This Week: Disasters, Insurance, Solidarity


I really wish I had room for an Editor’s Note.  But I don’t.  There will be one in the next issue.

All I can say right now is that my long-time Internet Service Provider and general handler-of-all-things-digital is retiring, so I’m having to do a big switch, including changing the way I do email.  So, your next issue of Nygaard Notes may look a little different than that to which you have become accustomed.  I think it will actually be better, once I figure it out, but there may be glitches along the way.  Thank you in advance for your patience. Fingers crossed…


“Quote” of the Week: Social Insurance

This week’s “Quote” comes from the National Academy of Social Insurance:

“Life is filled with risks. Uncertainty is the rule because nobody can predict with confidence his or her future state of wealth or health. Families once bore the primary responsibility for caring for their individual members in bad times, but modern industrial society has scattered family members to different jobs in different locations. Certain risks we have agreed to confront as a society, rather than as individuals. Citizens have decided, through the political system, that we need financial protection against some of life’s difficulties that are hard to face as individuals. These include old age, ill health, unemployment, disability that makes it impossible to work, injury on the job, and the death of a family breadwinner. For all these conditions, we rely on help from social insurance programs, which are financed by workers and employers.”

A Single Paragraph About Insurance

In the course of researching this issue of Nygaard Notes I read approximately 5,874 articles and papers (a made-up number!) about disasters, insurance, and related matters.  Out of all of that, a single paragraph has stuck with me.  I want to analyze that paragraph because I think it’s remarkable in a number of ways, and has a lot to teach us.

The article appeared in the Finance and Economics section of the September 9th edition of the British weekly newspaper-that-looks-like-a-magazine called The Economist.  The headline read: “Hurricane Harvey Has Exposed the Inadequacy of Flood Insurance; Flood Risk Is Tricky to Insure, and State Intervention Hinders as Much as it Helps.”

The second paragraph was the one that caught my attention.  I present it here, with all five sentences numbered so I can reference each in turn (NFIP is a program of the federal government in the United States):

“The National Flood Insurance Program (NFIP) was set up in 1968, after a series of large losses led private insurers to pull back.(That’s sentence 1) Those living within a 100-year floodplain (ie, with a 1% annual chance of a flood occurring), as defined by the maps of the Federal Emergency Management Agency, and holding a government-guaranteed mortgage, are obliged to purchase NFIP coverage.(2) Others can buy it as an add-on, but few do.(3) The programme covers only about 5 million properties in all of America.(4) In Houston much of the damage occurred outside the floodplain, so many properties may be completely uncovered, and left relying on ad hoc federal relief.”(5)

How remarkable!  The first remarkable thing is that a British newspaper is running an article on a federal program in the United States.  Imagine a U.S. newspaper running a similar article about a British program.  And we learn so much from what’s actually IN this paragraph.  Every sentence tells us something important, or at least hints at something important.

Begin with Sentence (1): Right off the bat we learn that NFIP was set up after “large losses led private insurers to pull back.”  In other words, the more that private insurance is needed, the less available it is.  That’s The System at work.

Later in the article, The Economist explains that “for political reasons, NFIP charges low premiums”, which “means its income does not cover all losses, and it is forced to borrow from American taxpayers.”

(2) The second sentence talks about those “100-year floodplains.”  And here are two relevant headlines from the Washington Post: On August 29th the headline read, “Houston Is Experiencing its Third ‘500-year’ Flood in 3 Years.”  And the head on August 31st read, “Harvey Is a 1,000-year Flood Event Unprecedented in Scale.”  The news service New Jersey Real-Time News reported on Oct 25th that “Massive 500-year floods could inundate the region as often as every five years after 2030, according to a new study from Rutgers researchers.”

And yes, each article makes it clear that climate change is behind a lot of this.  As the Post reported, “the climate is changing and precipitation events have become more intense in recent decades, so what constitutes different return frequencies (100-year, 500-year, 1,000-year and so forth) is probably changing.”  Probably!  This is a subtle form of climate disruption denial: It’s happening, there’s nothing “probably” about it.

So who will be “obliged to purchase NFIP coverage” by 2030?

(3) “Others can buy it as an add-on, but few do.”  The entire floodplain concept is misunderstood and out-of-date, as we’ve just seen, and taxpayers will step in, so the fact that “few” choose to pay premiums for an event the likelihood of which is unknown should not surprise anyone.  In fact, that second dynamic is well-understood in the insurance world, which has a term for it: “Charity Hazard”, which is defined as “the tendency of individuals not to insure themselves against possible natural disasters because they believe help will be available, e.g. from friends, family, the municipality, charities or state emergency programs.”  Or NFIP.

(4) “The programme covers only about 5 million properties in all of America.”  Hurricane Harvey alone “affected 13 million people from Texas through Louisiana, Mississippi, Tennessee and Kentucky,” according to the financial website The Balance. And, with 500-year floods occurring every few years, this 5 million figure is more evidence that The System is failing us.

