As if the “fiscal cliff” negotiations in Washington weren’t tough enough, there’s a new $83 billion problem.
That’s how much politicians from New York, New Jersey and other states want for damages from Hurricane Sandy. Plus, they want approval by the end of the year. For those who lament the lack of bipartisanship in Congress, Sandy has brought the parties together. In normal times, Sen. Charles Schumer, D-N.Y., and Rep. Peter King, R-N.Y., might not agree on where to eat lunch. With Sandy, they are united in their demand for federal money.
President Barack Obama’s opening bid to the Northeast was $50 billion. At this point, no one can be sure of an accurate number. Different pieces of government are compiling damage estimates; mass transit in New York took an especially hard hit. Private insurance will cover some repairs, but some homeowners whose dwellings were washed away may not have had federal flood insurance. A construction trade group pegs the homeowner rebuilding cost at $15 billion to $20 billion. Some money will go not just for rebuilding but for hardening against the next storm.
Whatever the number, the issue will further complicate budget talks that reportedly now are between just President Obama and House Speaker John Boehner, R-Ohio. Whatever the number, the money will come out of the treasury at a particularly bad time.
As we have editorialized many times, it doesn’t have to be this way. Congress could create a national catastrophic insurance program for what the industry calls “uninsurable perils.” In shirtsleeve English, a normal market can’t provide reasonably priced insurance to cover storms like Sandy. A normal market also can’t provide reasonably priced coverage for acts of terrorism, which is why the federal government has a public-private terrorism insurance program. In 2007, President George W. Bush signed an extension through 2014.
Similarly uninsurable perils include an 8.5 earthquake in downtown San Francisco — the earthquake there in 1906 led to a nationwide financial panic — and a Category 5 hurricane striking Miami before moving across the state to Tampa. That’s why former U.S. Rep. Ron Klein sponsored, and the House passed, a national catastrophic insurance plan under which the federal government would underwrite private bonds to pay damages. Those billions would not come out of the treasury.
The plan was designed not by the insurance industry but by wonks at the Congressional Research Service. States would have to first create their own layers of coverage, as Florida has, for lesser storms. The main opposition continues to come from the global, unregulated reinsurance industry, which sells the coverage for those worst-case scenarios. That cost is the main driver of premium increases.
Sandy was a tragedy. Given climate change and weird weather, there will be more. Congress needs no more evidence to justify a national catastrophic insurance program.