EDITORIAL: Federal fund would prepare us for the Big One
How bad will it be when the big one hits?
This isn't just a question about death and destruction. It's about how we'll pay the bills for all the damage.
The start of the hurricane season every June is usually ignored by Long Islanders, since storms generally don't move up the East Coast until later in the summer. Not until there's wall-to-wall weather terror on TV is there even any movement to buy those extra batteries and find ropes to tie down the lawn furniture.
It's not surprising, then, that there hasn't been more consideration about our region's extreme economic vulnerability to a major, major storm. Are property owners and business owners fully insured for the worst? Is that insurance affordable? How long would it take the region to get back on its feet?
The collective memory of the "Long Island Express" in 1938, which devastated Montauk, the Hamptons and large sections of the New England coast, has faded. A direct hit by a similar Category 3 storm could disrupt all our lives for weeks and months. In some places, entire communities could be ravaged and businesses destroyed. Such a scenario would require not only a massive emergency response but a sustained rebuilding and revitalization effort.
Meanwhile, the region's economy could be crippled. Even more so if there were significant damage to New York City - imagine JFK Airport underwater and flooding in Lower Manhattan. Another "Long Island Express" could cause upward of $100 billion in damage.
Worries about major catastrophes can't seem far-fetched anymore, not as the BP oil spill continues to unfold; not after the horrific Haitian earthquake; not after Hurricane Katrina. As we are seeing in Louisiana, the hardship and recovery will take years.
Some states have stepped in to create special funds to underwrite storm risks after private insurers leave the market or price their policies too high. Florida has a Hurricane Catastrophe Fund. After the powerful Northridge earthquake in 1994, California created its own. But the premiums are so expensive that only a fraction of California homeowners have full quake insurance. Another major earthquake like the one that leveled San Francisco in 1906 could cost $400 billion today.
For more than two decades, Congress has considered creating a federal reinsurance fund that would be a backstop to state insurance plans and reduce premiums for property owners. One of the most appealing proposals is the Homeowners' Defense Act, which was recently approved by the House Financial Services Committee. It would establish a nonprofit national fund for "mega-catastrophes" - those events that could cause the collapse of most private insurers and other state plans.
Right now, private insurance companies use a percentage of your premium, sometimes as much as 30 percent, to buy high-risk reinsurance from off-shore banks and other international consortiums, such as Lloyd's of London. Under the Homeowners' Defense Act, states that opt into the program would buy this reinsurance coverage from a national fund. Since it is a nonprofit, the cost of the high-risk policy would be lower.
Over time, the national fund would grow to be a substantial backstop for a time when a disaster is so large that it overwhelms state catastrophe funds and private insurers.
Consider this a plan that allows the nation to set aside money in advance to pay for these disasters, instead of putting the burden on taxpayers. To cover those costs now, Congress allocates disaster relief money, or the federal government absorbs the cost some other way. For example, Katrina caused the National Flood Insurance Program to rack up $19 billion in debt. The program borrowed the money from the U.S. Treasury and has no plan to pay it back, according to the Institute for Policy Integrity at New York University Law School.
Overall, the federal government is estimated to have paid $110 billion for damages from Katrina.
One of the strongest advocates of the national approach is James Lee Witt, a founder of Protecting America and the highly regarded head of the Federal Emergency Management Agency under President Bill Clinton. Currently he is very involved in the Haitian recovery effort.
His organization supports the current House bill because it would require those states that joined the federal fund to use 35 percent of their investment interest for first-responder training and equipment, as well as the implementation of wise land use policies.
There are so many problems squarely in front of the nation right now that ones that can only be imagined are easily put off. But acting now on these low probability but high consequence events might be the only way our region will be able to quickly recover from a natural disaster.
So when you get around to buying those batteries and other supplies in preparation for summer storms, take a little extra time to ask all those candidates for Congress what they're doing about insuring Long Island's future. hN
