Hurricane Helen, which killed at least 230 people in six states, has proven to be one of the deadliest U.S. storms in recent memory.
And property and economic losses are estimated at $250 billion.
But the insurance industry says only $5 billion of that is covered by insurance.
Homeowners could experience a rude awakening about what is and isn’t covered by their insurance after climate change makes weather events like hurricanes, tornadoes, and floods more frequent and severe There is.
Jeffrey Schlegelmilch is director of the National Center for Disaster Preparedness at Columbia University.
In western North Carolina, which was hit hard by flooding from this storm, it is estimated that less than 1% of households have flood insurance.
What does that mean for recovery?
What does that mean for homeowners?
What does that mean for the region?
Jeffrey: Yeah, unfortunately, what this means is that for a lot of people who are affected by flooding, they don’t have the additional funds available through homeowner’s insurance or business insurance or plans like that. .
There are some mechanisms through federal programs and federal aid that we are counting on, but the amounts are generally much lower.
Some of these programs may take some time to materialize.
This means they have less access to some financial resources than those lucky enough to have insurance.
John: Does that mean some places won’t be rebuilt?
Jeffrey: Probably yes.
Unfortunately, when you encounter a disaster like this, you’re going to see areas that are likely to be rebuilt very quickly. But that becomes kind of a huge challenge in terms of what resources we have and want to rebuild.
Do you want to put all of your money into rebuilding beyond the little help you can get?
That certainly means we should expect a slower recovery and one that relies heavily on public support and philanthropy coming from mechanisms similar to those found in more highly insured areas.
John: Are there many households outside of North Carolina that don’t have flood insurance that they should have?
Jeffrey: Yes, there are a few different reasons for this.
One of them is that the flood maps that we actually use to show where the most dangerous areas are do not necessarily cover the risks, even in terms of our current knowledge. This means that climate change is also included.
They don’t do well in small river basins, especially the kind found in many mountainous regions like western North Carolina.
If you’re in a floodplain on one of these maps, your lender will likely require you to purchase insurance.
Otherwise, if you are not on one of these maps and do not need to purchase flood insurance, we do not need to consider or consider it.
John: There are places that might not have been on these maps in the past, but given the changes caused by climate change, we have to be more careful now because we are seeing stronger and more intense storms. Do you have it?
Jeffrey: Absolutely, and I think all homeowners, those who can afford it should consider the cost of flood insurance, even if they don’t necessarily have to be in a floodplain.
This is often associated with risk or should not cost much if you are in a low risk area, but it is worth being aware of storms like this occurring.
We have seen a once-in-a-millennium flood.
We have seen flooding occur in areas where flood insurance coverage is very limited because these are areas that historically have not typically been at risk, but now more than ever before. We’re seeing big bills coming up.
John: Also, understand flood insurance.
This is not insurance from a private insurance company, right?
Jeffrey: The insurance you buy, like any other type of insurance, is provided by private insurance companies, but about 95% of the insurance that is issued, or that is issued through the National Flood, is provided by private insurance companies. is backstopped by the flood insurance program. insurance program.
So that’s ultimately blocked by the federal government, which through the Treasury has some relationship with various taxes, but also the reinsurance market and other kinds of things to help with insurance coverage. We are also strengthening our relationships through private markets and other means. that.
You can buy this just like you would buy any other type of insurance through a private insurance company, but it will ultimately be blocked by the state flood insurance program.
John: We have bigger storms in Florida, hurricanes, wildfires in California, how is this impacting the insurance industry?
Jeffrey: Yeah, to be honest, they’re under .
Many insurance companies are withdrawing from high-risk areas.
We’ve seen this in California and other wildfire-prone areas.
We’re seeing this in markets like Florida and Louisiana, where storm-impacted losses are only compounding and forced to pay record amounts.
There is tremendous pressure on the insurance industry as they do not have the means to continue operating under these circumstances.
Therefore, while the need for IT is likely to increase in terms of securing resources to recover from disasters, many insurance companies cannot afford to participate in this area, making insurance premiums more expensive. Or you can see that there are no people who want to use insurance. You need to access it.
John: The losses from these events encourage and encourage people to live in dangerous areas.
What do you say to that?
Jeffrey: This is really important and that’s part of the reason why.
As a result, the national flood insurance program has been extended for a short period starting in 2017.
This is a problematic situation, and once everyone agrees that we are actually artificially cutting costs and reducing the economic risk of living in a place where we are actually at risk. I think so.
However, my point is that there are already a lot of people living there.
You already have a house there.
We saw this 10 years ago when they tried to get insurance rates right.
If you’re in a more dangerous area, those subsidies start to disappear.
Then entire communities with homes, how we build generational wealth, suddenly become uninsurable or can be insured at a cost we can’t afford, and we see property values drop because of that. Ta.
In the abstract, that’s absolutely true.
We are essentially not properly denying encouraging people to live in dangerous areas, creating what economists call moral hazard.
But the fact is, it’s already populated by people, and it’s a major part of our economic survival as individuals, businesses, and communities.
And with so many homes already out there, we don’t have a good answer on how to properly estimate risk.
This is a big challenge, and it’s reflected in the long-term extension of the national flood insurance program and the actual long-term plans for how to solve this problem with insurance, but it’s not really .
John: There’s no good answer to properly estimating risk, but if you were to change this program to make it work better for both parties, what would you do?
Jeffrey: Well, the key to this problem is not to actually increase the size of the insurance market, which I think can help to some extent in terms of increasing the risk pool, but really to reduce the damage caused by disasters in the first place. It’s about preventing.
One thing that’s really important to remember is that even if 100% of the Western North Carolina homes affected by Hurricane Helen were covered by flood insurance, they could still collapse.
Physical damage will still be present.
Therefore, insurance helps to transfer financial risks.
It does not transfer any physical risk.
So we need to spend more money on building codes, disaster mitigation, climate change mitigation, emissions reductions, all the things that prevent this from happening, which actually means more money. Research has shown that you can save money. Preventing these incidents, which can cause loss of life and livelihoods and damage to property, is the only way to truly relieve pressure from the back end.
Because what really wastes insurance is not necessarily the insurance design, but the fact that the losses that occur as a result of these critical events are paying out huge sums of money.
JY: Thank you very much, Jeffrey Schlegelmerch from Columbia University.
Jeffrey: Thank you.
