Unplanned, Unexpected and Maybe Uninsurable

  

Nobody really expected the NYC subway system to flood, beginning with Superstorm Sandy (2012), but it has happened enough for the city to install inflatable “corks” where the system is closest to the sea (like the tip of Manhattan; see above left). But rising sea levels and more virulent tropical storms across the United States are making flooding very common in major urban areas. If you live in Florida, you know exactly what I mean. Flooding streets are very common in the cities of South Florida (above right is downtown Miami), and right now, it is still simply a tolerable inconvenience. But as climate change-related insurance premiums skyrocket – especially in regions plagued by wildfires, floods and coast surges – the nuisance of maintaining an insured home moves to desperate red alert.

Insurance companies are pulling entirely out of some states impacted by these events, even as governors, legislatures and even many in Congress continue to deny or marginalize the rising risks and damage easily attributable to climate change. Indeed, there are states where the only wildfire and flood insurance available is the less-than-normal coverage from the states themselves, the disaster insurers of last resort. The industry refers to such areas as “insurance deserts.” Writing for the January 8th The Wall Street Journal, Jean Eaglesham, notes:

“‘Climate change will destabilize the global insurance industry,’ research firm Forrester Research predicted in a fall report. Increasingly extreme weather will make it harder for insurance companies to model and predict exposures, accurately calculate reserves, offer coverage and pay claims, the report said. As a result, Forrester forecast, ‘more insurers will leave markets besides the high-stakes states like California, Florida, and Louisiana.’

“Allstate CEO Wilson said: ‘There will be [more] insurance deserts. … Florida’s insurer of last resort is now the main provider of home coverage in that state.” As Florida’s Governor, Ron DeSantis, slides around the country in a failing effort to take the GOP presidential party nod, his constituents are suggesting that he focus on their own local problems, exacerbated by Florida’s very flat geography, hurricane patterns and widespread subsurface and very porous limestone in lieu of solid bedrock. Sinkholes and flooding are exceptionally common, and given the state’s official minimization of climate change, there’s not much in the way of government preparation for what is obviously an irreversible trend.

In Italy, as Venice continues to sink into the sea, billions and billions of dollars are being spent to block major seaways with astoundingly complex “reactive” dams and plans to pump up vast stretches of this art-laden city. Florida will share that ignominious fate with that ancient city, but so will every major US coastal city. Denial, marginalization, not planning or preparing for floods, coastal surges and wildfires may just be the most expensive mistake our local, state and federal governments can make, especially if they are not spending enough to stop greenhouse gas emissions in the first place.

To measure the lack of preparedness by US cities, professors from both the Yale School of Management (SOM) and the Harvard Business School (HBS) decided to see if they could find the relevant metrics. In Yale Insights for December 19th, Rebessa Beyer summarizes their results (a revised paper was published on November 27th on SSRN):

“When a major credit rating agency announced a few years ago that it would start incorporating climate risk into its ratings of municipal bonds, Yale SOM’s Anya Nakhmurina and her co-author Shirley Lu [HBS] decided it would be interesting to know how cities across the United States were adapting to the consequences of climate change… But, despite the enormity of the problem—the National Oceanic and Atmospheric Administration says billion-dollar inland flood events have risen sharply over the last four decades—no one seemed to be monitoring cities’ preparation levels… ‘It was impossible to get aggregated, archival data,’ Nakhmurina says. ‘We thought, ‘Both of us are experts in financial reporting, and we really care about this issue, so why don’t we just leverage our expertise to compose the data ourselves?’ ’

“The results—based on financial disclosures data for more than 400 cities, which took two years to collect—offer a fascinating glimpse into the country’s climate preparedness, or lack thereof. The study looks specifically at flood risk, in part because, as Nakhmurina explains, humanity has ‘centuries of innovation’ to draw from in dealing with excess water as compared to say, managing exposure to extreme heat.

“The most startling finding in the paper is that, while high-risk cities in general have higher adaptation than low-risk cities, more than half of high-risk cities have below-average adaptation levels. ‘That really shocked us,’ Nakhmurina says. Perhaps also surprising: the factors correlated with low adaptation levels include budget constraints and shorter-term planning, but not any particular political leaning…

“Based on the data, the researchers explored three factors that might explain the adaptation gaps, drawing on the Intergovernmental Panel on Climate Change Sixth Assessment Report: political affiliation, financial constraints, and planning horizons. Despite the politicization of climate change in the United States, they did not find any correlation between Republican-led cities and lower levels of preparedness. Instead, adaptation gaps are associated with more quantitative concerns: cities with less money and shorter planning horizons (one year versus five years) are 7% and 4% more likely, respectively, to have a gap between their adaptation efforts and their risk of flooding.

“‘Given all the research we have about drastic differences in climate change views between Democrats and Republicans, we were very surprised to find that differences in beliefs don’t map into differences in action,’ Nakhmurina says. In contrast, ‘long-term planning actually matters a lot.’ Experience also seems to matter: The data revealed that high-risk cities increased their adaptation by 19% following major hurricanes.

“The paper is unique in that it provides systematic panel data for so many cities over several years and that it is based on cities’ financial documents, rather than their stated plans and goals…‘ A plan can change,” Nakhmurina says. ‘But if something is in the budget, that means it is less likely to change. If it’s in an annual report, that means it actually happened.’” And the American tradition of kicking the can down the road just might be the vastly most expensive path we can take.

As a parting note and as reported in the January 9th USA Today, try this reality on for size: “New satellite images show the eastern US coast is sinking at a faster rate than what was first reported last year…” From 0.6 inches/year to 0.8. Not much, right? Add that to rising seas and coastal erosion. Not a pretty combination!

I’m Peter Dekom, and knee jerk reactions to cut budgets and taxes, instead of looking at genuine needs and values, are a sure path to a litany of massive and unaffordable natural disasters for which we are woefully underprepared.