Loy: U.S. must find better ways to insure against future Sandys
One year ago, superstorm Sandy made landfall in the Northeast, causing 72 deaths from Maryland to New Hampshire, along with untold economic losses and damage to more than 650,000 homes.
Sandy proved to be the second-costliest storm in U.S. history; Congress has appropriated more than $60 billion in relief funds. With the prediction of worse storms ahead, taxpayers everywhere are at risk because of greater exposure in locations across the country, and Congress is doing little to reverse the trend despite Sandy's clear wake-up call.
Experts forecast more natural catastrophes, labeling this year's tame hurricane season an exception. A study by the Massachusetts Institute of Technology published shortly before Sandy predicted that this century will host more frequent and intense tropical storms than there were in the early 1900s.
The Geneva Association, a leading international think tank for the insurance industry, said in a recent report that parts of the United States are uninsurable, and the group's secretary-general said that even more locations will likely become uninsurable due to increased exposure.
With more storms coming, America has a problem. Increasingly untenable insurance costs mean homeowners will not have the protection they need to recover financially after a natural catastrophe, leaving American families to rely on taxpayers to bail them out. But there is a better way.
Congress needs to develop a sustainable financial system for natural catastrophes -- one that prepares for storms and allows private insurers to offer viable policies in at-risk markets. Several members of Congress deserve credit for recognizing the need. Reps. Albio Sires (D-N.J.) and Dennis Ross (R-Fla.) have introduced bills that include public-private programs that would encourage risks to be pooled regionally, and the creation of a backstop financed through premiums paid by insurance companies. Several U.S. senators, including Bill Nelson (D-Fla.), Barbara Boxer (D-Calif.) and Dianne Feinstein (D-Calif.), have sponsored bills to reform our unsustainable federal-disaster spending approach. The proposals are a foundation for reform.
Critics suggest that public-private partnerships will put government in the insurance business and encourage development on the coasts. But they ignore that both of those fears are already reality in our system.
Government is the de facto insurer of last resort given the unsustainable growth of state-run insurers. Fifty-two percent of the nation's population resides in coastal counties. That's 163.8 million Americans living on the coast that American taxpayers might have to bail out. It makes more sense to establish a national fund financed by private insurance dollars and to enact reasonable land-use policies to address concerns about coastal development.
Despite the Biggert-Waters Flood Insurance Reform Act requiring a report on the state of the insurance market, there is little talk in Congress on how government can encourage more affordable and available insurance through the private market and protect taxpayers. A sound and affordable homeowner's insurance market is critical to prepare for catastrophe in at-risk areas.
If trends are left unaddressed, homeowners will have limited to zero options for insurance to protect their property and financial security.
One year after Sandy, it is time to fortify our financial infrastructure before the next crisis. A public-private partnership involving the insurance industry and the federal government will better protect homeowners, improve preparedness and provide more responsible stewardship for the taxpayers' dollars.
Adm. James Loy, co-chair of ProtectingAmerica.org, is senior counselor at The Cohen Group and was commandant of the U.S. Coast Guard and deputy secretary of the Department of Homeland Security under President George W. Bush.