by a state-run agency that’s funded by surcharges on property insurance
premiums. France has a similar system.
“Disastercare” for all
The public, single-payer
disaster insurance program that we propose should cover all U.S. homes and
include universal coverage, mandatory risk reduction, subsidized premiums for
low-income households, and buyouts that would allow disaster victims to move to
less hazardous areas. If we had had a program with those features in place
before that storm hit Lousiana, families would not be facing sudden economic
ruin as they are now.
Having provided for
risk-spreading and protection against loss, the government would be in a much
stronger position to announce and enforce tougher building standards and
prohibit construction in high-risk areas while providing ample authority and
funds for preparedness, property buyouts, and relocation. Subsidized premiums
and strict payout ceilings for repair and replacement like those in NFIP would
make the system more progressive. There should also be separate coverage for
personal property, and a three-tier premium structure for homeowners,
landlords, and renters.
We emphasize that replacement
of Obamacare with universal single-payer health insurance should remain a top
priority for the U.S. left; however, national disaster insurance would be
logical next step. Yes, we realize that in today’s political climate, a bill
calling for either program is sure to trigger a Congressional volcano. But as
the numbers of people potentially affected by disasters grows, we can expect a
majority emerge in favor of universal insurance.
We outlined this idea to
several experts in disaster risk—Leigh
Johnson of the University of Zurich; Lisi
Krall of SUNY Cortland; and Carolyn
Kousky of the nonprofit Resources for the Future—and asked them for
feedback. While they agreed with us that it would be necessary to deploy the
stick of tougher risk-reduction policies along with the carrot of universal
insurance in order to avoid subsidizing risky behavior, they had one major
concern. Our plan, they worried, would be confronted with a problem that’s at
the heart of all public insurance issues: the highly political process of
setting premiums.
A uniform premium paid by all
would be welcomed by those who live in hazard-prone conditions, but we agreed
with our experts’ feelings that it would be unfair to those living in safer
areas. On the other hand, charging premiums that would cover the full risks of
individual properties or neighborhoods would be harsh on people who live in
potential disaster zones out of necessity rather than choice. For example, a
low-lying area prone to flooding may sometimes be the only place where a family
can find housing that’s close enough to a workplace and also affordable; others
may not be able to bear the cost of moving out of a neighborhood near an
oilfield that has started producing earthquakes. As always, lower-income
households would be hit especially hard.
In any case,
property-by-property or even community-by-community risk adjustment for all
types of hazards is difficult or impossible (and very expensive) to achieve or
maintain with any precision, and such estimates are easily distorted by
political and special-interest pressures. (But in other ways, politics
sometimes works. It took strong political pressure for a buyout plan to make it
financially possible for groups of Staten Island residents who’d been wiped out
by Superstorm Sandy to move out of their badly exposed neighborhoods. That was
certainly better than forcing them to stay and pay risk-adjusted premiums.)
We understand the political
and economic difficulties involved in setting premiums, but we still believe
the universal disaster insurance system we propose can be designed to work.
Because the burden of premiums would be shared by all and could therefore be
modest, rates could be smoothed out across the entire population. We suggest
that disaster premiums be adjusted according to income and property value.
Subsidies necessary for low-income households should be paid for with increased
revenues from the more progressive system of taxation that we need anyway.
Universal coverage with
universally affordable premium rates and a payout ceiling would be a forthright
acknowledgment of the reality that disasters and, increasingly, many of the
geoclimatic hazards associated with them are produced by societies as a whole.
Most Americans are contributing more than their share to geoclimatic disasters
across the nation and world (with the more affluent contributing an outsized
portion), not only through greenhouse emissions but also through the countless
profitable alterations of the Earth’s lands and waters that are setting the
stage for fresh disasters.
There are additional reasons
for universality. For example, as geoclimatic hazards become more frequent,
more destructive, and/or less predictable—as ten-thousand-year events become
routine—it will become harder and harder to say which communities are at high
risk of future damage and which are at low risk. Furthermore, all of us, even
those who live in regions that are so far relatively “safe,” have a stake in
helping disaster-struck communities recover and rebuild; we do it already with
our tax payments every time there’s a federal disaster declaration. The
government, with taxpayer funding, is already the nation’s crucial backstop in
times of catastrophe; we just need a more rational backstopping process.
We should have this system in
place (to cite just one horrifying prospect) before there is a full rupture
of the Cascadia subduction zone in the U.S. Northwest; the resulting quake
and tsunami would cause total destruction west of Interstate 5, wreck the homes
of a million or more people, and knock out public services and infrastructure
for months or years. Given the likelihood of that event—a 10 percent chance
sometime in the next fifty years—and of extreme climate catastrophes, it would
be folly to continue depending on our current insurance industry and ad hoc
federal assistance.
Of course, insurance alone
cannot patch over the increasingly diverse array of disasters that capitalism
is spinning off, much less prevent catastrophic storms like the one that hit
Louisiana. And other people around the world, from the Philippines to Pakistan
to Haiti, remain badly exposed and vulnerable to geoclimatic hazards, with no
safety net in sight. Solutions that work in the rich world may not provide
either prevention or adequate response for the world’s impoverished majority,
no matter how resilient they are. People in Tacloban City and Port-au-Prince
need national and international disaster policies very different from those
that might apply in Seattle or Christchurch.
But if the United States were
to follow the lead of New Zealand and other affluent countries to establish
comprehensive public disaster insurance and prevention, it would represent a
small first step toward protecting all Americans in a century when no one is
immune to disaster.
Stan Cox (@CoxStan) and Paul
Cox (@Paul_Cox) are the authors of “How
the World Breaks:
Life in Catastrophe’s Path, From the Caribbean to Siberia,” which was
published in July by The New Press. Email them at cox@howtheworldbreaks.com
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