Flirting with disaster - disaster relief reform

Washington Monthly, Oct, 1996 by John Solomon

Too-Sweet Relief

The third problem - and the issue that deserves the most attention - is this dirty secret: Some of these emergencies are not unexpected. Americans who have made conscious decisions to live underinsured in potentially treacherous (but often scenic) areas do so with some knowledge that the government will bail them out in case of disaster. Some calamities are unpredictable. Most are not. Anyone moving to Malibu, California, for example, has to know that there's a high risk of trouble. Floods, fires, and mudslides in that city have resulted in five national disaster declarations and a $445 million federal emergency relief tab in the last five years.

Although "personal responsibility" has been a frequent mantra in the current welfare and tort reform debates, few have noticed the lack of personal responsibility of property holders who do not insure their risk and then repeatedly ask taxpayers to pay.

True, in many highrisk areas insurance can be very expense and hard to get. In California, for instance, nine of the top ten homeowners insurance carriers left the market after the state required them to offer earthquake insurance with all homeowner policies following the Northridge quake in 1993. Realtors report that it has become much more difficult (though certainly still possible) to get homeowners insurance. And in Florida, where Hurricane Andrew caused $16 billion in insured losses, insurance companies are dropping homeowners and refusing to take new ones. Prudential even paid their customers to take their business elsewhere, and Allstate paid a competitor to take 137,000 policies.

But people are still more than willing to stay in and move to these high-risk areas, even without insurance to protect their homes. Experts believe there is a good chance (some say as high as M percent) of an earthquake measuring up to 7.0 on the Richter scale occurring in Southern California in the next 30 years; yet only 35 percent of residents in seismically active areas carry earthquake insurance. (The 6.8 Northridge earthquake 1993 cost taxpayers $15 billion in relief for homeowners, businesses, and local governments) Meanwhile, across the country, 1995 was the Southeast's busiest weather season in 1995 years, with 17 major named storms: Meteorologists believe these conditions foreshadow increased hurricane activity over the next two decades. That makes it all the more urgent that we move beyond a reactive mode when it comes to disaster policy.

FEMA has begun the effort. Over the last several years, the agency has worked with Congress to improve disaster planning and tighten relief eligibility requirements. For example, under a new federal law, financial institutions cannot issue a mortgage without proper flood insurance coverage. But more than two thirds of private buildings in the flood-prone zones still do not have coverage. One problem is that these policies are sold in one-year increments, and many consumers let them lapse.

Another step in the right direction is that FEMA will now provide flood relief to victims without proper insurance only once; the second time they're on their own. The agency has even launched a television advertising campaign to get that message out and increase the anemically low number of flood insurance policyholders.