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Sometimes events move so fast that they leave even predictions in the dust, or at least our interest in them.  That seems to be what happened to an insightful article on hurricanes that was published by Miller-McCune in their May 3, 2010 edition.  The significance of hurricane hunters' visits to the back-waters' of the Alabama/Florida Gulf coasts has been totally overshadowed by the possible effects of oil gushing into the waters of the Gulf of Mexico and fouling the beaches, marshes and bayous we normally expect to buffer us from the effect of hurricanes.
However, that's OK with me.  I'm not that interested in whether hurricanes can be predicted far in advance, anyway.  And the insurance industry, I suspect, doesn't care much for reliable information either.  At least, that's what I take away from some of the data buried in Jim Morrison's report.

His opening sets the stage nicely:

In 2007, a reporter for the Post & Courier of Charleston, S.C., was tired of doing straight stories on hurricane forecasts. So he hired a medium to predict the forthcoming storm season. "The sense we got from emergency-management people here," the reporter wrote, "is that the forecasts had been so wrong that they were hearing from the public, ‘Why should we pay any attention to this stuff?’"

At the end of the hurricane season, it turned out the medium had been more accurate than the scientists who took it upon themselves to make storm predictions.

However, what got me was the first half of the question being asked, "why should we pay?"  And that leads to "how much," which Morrison does address, somewhat, because the object of more accurate predictions, at least on the part of NOAA (housed in the Department of Commerce), is "saving lives and billions of dollars in damage."

Nearly 30 million Americans live in coastal areas, from North Carolina to Texas, that are threatened by hurricanes. More than 3,000 people have died since 2003 in hurricanes. The National Science Board estimates that from 2002 to 2007, economic losses due to hurricanes totaled $180 billion. According to the Reinsurance Association of America, insured property exposure is $9 trillion. AIR Worldwide, a catastrophe modeling company, estimates that disaster losses will double every decade because of growing residential and commercial density along the coasts.

That's a big number.  $180 billion in losses over five years and that includes hurricane Katrina.  It even makes the British Petroleum promise of $20 billion to compensate the victims of its negligent drilling deep in the Gulf seem only marginally significant.

On the other hand,

Risk Management Solutions, a company that helps insurers manage their exposure from natural disasters, took a stab in 2006, issuing a five-year forecast predicting that insured hurricane losses in the United States would be 40 percent higher than the historical average. The projection has been a colossal bust, greatly overestimating losses.

"Greatly overestimating" losses may well be a core characteristic of the prediction business, regardless of who does it (spiritualists, pundits, or paleotempestologists).  After all, if dire predictions turn out wrong, the affected parties are glad and, if they are right, the predictors feel justified.  And, in either case, it seems, there's money to be made by those who only stand and wait and collect insurance premiums.

In early 2005, hurricane predictions ranged from 11 to 14 tropical storms. Instead, there were 27 named tropical storms and more hurricanes — 15 — than any year in the past half century. Katrina, Rita, Dennis and the other storms did more than $100 billion damage. In the next two years, forecasters predicted more storms than materialized. In the last two years, they’ve been roughly on the mark.


In Florida alone, Dennis killed 10 people and caused an estimated $1.5 billion in damages.

Part of the record-breaking 2005 season, Dennis was the second punch to Florida’s northwest coast. Nine months earlier, Hurricane Ivan, nicknamed Ivan the Terrible, landed a left hook with 130 mph winds and extensive flooding, although the major damage was further west in Santa Rosa County and Pensacola, where the storm surge reached 15 feet. The storm destroyed a quarter mile of the bridge across Escambia Bay. At sea, Ivan sunk seven oil rigs and set five others adrift. Even more costly was the damage to underwater pipelines. Some were moved 3,000 feet while others were lost, buried under 30 feet of mud, according to a study by the United States Naval Research Laboratory. A monitoring buoy 100 miles south of Mobile, Ala., recorded a wave of more than 53 feet as Ivan approached. The hurricane killed 14 people in Florida and caused $13 billion in damages across the southern United States. (Three other hurricanes — Charley, Frances and Jeanne — struck other parts of Florida in 2004).

