There are few places in America that are immune from the physical threat of catastrophe, and none would be exempt from the economic consequences if catastrophe struck today.
The onslaught of Hurricanes Katrina, Wilma and Rita provided sobering insights into the shortcomings of our preparedness for catastrophic storms. To this day, the nightly news and the daily newspapers remind us of the devastation of the 2005 hurricane season.
So terrifying were the storms of 2005 that many people fail to remember that just one year earlier, Florida was hit with four major hurricanes in six weeks. Seven of the 10 most damaging hurricanes in U.S. history have occurred within the past five years.
It would be easy to think that the force and fury of major hurricanes are reserved for the coasts on the Gulf and Southeast. That would be wrong. Since 1900, 11 hurricanes have made direct hits on New England, six have made landfall squarely in New York. In 1938, the most powerful of those hurricanes landed with such force that it became known as “The Long Island Express.” It killed 700 people and left 63,000 homeless. If a hurricane of the same force struck New York today, the economic damages could exceed $100 billion. The potential loss of life would be extraordinary.
Earthquakes, often associated only with California, pose a tremendous threat not just to the West Coast, but to America’s heartland as well. April will mark the 100th anniversary of the Great San Francisco Earthquake, the costliest earthquake to ever rock America. Replacement costs for a similar quake today are estimated at $400 billion.
But there have been worse earthquakes in America. In 1811, the first of a series of earthquakes hit near New Madrid, Mo. Newspaper and eyewitness accounts indicate that these earthquakes probably exceeded the strength of San Francisco’s 1906 earthquake.
The epicenter of the New Madrid quakes was midway between St. Louis and Memphis. Those earthquakes changed the course of the Mississippi River and damaged structures for hundreds of miles. Their shock waves covered more than a million square miles, from Mississippi to Michigan, from Pennsylvania to Nebraska.
Damage was limited because those earthquakes struck in an area that at the time was a vast wilderness, a part of the newly acquired Louisiana Purchase. Today, millions of American families make their homes right on top of the New Madrid fault. Families in middle-America cities — like Nashville, St. Louis, Memphis and Little Rock — would all suffer were we to experience a replay of the New Madrid earthquakes.
Fortunately, policy-makers have finally begun to recognize that catastrophe can strike anywhere in America, and that better preparation and protection must be national priorities. Unfortunately, the debate has been limited primarily to investigating the failures in the government response to Katrina, on the rebuilding of New Orleans and on structural changes to the federal bureaucracy.
In addition to debating the government response and structure, we need to find private-sector solutions as well. We need comprehensive, integrated solutions at the local, state and federal levels that leverage the knowledge and expertise of the private sector in an effort to mitigate the potential damage during a catastrophic event and to ensure that adequate financial resources are available to lessen the economic consequences in catastrophe’s aftermath.
America’s private insurance industry is efficient and effective in providing financial resources to families that have been victims of foreseeable losses and small-scale catastrophes. But, in total, the property and casualty insurance industry has only about $400 billion of capital to cover all claims for all lines of insurance. While this amount is adequate to cover predictable losses, it may well be inadequate to cover unpredictable mega-catastrophes. Why take that chance?
Supplementing those reserves to make sure consumers will be protected could be easily accomplished by creating privately funded state and national catastrophe funds. These funds would include deposits of private insurance-company revenues that could grow free and would be used to pay the extraordinary claims following a catastrophe. A limited amount of the investment income could be used to support consumer education, expand first-responder programs, strengthen building codes and improve code enforcement.
A bipartisan group of representatives has introduced legislation that would allow for a IRA-like national financial backstop. It is important legislation that should be considered before the next catastrophe strikes.
Adm. James M. Loy (Coast Guard Ret.) is co-chairman of ProtectingAmerica.Org. He also served as deputy secretary of the Department of Homeland Security.