Government Blamed for Sandy-Like Storm Damage

Damage caused by hurricanes such as Sandy and other similar extreme weather events has increased significantly over the past 50 years, but not because storms are becoming more damaging.

Rather, the blame lies in the fact that more people have been choosing to live in danger zones — encouraged by taxpayer-backed insurance plans that create incentives to build there, according to a report from the Reason Foundation.

And future storms could bankrupt those plans.

Superstorm Sandy killed more than 85 Americans, knocked out power for millions, and did damage sure to exceed $40 billion, which would make it the most expensive storm to hit the U.S. since Hurricane Katrina.

But there doesn’t appear to be trend in the number or intensity of storms, nor a relationship between the effects of the storms and climate change.

The increase in storm damage is largely due to government intervention, the report maintains.

The number of people living along the coast has increased dramatically. From 1960 to 2008, coastal population rose by 84 percent, while the non-coastal population rose by only 64 percent. As a result, there is more valuable property in coastal areas that is likely to be affected when a damaging storm hits.

And one reason coastal population has risen to such an extent is the implementation of government disaster insurance programs.

The National Flood Insurance Program is the federal government’s second largest fiscal liability next to Social Security. Many states also run property insurance plans to provide lower insurance costs for owners of homes and businesses in more risky areas. Such state-run insurance plans are offered through Fair Access to Insurance Requirements (FAIR) plans, Beach and Windstorm plans, or in Florida and Louisiana, state-run insurers of “last resort.”

The number of FAIR and Beach Plan policies has increased from 931,550 in 1990 to 3.3 million in 2011, and the total exposure to loss covered under those policies increased from $54.7 billion to $884.7 billion.

“When disaster strikes and a significant proportion of those insured suffer major losses, the state’s insurance fund may suffer a catastrophic shortfall — with dire consequences for the state’s fiscal position,” the report states.

“Government subsidies to insurance may have been well intentioned but by incentivizing people to build homes in danger zones, they have created enormous fiscal risk,” the report concludes.

“To reduce the scale of future damage from storms like Sandy, and the threat of fiscal implosion, federal and state governments should get out of the insurance business.”

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