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To The Point Winds of influence What bodes ill and what bodes well? By Emanuel Levy A year ago Hurricane Katrina devastated New Orleans and then was followed by Rita, which added to the destruction along the Gulf Coast. Vivid memories of these sorts of disasters fade somewhat with time, except for those who continue to be victims. They certainly should not fade from the minds of the legislators or officials who must make recovery a top priority. What happened in New Orleans leaves no doubt about the extent of government failure. As of this past July, only 46% of former residents had returned. Prospects for the city’s future are not bright, while the current overall quality of life appears to be upside down. We also hear that none of the responsible authorities—including the federal government—is ready for another Katrina. Nor are the levees. This particular upheaval of nature and man’s inability to cope may well have been the wakeup call of the century. Unfortunately, there’s an ever-present danger that officials at all levels of government will forget as new problems surface and continuing problems never seem to achieve resolution. That’s why a counter force against official malaise must be put in place in the form of public pressure that demands awareness and preparedness. This should include protection of property and facilities, as well as carefully mapped plans for rapid and efficient evacuation of everyone in danger—in every high-density community in the United States. A powerful element in this vital public effort will be the insurance industry. Insurance brokers, agents and associations are in a prime position to keep the obligations of government on the front burner. Company associations and service organizations also are in a position to influence action on the part of legislatures and other prime movers. Current events demonstrate that Hurricane Alley on the Atlantic and Gulf Coasts is not the sole victim of natural disasters. What has been happening around the country during the past few months makes it apparent that storms and floods of major magnitude can occur anywhere and that earthquakes and wildfires are equally severe threats. Insurance stands at both ends of the equation, seeing that insureds are adequately covered and that claims are paid as promptly as possible. That’s why the industry needs to be a major player when it comes to mitigation of loss and oversight of the duties of government. Who is “getting the message”? On the coverage side, there is some good news. In its early July Hurricane Readiness Index, the Hurricane Insurance Information Center indicated that the battered South got the message. The report notes that insured homeowners throughout Gulf and Atlantic Coast communities have taken “steps which would best position them to recover from a major storm.” In a poll taken at the behest of seven of the nation’s leading property/casualty insurance companies, the Center said that individuals were asked if they had taken “eight key preparedness steps,” including taking an inventory of their possessions, and if they believe they have enough homeowners and federal flood insurance. Additionally, they were asked if they have stored their critical documents so they can be ready to go in the event of evacuation. Insurance brokers and agents should make a point of urging their own insureds to safeguard these documents. The Center reported that coastal Louisiana topped the list, with 60% of those surveyed having taken the steps. Coastal Mississippi, Alabama and Georgia ran a close second at 58%, and Florida numbers were between 52% and 58%. The index was compiled before states on the East Coast were battered in July by severe storms, including tornadoes. According to the Center, insureds surveyed in Connecticut, Maryland, New York, Massachusetts and Maine had reported that only about one-third of the steps had been taken, for an index rating between 36% and 38%. FEMA stats Here are a couple of statistics from the Federal Emergency Management Agency (FEMA) that agents and brokers should present to their insureds, after emphasizing that the homeowners policy does NOT cover flood insurance. First, there is a 26% chance of flood damage during the course of a 30-year mortgage compared to a 9% chance of fire. Second, 26% of all claims paid by the National Flood Insurance Program are for insureds in low- to moderate-risk communities. FEMA reported in early July that the flood insurance program had reached a “major milestone” with more than 5 million Americans covered. FEMA Director David Paulison said that Americans have begun to understand that flood insurance “is an important part of protecting their home and property from the devastation of flooding.” While the number noted by the FEMA director is impressive, in another FEMA comment in the same press release, NFIP Administrator and FEMA Mitigation Director David Maurstad asserted that, “Nationally, we have [only] about 40% of homes in high-hazard flood areas covered by flood insurance, and that’s tragic.” Still another anomaly was uncovered during a national survey conducted by Trusted Choice, the marketing affiliate of the Independent Insurance Agents and Brokers of America. IIABA reported that almost 25 million U.S. renters “are going bare on insurance coverage.” That’s a shocking finding because, as IIABA observed, these families “leave themselves vulnerable to serious property and liability losses. Madelyn Flannagan, spokesperson for Trusted Choice, said two-thirds (67%) of U.S. families who rent lack renters coverage. This, she said, is attributable to the residents’ lack of awareness of the risks they face. Sadly, it may also be attributable to the failure of agents and brokers to get a message to these people. More bad news Other discouraging comments on the status of disaster readiness cite overextended government programs as well as the failure of contractors to follow building codes and safety construction mandates. Unwieldy centralized bureaucracies exacerbate the problem. We also might add to this list the intervention of powerful environmental groups that fight levees and dams because they consider such structures to be a threat to wildlife and wetlands. In an editorial published by National Review Online, John Berlau, the Warren T. Brookes Journalism Fellow at the Competitive Enterprise Institute, asserted that the national Sierra Club was one of several environmental clubs that sued the Army Corps of Engineers to stop a 1996 plan to “raise and fortify Mississippi levees.” He wrote this in September 2005 at the height of the Katrina disaster. He noted that the lawsuit was settled in 1997 with the Army Corps of Engineers agreeing to hold off on some of the work of upgrading 303 miles of levees along the rivers. The Berlau Internet commentary offered significant details about the debate between flood control and those favoring “wet and wild.” Our nation faces immense challenges, and whether or not one accepts the “global warming” theory, recent weather-related disasters outside the traditional corridors cannot be ignored. For example, in an article in the November 21, 2005, issue of the Chicago Tribune, Associated Press writer Eileen Alt Powell noted the dilemma of insurers over continuing to write business in New Orleans and in the Gulf Coast region. She pointed out that no part of the nation is exempt from some form of disaster and observed that it is a “serious concern because insurance is critical to the functioning of the economy.” She continued that except for a few recalcitrants, the marketplace appeared to be stable. Then she pointed out that the U.S. insurance industry “is not poor,” having a surplus of about $400 billion. She modified that by citing Ernie Csiszar, president of the Property Casualty Insurance Association of America, who told her that “this year’s storms could wipe out one-fifth of that and it is not beyond the realm of belief that an earthquake in San Francisco could cost the equivalent of the industry’s surplus.” Powell, however, was speaking of overall surplus and not of individual insurers, which could easily be wiped out. Overall, we are in troubling times on many fronts, punctuated by the vagaries of nature and the inability to make long-term predictions. Vigilance and vision are necessary ingredients for decision makers. * The author |
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