Originally published in the Westborough News 12/16/2016.
Insurance is a huge part of the world economy. The world’s
insurance companies hold about $30 Trillion in assets. To get an idea of
how much money that is, the US economy is about $17 Trillion.
One thing all insurance companies won’t do is insure you for
flooding. You have to buy a flood policy through the Federal Flood Insurance
Program because insurance companies know that they will pay out more in
flooding claims than the will ever receive in premiums or returns from
investing those premiums. They won’t touch it. This insurance isn’t cheap. I
don’t live in a flood zone and flood insurance would increase my home insurance
premiums by 60 percent.
According to FEMA, $1.2 Trillion in property in coastal
areas are insured by the National Flood Insurance Program. $484 Billion of that
in Florida alone. Who is on the hook for losses under that program? You and me,
that’s who, because the premiums for flood insurance don’t come close to
covering the projected losses.
The most recent available projections are that sea level
will rise by about 6 feet by the end of this century, if we do nothing to limit
temperature increases to 2 degrees C (and we are already at about 1.2 C). This
number does not include daily tidal fluctuations, which can be a few feet
depending on location or storm surges which can be a dozen feet or more.
But you don’t have to wait for the collapse of the Antarctic
or Greenland ice cap to have your whole day ruined. Just a couple of feet can
render a property worthless. This isn’t speculation. It’s already happening.
According research published almost two years ago, sunny day
nuisance flooding during high tide is already occurring up and down the eastern
seaboard and has increased 10 fold since the 1950s. In south Florida,
daily high water levels have been increasing an inch a year. This flooding
kills lawns and trees, destroys septic systems, and contaminates aquifers.
The net effect is that it is making people less likely to
want to buy a property within 10 feet of sea level. Home prices in coastal
areas have dropped over the last 10 years whereas they have gone up most
everywhere else. This is true in coastal Massachusetts as well.
Mortgage companies are also in the risk management business,
at least they are now, a decade ago, not so much, but I digress.
The mortgage industry is closely watching sea level rise.
According to the chief economist of Federal Home Loan Mortgage Corporation
(Freddie Mac) “. . . between $66 billion and $160 billion worth of real estate
is expected to be below sea level by 2050. By the end of the century, the range
is $238 billion to $507 billion”. In Florida, the chances that up to $346
Billion in property will be submerged by 2100 is 1 in 20. I think the
likelihood is far higher than that.
These trends will lead to the collapse of the coastal
housing market much sooner than 2050. Within a few years, what banker in their
right mind would write a 30-year mortgage for a coastal property under even the
most optimistic scenarios of sea level rise, especially in places like south
Florida? What home buyer would buy a home in a flood prone area? What are the
knock-on effects of such a collapse on the rest of our economy?
The answers: None, no one, and nothing good.
A coalition of 29 insurance giants, including Allianz,
Lloyds of London, and Swiss RE, among many others, have observed that “Since
the 1950s, the frequency of weather-related catastrophes, such as windstorms
and floods, has increased six-fold. As climate-related risks occur more often
and predictably, previously insurable assets are becoming uninsurable, or those
already underinsured further compromised.” Losses have quintupled since
the 1980s alone. There is an increasing gap between potential losses and how
much insurance coverage is actually available right now.
Major multi-national insurance companies have no reason to
make this stuff up and this coalition is putting its money where its mouth is,
by reconsidering how they invest their vast assets which include funding
projects which increase society’s ability to cope with floods, storms, and heat
waves.
Insurance companies are very concerned about global warming,
even if our incoming political leadership denies its existence, because they
actually see what is happening. As one insurance executive stated, “We
understand climate change as underwriters, because we are trying to manage the
physical consequences of the severe weather we get from climate change.”
Already, no one will insure a home that could be underwater.
Soon, no one will finance a home that could be underwater, and by this I mean
literally, not financially.
Do you think the incoming administration will listen to the
leaders of the insurance and mortgage industries because it’s darn clear they
won’t listen to scientists?
Nah – me neither.