It looks like the insurance industry is sending a message…
On Saturday we learned that “St. Paul Travelers Cos. Inc., Louisiana’s largest commercial insurance provider, plans to cancel all its commercial property policies in the New Orleans area next year.”
On Sunday I wrote about a LA Times article “Insurers learn to pinpoint risks — and avoid them” which focused in large part on a company called RMS which uses computer technology to develop knowledge on disasters which is then sold to insurance companies “to help them decide whom to cover and how much to charge.”
On Monday RMS issued a press release announcing it has published a report specifically on New Orleans titled “Assessment of Future Flood Risk in New Orleans.” The press release was titled…”Stakeholders Urged to Consider Analysis of Future Risk Factors as Crucial for City Redevelopment.”
The report is here. (PDF)
Today the Times Picayune reports on RMS’s findings and reactions to the report…
The report on New Orleans’ vulnerability to flooding by the California company Risk Management Solutions shows that New Orleans continues to face increasing risk of flooding from land subsidence, increased hurricane activity and rising sea levels from global warming — but doesn’t take into account the Army Corps of Engineers’ improvements to the region’s flood protection system.
Insurance Commissioner Jim Donelon called the report another blow to Louisiana’s battered insurance market and stalled recovery.
“No doubt it will have a very detrimental effect on our ability to convince insurance companies to continue doing business in our state,” said Donelon, who questioned the validity of using a snapshot of pre-Katrina levees as the bedrock of the report.
“I think it calls into question the credibility of their report. If it’s not real world, if it’s not real time, what purpose is there for disseminating that information?” Donelon said. “I think the rating commission will take that failure of this model into consideration.”
RMS said it can’t take levee improvements into account until they’re done, and said it would work with the corps and state and local recovery officials on updating its models with new information each year. “If things are changing fast, clearly we need to revisit this every year,” said Robert Muir-Wood, chief research officer at RMS.
Muir-Wood [one author of the report] said that government should manage flood risk so that it can guarantee property owners a true risk of certain odds, such as a 1 in 100 chance of flooding, or 1 in 500 chance of flooding, for example, based on whatever the investment the community decides is worth making.“I think it ought to be a fundamental right,” he said.
But the report does throw Louisiana a bone for potential for flood mitigation efforts. The report says that if the corps builds levees that are 3 feet taller, it would improve the city’s flood outlook by an average of 125 percent, and if it raised levees by 6 feet, it would improve the city’s flood prospects by an average of 375 percent. (all emphasis mine)
The RMS report ends with this question…
Will New Orleans be the first city “lost to climate change,” or the first U.S. city to surmount the challenges of its location in an environment of rising coastal risk?
It’s a good question for the nation but right now I would reframe it…will NOLA be Lost to Lack of Insurance?
These developments are very disconcerting for the recovery. Insurance companies will read the report one way as they decide whether to continue writing policies after March when a “special emergency rule expires that had artificially held insurance coverage in place after Katrina and Rita.”.
Hopefully other stakeholders will read it another way, namely that it is time to act with urgency. To that end the levees ought to be scheduled for the new Congress’ 101st Hour.
UPDATE: A bit of clarification on my view. I am not unsympathetic to the message of the insurance industry. It is more reality based than that of the government which has promised much and delivered not so much in terms of protection to NOLA and has had it’s head in the sand regarding global warming. I used the title of perfect storm with a question mark because much seems to be developing on the insurance end and it could push these issues forward and intersect with government in a powerful way. I see this as a message to government of you may be be able to disregard reality (ignore global warming, drag your feet and skimp on protecting of NOLA — better levees and wetland restoration) but we the insurance industry can not. My question is if/ when/ how other stakeholders will weigh in and yes
my preference would be I would advocate they do so in a way that makes NOLA protected and insurable.