Natural Disasters Can't Be Avoided; Financial Calamity Can
By James Lee Witt
And James Loy
The United States marks the beginning of a very active 2010 Atlantic hurricane season this week.
The consensus among weather forecasting agencies is that the upcoming season could have 15 to 18 named storms, a doubling of last year's total of nine named hurricanes.
While weather forecasting is an imprecise science, it is improving. And the message is clear; the potential of a devastating hurricane making landfall along the Atlantic or Gulf coast is as real and threatening as ever.
Indeed, both the frequency and the ferocity of Atlantic hurricanes have been on an increase in recent years. From 1950 until 2000, the typical hurricane season included 9.6 named hurricanes. From 2000 through 2009, that same yearly average was 15.
America has made a concerted effort, especially since the disasters of Hurricanes Katrina, Rita and Wilma, to improve catastrophe readiness, preparation and protection. Those improvements have occurred at every level, from preparation at home, all the way to policy changes at the federal level.
More needs to be done.
Clearly, the greatest weakness in the catastrophe safety net is not in the human response mechanism, but rather in the financial response system. The fact is that the nation is exposed and vulnerable to enormous economic consequences unless we take steps now to prepare for the massive natural catastrophe that we know will someday loom even larger than Katrina.
What would that catastrophe be? Perhaps it would be a replay of the 1938 hurricane that slammed into Long Island, N.Y., joined the Atlantic Ocean with the Long Island Sound, left 63,000 people homeless and killed 700.
Perhaps the next time that same storm makes landfall it would be 30 miles to the west. In that case it would be known as the storm that demolished New York City, that put Kennedy Airport under 20 feet of water, flooded Manhattan from the Bowery to City Hall and turned the canyons between the city's skyscrapers into supercharged wind tunnels.
Insured losses would easily climb into the hundreds of billions of dollars; uninsured losses are hard to comprehend. The capacity of insurers and reinsurers to cover losses would quickly be exhausted. Recovery efforts would be delayed, regional economies would be in shambles and the national economy would be turned on its ear.
The federal government would do its best to meet pressing public needs, but the federal coffers would be tapped.
The current financial model for catastrophe recovery, almost entirely a retrospective after-the-fact model, relies on insurers and reinsurers to cover the first level of losses, but ultimately relies on federal taxpayers to cover the rest.
This is an unfair system because it rewards risky choices, does nothing to reward preventive and mitigation efforts and finally drains the federal coffers of hard-earned tax dollars paid by working men and women in every state in the nation.
The massive taxpayer subsidies and the potential for the largest financial bailout in the nation's history could be avoided if we take steps now to pre-fund for the natural catastrophe we know is coming.
What is needed is a privately funded public partnership that helps to pre-fund the financial costs of a large-scale natural catastrophe. Such a program would facilitate the risk participation of the private sector, expand the availability and sustainability of the catastrophic insurance system, and provide potent incentives for residential property owners to undertake catastrophe loss mitigation efforts.
This approach should add capacity, increase stability and lower consumer costs. From an economic perspective, such an alliance of public response mechanisms and private resources is the optimal manner to address the inefficiencies that plague the present system of federal disaster relief.
Fortunately, legislation to accomplish these goals was reported from the House Financial Services Committee at the end of April. The bill, The Homeowners' Defense Act (HR 2555), has bipartisan support and was endorsed by President Obama when he was seeking the presidency.
We can only hope that the president and the Congress come together quickly to put this plan into effect. We've been warned that the next catastrophe is coming. We need to act today.
The writers are co-chairs of ProtectingAmerica.org. Mr. Witt was director of the Federal Emergency Management Agency under President Clinton. Admiral Loy was commandant of the U.S. Coast Guard and is former deputy secretary of the U.S. Department of Homeland Security.
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