Global Warming, Retiring Boomers, and Who's to Pay the Damages?

As I write this, Hurricane Ike is heading to the Gulf coast.

Even if you don’t believe in global warming, a lot of insurance companies do. Ever since eight costly hurricanes struck Florida and the Gulf Coast in 2004 and 2005, large national insurers have been dropping customers whose homes are located on or near coastlines, and refusing new ones.

It’s not only flooding that has insurers worried. It’s wind damage, mud slides, and coastal erosion. We’re talking tens of billions of dollars of potential damage. Right now there’s only a patchwork of state insurance funds which may not be up to the task, coupled with federal flood insurance that already went $17 billion into the hole after Katrina.

If you believe in global warming – and just about every expert does – hurricanes are going to become even more violent and the oceans will rise even faster over the next decade or two, even if we figure out some way to control climate change over the longer term.

To make matters worse, developers are planning even more homes and commercial properties in vulnerable areas. You see, 77 million boomers will be retiring over the next fifteen to twenty years, and many want to go to coastal areas where the weather is milder and the beaches beautiful – Florida, the Carolinas, coastal Virginia, Cape Cod.

So who’s going to insure against all the likely damage? There’s mounting pressure on Washington to come to the rescue with federally-subsidized insurance. Once again, this means the rest of us taxpayers will be left holding the bag.

Here’s a better idea. Get private insurers back into the business of insuring homeowners against flooding, wind damage, and erosion. Do this by having the federal government offer to sell the companies reinsurance against catastrophic loss. This wouldn't be a handout. Insurance companies would have to buy the reinsurance. But because the federal government can spread the risk far more broadly than can any individual company, the price of reinsurance is likely to be low enough to make it profitable for individual insurance companies to get back in the market. Essentially, the government would back up insurance companies in much the same way it does for possible losses associated with terrorism.

But there’s no reason to extend this back-up to future development in vulnerable coastal areas. Federal reinsurance shouldn't be available for policies on new homes or commercial properties there. We now know too much about global warming to encourage this.

Sorry boomers. You’ll have to retire to safer ground.