From 2000-2009, 53 tropical storms or hurricanes struck Florida, causing an estimated $64 billion in damages. Homeowners in high-risk areas like the Gulf Coast continue to pay the cost through soaring insurance rates. Some say they have been unable to sell their homes because the buyers can’t obtain insurance, so getting a mortgage is all but impossible.

Oh, what a tale of woe!  $64 billion in damages in eight years in Florida alone!  But, consider this:

From FY 2000 through the first half of FY 2008, the federal government provided $4,829,508,096,600 in flood insurance assistance (Presidentially declared emergencies are separate) and in FY 2007 alone Florida collected $292,373,395,700 (that's $292+ billion).  So, where did the money go?  Some of us have been nattering about $9 billion that went missing in Iraq after the invasion.  Meanwhile, the State of Florida, in the eight years for which totals are available (FY2000 - FY2007) has managed to do what with over $1.7 trillion?  The GAO doesn't know.

It seems fair to argue:

In the last decade, the federal government has spent more money subsidizing the flood insurance industry than it has on either the Iraq war, Social Security payments, or Medicare. While these well-known programs attract mass media attention and foment public debate, billions more were quietly spent on federally-backed flood insurance. While little of this amount is actually payed out to policy holders, hundreds of billions of dollars are made by the financiers of the government's payout funds. According to the spending database, this has amounted to over four trillion dollars of federal debt -- and that is just in the last eight years.

Specifically, in Florida where the annual payout more than doubled for flood insurance (from $138 billion to $292 billion) between 2000 and 2007, Social Security payouts went from $20 billion to $27 billion for an obviously aging population.  Given the connections we now know to exist between the banksters and the insurance industry, flood insurance would seem to have been part of the scam.  

In the good old days, it was fire insurance that served to exclude some populations from potentially valuable real estate, as well as to artificially inflate commercial values and insurance rates.  The "ownership society" put the bulls eye on home owners of all kinds and flood insurance became part of the exclusionary scheme...or scam.  And the taxpayers paid for it!


Originally posted to hannah on Fri Jun 18, 2010 at 06:47 AM PDT.

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Comment Preferences

  •  Tip Jar (12+ / 0-)

    The Constitution is not a menu for an exclusive diner.

    by hannah on Fri Jun 18, 2010 at 06:47:45 AM PDT

    •  If a number looks ridiculous (1+ / 0-)
      Recommended by:

      it's probably bad data.

      The National Flood Insurance program collects about $3 billion a year in premiums, and makes a slight profit most years. 2005's loss of $18 billion threw everything out of joint.

      A blogger that can't see that $700 billion a year is a ridiculous number could be the next Megan McArdle.

  •  Excellent Diary, Hannah (2+ / 0-)
    Recommended by:
    ImpeachKingBushII, skillet

    What do you do that you have an interest in the arcanery of casualty insurance?

    Hill? What hill? No one said there was going to be a hill . . . . Was there a sign?

    by Jersey Jon on Fri Jun 18, 2010 at 06:56:04 AM PDT

  •  Insurance. Is it a gigantic scam? (5+ / 0-)

    In a word - yes.

  •  Thanks for the guided tour through wonderland. (1+ / 0-)
    Recommended by:
  •  great job proving the needs and harms side... (3+ / 0-)
    Recommended by:
    relentless, Preston S, DRo

    ...of the debate, and I'd really be hard-pressed to face you in a debate about it or to even attempt to refute your case. But what's your plan to make the corporatists open the books and account for every dime they fleeced the taxpayers for? I know, if anyone had the answer to that question, they'd be millionaires many times over. I just had to ask you though. I have my own ideas, but I could take them and $6 and grab a cup of joe at Starbucks. Coffee would be much easier to digest than getting people to join a National Labor Union with real teeth that could hold a national strike and bring the corporatists to heel. It's painfully obvious to this old bird on whose side our Congress truly works for. Maybe for WE THE CORPORATIONS, BUT it's most assuredly not for WE THE PEOPLE.

