About 15 years ago I became very interested in hurricane property insurance, and cost trends in it. I continue to follow those trends today. Of particular concern to me were those states most vulnerable to big hurricane strikes (namely Florida, Texas, Louisiana and North Carolina) and how/where "stuff" was being built at alarming rates in very hurricane vulnerable coastal zones and inland. Of course any hurricane prone state from Texas to New England has potential for a hugely costly hurricane disaster.

I had made a forecast back then (known only to me and a number of people I have lobbied to some in talks I have given over the years) that rising insurance costs from hurricane disasters would lead to widespread disaster mitigation; namely everything new would be built far better and everything old (especially when it was damaged by a hurricane) would be rebuilt or retrofit to withstand FAR more effectively the perils of hurricane winds the next time around. Thus far, my forecast has been a big bust, at least on a national level! For example look at the overall damage associated with hurricane Wilma in greater Miami in 2005, about 13 years after hurricane Andrew devastated the area in 1992! There has been some success along these lines, but they have come far too slowly and occurred on far too small a scale compared to what I had envisioned in my forecast 15 years ago.

I was convinced then and am still convinced now that the solution to these multi-billion dollar hurricane disasters is not to bail out the problem with huge federal disaster relief programs (effectively a giant Band-Aid slapped over each big hurricane event). These programs cost the entire nation a huge amount of money, and government disaster relief has been wrought with huge inefficiency, overhead costs and individual cheating, none of which I will discuss here. None of all this disaster relief prevents or lessens the impacts from the next disaster!

Rather, I proposed something 15 years ago and do so today to eliminate the potential for a large "cut" needing a giant Band-Aid in the first place! Very much along the lines of health care costs and "preventative health care": namely, instead of just healing the sick with rising health care costs, how about preventing people from getting sick in the first place? Bring the idea to the hurricane insured: a FAR lesser insurance rate should be available for the home owner that buys/builds his/her house out of bricks on dry land than for the home owner that buys/builds his/her house out of straw on the beach!

It turns out that if you move to Florida these days, it is very likely you will not be able to get home insurance unless you go through Florida's state owned, regulated and managed insurance now called "Citizens Insurance." It was and is an effort to keep home and business insurance costs affordable to Florida citizens and business owners, whether "affordable" really covers the cost of hurricane disaster risk or not has been debated.

An overview of that Florida insurance plan and the perils currently associated with it were written up by Brent Winans in 2008 in the link below. I like it because it concisely captures the perilous dance the state of Florida is doing with a big hurricane threat(s) and Citizens insurance money. Would it not be far safer to prevent a major portion of a disaster from being able to occur in the first place than to go a high risk route?

Winans Citizens Hurricane CAT Fund

This reminds of a similar corollary that goes like this; you pay a monthly mortgage on your home and have looked for the cheapest one possible in order to afford the biggest, best home for your money. Perhaps you found a temporary zero interest balloon loan or maybe just a balloon loan, thinking you would move before you ever had to pay a dime toward interest on your loan or begin to pay the inflated interest rate. But as the saying goes "stuff happens." The local real estate market crashes and you now have a home worth only 60 or 70% of what you owe on it. You can no longer move, you cannot trade up and if the payments become too much for your current job situation you cannot sell it for what you owe on it. You are stuck in place "upside-down" in a home you no longer want and can no longer afford. Gee, this is the current horrible state of the US home loan economy, much of which was driven by companies that made loans to individuals they knew would likely have great difficulty making payments and/or to people who asked for those loans knowing that unless their rosy view of their future didn't pan out or they could sell for a profit they were doomed.

In my opinion this is a similar situation the state of Florida has gotten itself into relative to hurricane insurance! In the process of trying to keep insurance rates low (relative to business practices of many private companies), Florida has undercut costs of many conscientious, smart and fiscally responsible private sector insurers that did or do business in that state. I know no one wants high home insurance rates, I sure don't, but I do want my insurance to pay off if I ever have to use it. The hurricane disaster hammer could fall on Florida at any time, perhaps in 2009, perhaps in 2010 or maybe with some "luck" Florida will be spared from a big hurricane disaster for a number of years and will be able to accumulate enough cash in the Citizens fund between now and then to be able to pay off all claims from a big disaster(s) when it finally arrives; it will arrive. All I can say is keep your fingers crossed that big hurricane disasters remain at bay because it sounds similar to that rosy outlook the homeowner had when taking that high risk home loan!

So what will the future hold for states with their own hurricane insurance businesses? Perhaps they will be lucky and dodge big hurricane disasters for a while and residents will be thankful to those who saved them money. If the disasters do come, be ready for more government bail-outs.

My best suggestion is to do everything possible to prevent the need for another Band-Aid before the next big injury is too large for one! If I could give our incoming President some quick (10 seconds) hurricane advice, it would be to immediately redirect much of government's disaster relief budget into a greatly expanded disaster mitigation program with a focus on personal responsibility. What insurance you have would likely become much less an issue, and its cost would likely fall, especially if far less damage occurred because of mitigation measures. In the long run it would be far cheaper for everyone and a better idea than "hoping" the big hurricane disaster misses your state in 2009 or beyond!