Unlikely Alliance Forms Over Coastal Development and Insurance Reform

Insurers, environmentalists, and politicians are engaging in unprecedented discussions about the link between coastal development, climate change, and insurance rates. As devastating hurricanes prompt companies to raise rates and pull back from the coasts, the industry is aligning with environmental groups and arguing for reforms that could impact development patterns.

In Florida, where the National Flood Insurance Program has sent the government a projected $23 billion debt, private insurers and lawmakers agree that the program needs an overhaul to impede rebuilding in risky and environmentally sensitive areas. Sen. Bill Nelson, a Florida Democrat, traveled to New Orleans to promote the creation of a commission that would study options for insurance reform, including wetlands restoration and barrier island protection.

Some insurance companies are exploring global warming studies, research, and initiatives, such as Lloyd's of London and AIG. Others are developing products that incentivize policyholders to reduce greenhouse gas emissions and energy consumption. The A Japanese insurer has replanted 7,500 acres of mangroves to mitigate cyclone risks. Pay-as-you-drive auto insurance could reduce driving, fuel consumption, and emissions.

However, critics of the industry are skeptical of this newfound corporate environmentalism, arguing that it is merely a camouflage for rate hikes. Data suggests that many properties receive big discounts for pre-existing flood mitigation programs, allowing repeated flooding and incentivizing development in sensitive areas.

Key Takeaways:

• Insurers are advocating for reforms of the National Flood Insurance Program to impede rebuilding in risky and environmentally sensitive areas.
• The industry is exploring global warming studies, research, and initiatives, with some companies developing products that incentivize policyholders to reduce greenhouse gas emissions and energy consumption.
• Environmentalists and insurers are engaging in unprecedented discussions about the link between coastal development, climate change, and insurance rates.
• Critics argue that the industry's newfound environmentalism is mere camouflage for rate hikes and incentives for protected areas.
• Data shows that properties receive big discounts for pre-existing flood mitigation programs, allowing repeated flooding and incentivizing development in sensitive areas.
• Sen. Bill Nelson's bill would create a national industry-financed catastrophe fund to back up state catastrophe funds such as Florida's.
• Private insurers agree that the National Flood Insurance Program needs an overhaul to prevent rebuilding in risky areas.

Statistics:

• The 2004 and 2005 hurricanes sent the National Flood Insurance Program into a projected debt of $23 billion, which most people assume taxpayers will cover.
• Florida's catastrophe fund is also in the red, with a debt to be covered by assessments on all policies.
• 1,000 Friends of Florida estimates that insurance policies often obscure the true costs of coastal development.
• In Florida, property and auto policies will see assessments to cover the debt of the catastrophe fund.
• The industry is considering new products, such as pay-as-you-drive auto insurance, to reduce driving, fuel consumption, and emissions.

Sources:

• "UNLIKELY ALLIANCE: The Issue: Devastating hurricanes have prompted insurance companies to raise rates and pull back from the coasts, arguing they cannot absorb the risk." The issue is in the hands of local governments, which are swayed by the reality that development is the lifeblood of their economies.
• "Warming warnings" An article by Charles P. Pierce in Boston Magazine discusses the intersection of climate change and insurance.
• "The water is why people come here," said Michael Heller, who with his wife, Ellen, built a new house in Charlotte Harbor where their home had stood before Hurricane Charley.