    "I wish to have no connection with any ship that does not sail fast, for I intend to go in harm's way." John Paul Jones

    by ImpeachKingBushII on Fri Jun 18, 2010 at 07:05:53 AM PDT

  •  Great diary, hannah (0+ / 0-)

    Captive Accounting Tricks, Reinsurance and Foreign Tax Shelters are at play here too.  
    Much of this money most likely got "lost" off-shore.

    •  The diary would have been better if accurate (0+ / 0-)

      The dollar amounts in the diary are a joke, but they came from others who didn't understand that they didn't know what was going on.

      The US Senate is begging to be abolished. Let's fulfill its request.

      by freelunch on Fri Jun 18, 2010 at 02:36:21 PM PDT

      [ Parent ]

  •  Come again? (4+ / 0-)

    I'm pretty sure you are off by a factor of 1000.  

    From FY 2000 through the first half of FY 2008, the federal government provided $4,829,508,096,600 in flood insurance assistance (Presidentially declared emergencies are separate) and in FY 2007 alone Florida collected $292,373,395,700 (that's $292+ billion).  So, where did the money go?  Some of us have been nattering about $9 billion that went missing in Iraq after the invasion.  Meanwhile, the State of Florida, in the eight years for which totals are available (FY2000 - FY2007) has managed to do what with over $1.7 trillion?

  •  Insurance, as a concept, isn't a scam (1+ / 0-)
    Recommended by:

    It's like credit relief and day loans, good concepts, but since the rule of law and civic expectations are so low, the scammers define the market and the sector loses any possible social or even commercial value.

    When primarily, or only, the scammers make money because the lowest business ethics are allowed to prevail, they buy a regulatory infrastructure that crushes state and local control. Then the scammers construct public tax flows into a concentrated corporate welfare drain, and market restrictions are put into the hands of cronies. The honest brokers are squeezed out.

    Tribes were admonished away from corrupt leadership, dishonest commerce, and noncompliance to the law for thousands of years so the lessons are known. We're not where we are for lack of understanding, but will.

    Is insurance a gigantic scam? Hell, motherhood is a gigantic scam in the "right" hands.

    Exposing the numbers and the costs is a great asset though. Thanks. Relentlessly shining the light will never eliminate the roaches but they sure do flee for a while.

  •  It certainly felt like it to me (0+ / 0-)

    when our roof blew off in a storm a few years ago and our homeowners refused to cover it.  Another 4k on the credit card.

  •  no but it should be regulated more (0+ / 0-)

    is social security a scam?

    it's insurance.

    •  Social Security doesn't make a sizable profit (1+ / 0-)
      Recommended by:
      Deep Texan

      for simply pooling and dispersing cash, though.

      Most forms of insurance, in a sane world, would be run like SS (Old Age Insurance, Ala FDR).

      Then they wouldn't be scams :)

      "Israel does not any longer occupy the West Bank or Gaza. They left." Rep. Weiner

      by JesseCW on Fri Jun 18, 2010 at 09:05:12 AM PDT

      [ Parent ]

      •  well that was sort of my point (1+ / 0-)
        Recommended by:

        that if regulated properly those wouldn't be issues.

        however a government take over of these things wouldn't go over very well.  even though in my mind we have to eventually take the greed out of the system or regulate it to death.

        •  Flood insurance has already been taken over by US (0+ / 0-)

          No one is writing private flood insurance here. Other countries have no problem including it in their property insurance and making those who build in a flood plain pay the full cost.

          The US Senate is begging to be abolished. Let's fulfill its request.

          by freelunch on Fri Jun 18, 2010 at 02:38:38 PM PDT

          [ Parent ]

  •  I think you are writing about flood insurance. (0+ / 0-)

    I mean I think you are making the few people who bother to write about flood insurance look smart.

    Where did the money go? I suspect it went to the people whose flood insurance claims were not denied. By the way, I suspect most insurance money goes to the people whose claims are not denied.

    So, yes, Virginia, insurance is a scam. And, war is a racket. And, Wall Street is a casino. And, the constitution is a piece of paper. And, and...

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