by Mark Haubner
In the early stages of the great changes brought about by climate disruption, we are seeing the retreat of insurance companies away from flood zones in the coastal regions, and away from fire zones in the mountain regions.
When a private enterprise is free to walk away from a market segment, the result is that the government (and by extension, the taxpayer) is forced to assume the risk and expense by way of a publicly-owned entity. The public pays for what the state ‘owns.’
Sound familiar? There are many parallels to the recent bank bailouts we’ve seen on the news spanning decades: savings and loans banks in the 1980’s and 90’s, the brokerage houses and insurance companies in 2008, the federal takeover of student loans at around the same time.
This is a prime example of ‘privatizing the profits and socializing the costs/loss.’ It’s the same economic paradigm that allows a large soft drink manufacturer to extract water by the billions of gallons without restoration, wrap it all in plastic, then force the recycling of 75 billion plastic bottles every year onto the citizens of 50 states, 3100 counties and 89,000 municipalities in the United States.)
There are two trends driving the stressors — storm risk and fire risk — on property insurers: the massive amounts of development on the coasts because of the human desire to live right next to bodies of water, and the high costs of real estate in the cities, driving people to much lower-priced properties in the upper mountain regions.
Barrier beaches naturally evolved to provide some of the most diverse habitats on the planet and serve the function of wave-dampening during storm surges. For hundreds of thousands of years the dunes and beaches of our coastal zones have given up their sand to wind, surf, storm and tide, and just like the daily tides, every storm is making its mark on our coastline. Keeping that coastline exactly the same as it was even 10 years ago is a fool’s errand, a blindingly obvious manifestation of our inability to accept change that harms our personal construct of reality. Yet change it does, and fight we do.
In areas that are in the middle stages of climate disruption in the coastal zones, thousands of homes and businesses have suffered two or three or more devastating storms and put in claims to repair and rebuild. We then see the retreat of flood-risk insurers which leaves the high-risk properties without an option to insure — high and dry in one respect, and inundated in another.
Some states are reacting to the retreat of commercial insurers by requiring companies to maintain a percentage of their portfolio in the high-risk properties, much like the ‘assigned risk pool’ for high-risk drivers.
With the advent of major catastrophic storms (Hurricanes Katrina in New Orleans, Harvey in Houston and Sandy in New York), resulting in billions of dollars of damages, the pattern of storms is decidedly becoming more damaging. We now see one storm’s damages equal to an entire year’s worth of storms from even just 20 years ago. Damage to both natural and built structures is going to be greater in the future.
Homeowner investments are in the hundreds of thousands of dollars and commercial investments in the millions, making insurance as a financial product necessary. But as insurers are allowed to withdraw from high-risk areas, leaving the unwanted, higher-risk property owners to fend for themselves, they create a vacuum which leaves the uninsured population crying for assistance to fulfill their mortgage bank’s requirement for insurance. ‘The government’ must respond, and the options are bailout or buyout.
Bail Out or Buy Out
Enter the ‘subprime lender’ of the insurance world, the ‘flood risk plan providers.’ When they fail utterly, ‘the government’ races in to either: rescue (bail out to keep the company in business), where the taxpaying public becomes a creditor with no ownership stake or assurance of future repayment; or to assume the corporation completely (buyout), with elected representatives and officials becoming insurance business owners.
In the case of the takeover, the taxpaying public becomes the policy’s backer (risk-taker) and the government becomes the decision maker in a new business. The stakeholders are simply voting constituents, and the issues surrounding these decisions become not ones of logic and democracy, but of politics — platform and polarity. Voting is no longer done at the quarterly shareholder meeting but deferred to the next public election cycle.
A Florida resident is now forced into the clutches of the ‘insurer of last resort,’ their property has not moved closer to the water — the water has moved closer to them; and also to an additional 400,000 Floridians who have sunk their life savings into lumber, brick, mortar, plaster and paint, none of it the waterproof kind.
Florida’s state-run insurer, Citizen, is now seeking an increase of 14 percent on their policy holders PLUS to impose a ‘hurricane tax’ or fee on ‘all property insurance holders in the state,’ a penalty to be paid in order to insure high-risk, uninsurable properties.
As we watch climate migration of humans in other parts of the world, we see ‘customer migration’ in our own country. Citizen’s portfolio of almost a half million people creates a strain on the state-owned ‘company,’ which Florida predicts will collapse with the next big storm, typically in the multi-billion-dollar range. Only one 100-year-storm away from insolvency, even two ‘little storms’ totaling $5 billion in damagescould be the tipping point for Florida’s protection against financial ruin. ($5,000,000,000 is equal to 100,000 people earning $25 an hour for a year.)
Without any competition, Florida’s state-run monopoly can set premiums as they wish, hopefully with the ‘public interest’ in mind, i.e., with the mindset of a municipal non-profit. But with the forcing of ‘customers’ to Citizen, which is run ‘like a business,’ the stress test for this company is looking very bad: Hurricane Ian in 2022 brought with it ‘insured losses’ of up to $47 billion and another $13 billion of ‘uninsured losses.’ It was a Category 4 hurricane; the likes of which Florida had not seen since 1935. Meteorologists called it a ‘one in a hundred-year storm.’
(At time of submission, Fort Lauderdale is still draining 25 inches of rain from a 48-hour-long storm last week, which meteorologists are calling a ‘one-in-1000-year storm.’ No word yet on the total costs of this single storm. This does not mean that they are off the hook for the next 999 years, either.)
We will now see the water balloon bubble heading back out to the private sector, with the companies which had once retreated now being called back to absorb more of the high risk subscribers in order to assure the state-owned insurance company its survival.
In Florida, Citizen had been taking in ‘insurance migrants,’ who are physically clinging to their properties in a desperate attempt to avoid being actual climate migrants. Florida responded to the overflow of ‘customers’ by forcing ‘clients’ out to other insurance companies, much like countries move migrants to other countries, or states in the U.S. move migrants to other states (legally or illegally).
The alternative method already tried was to charge the private companies a fee not to take the homeowner onto their actual customer rolls (the ‘hurricane tax’).
This is akin to the U.S. sending foreign aid to countries with humanitarian crises— What we’re really saying is ‘keep your people there and we’ll try to make it work for you, just don’t let them leave the confines of your geopolitical border to come here.’
We have to do something different.
Mark Haubner has been recycling newspaper since 1965, and not seeing his example being followed by everyone on the planet, started learning Science Communication in earnest about six years ago. He got a Certificate in Sustainability and Behavior Change from the University of California at San Diego (the daily commute was grueling) and now writes Community Based Social Marketing programs for nonprofits.