After Katrina devastated the Gulf Coast many insurance companies pulled out. The risk was too hight, their losses too great.One of the serious questions that now loom over the US coastal areas is "Who's gonna pick up the tab for coastal insurance?"
We are conducting some projects on the East Coast and have found a great deal of anxiety and frustration surrounding this issue.
In South Carolina, where coastal development is surging as more and more baby boomers seek to live near the sea, insurance of properties that are exposed to hurricane damage is a hot topic.
Charleston and surrounding areas lie low to the sea (it's actually called the "Low Country"of South Carolina). Therefore, besides the commercial, government, non-profit, and private properties located on the shore and within reach of storm surge, many other areas away from the beaches are barely above sea level. This means that they are also prone to flooding and, of course, are also vulnerable to hurricane winds. We drove to the old navy yard one day during serious thunder storms and were barely able to skirt the huge lakes of water that were rapidly accumulating and had no where to run off.
As in other parts of the United States where these conditions pertain, insurance companies have either been greatly increasing their premiums or even cancelling coastal insurance policies.
The question now arises whether government should step in and
- regulate (i.e. force the insurance companies to continue insuring and regulating premiums)
- allow market forces to operate and leave hands off
- create a government, taxpayer funded insurance program that covers these coastal properties.
- develop incentives and tax breaks for insurance companies to give them an incentive to underwrite
This seems like a normal problem facing public policymakers and in reality it is. However, there is a passionate disagreement over what is appropriate.
Should government "force" the private sector to behave in ways that run counter to the market-driven priorities of private companies?
Should taxpayer money be used to benefit citizens living in the higher risk coastal areas of the state?
Should insurance subsidies be passed and if so should they be "means tested" so the state is not subsidizing people with large incomes or companies with deep pockets.
There is even an argument which says that it is good for the coastal areas if insurance is hard to come by because then fewer people will build in risky and environmentally sensitive beach areas.
No doubt the issue of insurance will grow as a major political and public policy concern as we move into what is expected to be several decades of more intense tropical storm and hurricane activity.
One thing is very clear. There are no easy answers.
