The math on the aftermath of Hurricane Helene is the starkest I've ever seen.
Accuweather says the total economic losses from Helene could be $225 billion to $250 billion. CoreLogic calculates that insurance could cover $10.5 billion to $17.5 billion, which includes as much as $6.5 billion from the National Flood Insurance Program.
Those numbers leave an awfully big gap. Even if you take the low estimate for losses and high estimate for insurance, you're still left with more than $200 billion in uninsured losses. I'll say that again: The property owners and communities that were hit by Helene could be on their own for more than $200 billion.
And we have an even bigger storm, Hurricane Milton, headed right at the Gulf coast of central Florida and expected to make landfall Wednesday night. Milton will be the biggest storm to hit the heavily populated area in more than a century.
If history is any guide, we'll muddle through. Homeowners will turn to their insurance, find that they likely don't carry the sort of flood insurance that would cover the damage Helene caused, and turn to the politicians. The politicians will posture -- especially given that we're lurching toward the end of the long presidential election season -- and eventually come up with a potful of money that will cover a large percentage of the damage.
But I say it's time for a grownup conversation about where responsibility lies -- how much with homeowners, how much with insurers, and how much with each layer of government.
We've meandered our way into a mess. And if Helene and Milton can't focus our attention long enough to address it, then I can't imagine what will.
The basic role of the insurance industry is clear: We cover the claims we've been paid in advance to cover. We can't be expected to bear all the other losses, no matter how rich people may think the industry is.
But there is an advisory role that I think insurers can play, at least during the recovery from Helene and Milton. As Veronika Torarp, a partner at PwC, says in the interview I did with her for this month's ITL Focus on Resilience and Sustainability, insurers are the ones that know best what precisely caused the damage and what interviews would have reduced or prevented the damage. So they can advise property owners on how to build more defensively so they do better in the next storm -- perhaps by installing steel roofs that can withstand hail. Insurers, she says, could even get involved with the Army Corps of Engineers, which has a massive budget and will be doing considerable work in the areas hit by Helene, to offer thoughts on how to rebuild roads and bridges in ways that best protect people and property.
Insurers can also, of course, encourage people and businesses to buy more of the sort of coverage that will reimburse them for damage in the next storm, and, if history is any guide, customers will be more receptive to that idea for at least months, perhaps even a year or two. But big gaps in coverage will persist. They always have.
Some people will even leave the areas hit by hurricanes and find safer harbor elsewhere. The Wall Street Journal published a story Monday under the headline, "The Great Florida Migration Is Coming Undone." The article says hurricanes and other extreme weather are contributing factors. But I suspect that movement away from risky areas will be slow. Other than, perhaps, people whose homes have been destroyed, folks don't just leave their homes behind.
With the role of insurers limited and with individuals unlikely to respond fast enough and robustly enough, that leaves government.
I know, I know, hoping to fix the federal government is a fool's game, especially with today's hyperpartisan environment throughout the U.S. But I'll at least lay out what I think the two core questions are and suggest a way that the insurance industry might be able to provide a nudge in the right direction.
The first question is whether the federal government should play any role in covering, say, those $200 billion in uninsured losses from Helene. Historically, the answer has always been yes, but it's been a tortured yes. Republicans in Congress, in particular, get stuck between conservative principles (meaning they vote against additional spending, including for disaster relief) and the need to advocate for their constituents (demanding disaster relief when they are affected).
For instance, as a congressman, Ron DeSantis voted against disaster aid for New York and New Jersey following Superstorm Sandy but has asked for federal aid for Florida as the state's governor after hurricanes and will surely request aid in the aftermath of Helene and Milton. Kentucky Sen. Rand Paul has been adamant about not writing a blank check for disaster relief but has supported aid to Kentucky following tornadoes and will surely be involved in seeking help following the damage that Helene caused.
The conservative policy blueprint Project 2025 calls for major cuts to the Federal Emergency Management Agency (FEMA) and the elimination of the National Flood Insurance Program, but no right-minded politician would call for such measures now, in the face of so much need across the Southeast. That'd be a great way to lose a presidential election.
So we're probably stuck with today's tortured yes. Democrats in Congress will align with Republicans from affected areas and pass aid bills. But there will be lots of grumbling, And that grumbling will surely get more serious if the relief package for Heleme and Milton soars into the hundreds of billions instead of the usual billions or tens of billions.
That brings me to the second question, where the insurance industry can play a role and where what is likely to be a mammoth aid package could maybe even have an effect.
The question is: What level of government should be responsible? Historically, the states have taken some responsibility but have pretty quickly turned to the feds. Even a rich state like California has asked for federal help on some massive wildfires.
In some ways, the question is almost philosophical. Are we all in this climate change mess together, or should we take individual responsibility? Are those of us who live in California responsible for dealing with our wildfires, landslides, and earthquakes ourselves, or should Minnesotans, say, have to contribute to some grand aid fund that helps us, on the theory that they'll have their turn in the barrel some day?
I'm not saying we should tell those hit by Helene, "We warned you you should buy insurance. Good luck with those $200 billion in uninsured losses. Maybe given your governor a call."
But I do think that pushing responsibility for disasters down from the federal level would help -- and insurers could facilitate conversations along those lines. Assigning responsibility at the state or even community level would get the people in danger to face the danger and understand that they have to do something about it, whether that's hardening their properties against storms, floods, and fires or whether that's buying insurance to cover the cost of repairs and recovery.
States could be the enforcer here. They could assess the risks to communities and require that they purchase a sort of stop-loss insurance that would kick in if disaster strikes. The state would have incentive to get the assessments right and have communities be able to pay, because the state would be the backstop for the community up to a certain level of cost, before federal aid would kick in. (This article in the New Republic gets into this hybrid idea in some detail.)
My suggestion raises a zillion questions, including the obvious one about discrepancies between homeowners in a community. If I'm in the valley and you're on the hill, shouldn't I pay more toward the community flood insurance?
But I'm tired of the status quo. It isn't working. We should use the attention that Helene and Milton will get to start the conversations that can make disaster recovery work better for everyone.
Cheers,
Paul
P.S. The community-based insurance idea was developed at the climate conference that I promised last week I would get into this week. I just couldn't do the conference justice while still addressing the issues that Helene and Milton raised in my mind. I'll tell you about the conference next week. Honest.