Preparing For The Next Sandy

by Mindy Lubber, via Ceres

The fallout from Hurricane Sandy will be with us for years, and it will extend far beyond the devastation in New York City, New Jersey and other parts of the East Coast.

The immediate cleanup costs and economic losses are alarming. Current estimates are $33 billion in New York alone. But a far bigger challenge lies ahead: preparing for a future in which storms like Sandy and Irene are likely to occur more frequently. It is gargantuan task with no parallels, and there are millions of people and trillions of dollars worth of property sitting in harm’s way.

As a result of rising sea levels from warming global temperatures, coastal communities will require vastly expensive upgrades to key infrastructure such as subways, power grids and hospitals to boost their resiliency to stronger storms. It will require tough decisions on whether building and rebuilding should be encouraged in flood-prone areas. Above all, there’s the daunting task of curbing the pollution that creates these risks in the first place.

To adapt, we need bold action from governments, policymakers and the business community alike. Their efforts to date have proven to be grossly insufficient.

Let’s start with the business community – specifically, the insurance industry, the sector most vulnerable to skyrocketing storm losses.

Extreme weather losses are hitting insurers with a vengeance, yet U.S. insurers barely acknowledge it. They need to recognize that climate change is fueling larger drought, wildfire and flooding losses and build this into their business models and underwriting policies. This will certainly result in some higher premiums.

They need to offer stronger financial incentives for storm-proofing buildings and be a louder voice in influencing land-use planning and building codes so that coastal properties are better protected or not built at all.

And, lastly, insurers should be pushing for policies that reduce carbon pollution. Some re-insurers already are. “The insurance industry should have an interest in mitigating global warming because if we don’t do that, then we may run into hardly manageable conditions in the second half of the century,” the head of Munich Re‘s Geo Risks Research Unit, Peter Hoppe, told the Huffington Post last week.

But there are limits to what insurance companies can do – and that’s where governments, regulators and politicians must be more accountable. Government-subsidized insurance programs have been far too lenient in allowing homes to be built and rebuilt in risky areas, resulting in enormous exposure for taxpayers.

We’ve seen this in Florida, where private insurers bolted from the state after regulators capped their premiums following a string of hurricanes. A state-run insurance program is now providing homeowners insurance, and it is on financially shaky ground. With a wide gap between premiums it collects and over $500 billion in overall exposure, it is one bad hurricane away from going bankrupt.

We’ve seen this in the National Flood Insurance Program, where artificially low premiums are grossly out of whack with the odds of losses. The New York Times cited one example in Biloxi, Miss., where a property valued at $183,000 flooded 15 times in a decade, costing the program $1.47 million. Overall, the program is $18 billion in debt and that’s before factoring in Hurricane Sandy flood losses.  One encouraging sign is NFIP recently won approval to raise premiums 25 percent a year over the next five years, but rising costs for consumers are certainly cold comfort, and critics say far more still needs to be done.

Governments have also moved too slowly to make key infrastructure more resilient to stronger coastal storms. While Europeans coastal cities have invested billions to build storm locks and barriers, Eastern U.S. cities have done relatively little, making them more vulnerable to higher sea levels and storm surges. Storm-proofing subways, hospitals, electrical grids and other key infrastructure will cost tens of billions of dollars. Congress will be under enormous pressure to help with such costs, but given the deficit reduction talks also in play, the conversations won’t be easy.

More than ever, we need strong leadership from the business community and policymakers to boost our preparedness in a post-Sandy world. With increasing threats from ever-more-extreme weather, both groups must play a key role in keeping the U.S. economy out of harm’s way.

Mindy S. Lubber is the president of Ceres and a founding board member of the organization. She also directs Ceres’ Investor Network on Climate Risk (INCR), a group of 100 institutional investors managing nearly $10 trillion in assets focused on the business risks and opportunities of climate change.

12 Responses to Preparing For The Next Sandy

  1. Merrelyn Emery says:

    With respect, it is now impossible to keep the economy out of harm’s way. We talk about the ‘economy’ as if it were some separate entity but it is merely a construct whose physical manifestations are totally dependent on the health of the biosphere. Until we restore the health of the biosphere by firstly recognizing our dependence, the ‘economy’ will degrade, ME

  2. prokaryotes says:

    Time-lapse map shows internet outages as Hurricane Sandy makes landfall (video)

  3. BillD says:

    My guess is that insurance cost will double and triple, preventing rebuilding in some places. Didn’t I once read that a direct hit by a cat 3 storm in NYC could cause a trillion in damages? Unless insurance is paid by taxpayers, insurance is going to be big problem for coastal building.

  4. Peggy Trivilino says:

    All of a sudden we’re shocked–I say, shocked!–that human habitation and development on barrier islands and coastal plain areas are vulnerable to devastation by violent weather. For centuries humans have been trying to manipulate the planet’s geography and topography to suit its own purposes regardless of the geologic function of the landforms being paved over and built up. Well, Mother Nature, with the assistance of human-induced climate change is beginning to take her own back and to show hubristic humanity the folly of our willful pursuit of our own selfish purposes. Something tells me that we can improve infrastructure and rejigger insurance policy till the cows come home. In the end none of that is going to matter. We humans will have to concede that cooperating with Mother Nature is the only way for us and the planet to survive.

  5. Merrelyn Emery says:

    Yep, you’ve got it, ME

  6. fj says:

    Eventually we should be able to control the paths of destructive storms to minimize the damage and maybe even cool the planet as giant airconditioners. Unfortunately, at this point in our history we are not even close to being able to do this. But rest assured, humanity is capable of remarkable things.

  7. paulina says:

    “The economy” is simply an incoherent concept.

    “…it’s a world- and ecology-destroying path we’re down…but I just can’t say our economy is going to be wrecked by this because the studies don’t show that, but a lot of the things outside the GDP so to speak are really in danger…” – William Nordhaus

  8. Mulga Mumblebrain says:

    Planet survives for another few billion years, hopefully with diverse living systems. Homo destructans, however, is about to fulfill its destiny and pay its debt to Nature.

  9. Merrelyn Emery says:

    Has he heard of the cost of droughts and floods? Or the difficulty of getting high productivity out of demoralized or hungry people? ME

  10. Jan says:

    The problem is that humanity doesn’t seem capable of the maturity necessary to face facts and act with the commitment necessary. We will bicker, pinch pennies and dither ourselves into oblivion.