(5) Given the numbers and what we know about the increasing risk, why do we have an “ad hoc” system for dealing with natural disasters?  That should be the focus of our public discussion in the wake of Hurricanes Harvey, Irma, and Maria.

The private online financial information site Investopedia has a dictionary of common business-related words and phrases.  The relevant phrase here is “Privatizing Profits and Socializing Losses,” which Investopedia defines like this:

“Privatizing profits and socializing losses refers to the practice of treating firms’ earnings as the rightful property of their shareholders, while treating losses as a responsibility that society as a whole must shoulder, for example through taxpayer-funded subsidies or bailouts.”

Now harken back to the headline in The Economist, which tells us that “Flood Risk Is Tricky to Insure and State Intervention Hinders as Much as it Helps.”  As we can see, the dynamic that explains it all is the “Privatizing of Profits and the Socializing of Losses.”  The problem is, as long as we deny the reality of climate disruption and the parasitic nature of private insurance, the losses to the public will increase in proportion to the increases in profits in the private sector.  What is needed is not “state intervention,” but a replacement of our current disaster insurance system with something else entirely.

Now let’s have a look at disasters in the U.S. and which ones get insured.  And which don’t.

Inconsistent Private Insurance

There are lots of disasters every year, with lots of damage and injury, even deaths.  We don’t know exactly where or when they will occur, but we do know that they WILL occur.  That’s the basis for insurance: it’s an attempt by everyone in a group to pool their resources in order to help when disaster strikes anyone in a group who happens to fall victim.  Here’s a look at disasters and the insurance that covers, or should cover, the damage they leave behind.

I’ll be using mostly data from the Insurance Information Institute, or The III.  The III is funded by the insurance industry, so there would be a conflict of interest if they were to talk about policy or regulation or anything of that nature.  Having said that, I think they are a good source for data on the industry, such as the following:

“Direct insured property losses from catastrophes striking the United States totaled $17.1 billion in the first half of 2017, up from $13.9 billion in first half 2016 and from the $13.0 billion average first-half direct catastrophe losses for the past ten years, according to the Property Claim Services (PCS) division of Verisk Analytics.”  And this does not include Hurricanes Harvey or Irma, which came in the second half of the year.  The pattern of increasing property losses from catastrophes has been seen since at least 1980.  And, as the previous essay pointed out, many losses are covered by private insurance while many are not.

A “catastrophe,” by the way, is defined here as “an event that causes $25 million or more in insured property losses and affects a significant number of property/casualty (P/C) policyholders and insurers.”    They say “catastrophe” and I usually say “disaster,” but for our purposes here they are the same.

The III divides “natural catastrophes”—as opposed to human-caused catastrophes, like acts of terrorism—into several different categories: Severe Thunderstorms; Winter Storms and Cold Waves; Floods; Earthquakes; Tropical Storms (hurricanes); and Wildfire, Heat Waves, and Drought.  Here are a few facts about each category, which I am reporting because I think this is interesting stuff, but also because it deepened my understanding of how insurance works in the context of catastrophes.  (Unless otherwise stated, the figures here are from 2015.)

The category that caused the biggest losses in 2015 was Severe Thunderstorms.  Most of these losses were covered by insurance, says the III, and they cite economist Kurt Karl, of the giant reinsurance company Swiss Re, saying that “Fortunately, in the US, most households and businesses are insured against wind risk so they are financially protected when severe storms strike.”  That’s only partly true, as we’ll see in a moment.

Winter Storms were the second largest cause [after severe thunderstorms] of insured U.S. catastrophe losses for the period of 2006–2015. Winter storms caused $1 billion in insured losses in 2016, up dramatically from just $38 million in 2012.  Good news here: “Standard homeowners policies provide coverage for damage caused by wind, snow, severe cold and freezing rain.”

Next is Floods.  Not much good news here: The III tells us that, “For the most part, all homeowner policies specifically exclude flood-related damage, except for cases related to flooding from damaged plumbing infrastructure, like leaking pipes.”

When it comes to Earthquakes, let the insurance buyer beware: “Homeowners and renters insurance does not cover earthquake damage. A standard policy will, however, generally cover losses from fire following a quake and, if such a fire makes your home unlivable, cover the additional living expenses incurred while you live elsewhere during repairs.”

Now we come to Tropical Storms (the insurance term for, mostly, Hurricanes).  And here we learn a lot from the recent storms in Texas (Hurricane Harvey), Florida (Hurricane Irma), and Puerto Rico (Hurricanes Irma and Maria).  Shahid Hamid, a professor of finance at Florida International University’s College of Business, told CNN Money on September 26th that “In Florida, only 18% of homeowners are insured for flood [damage], which is not covered by regular insurance policies.  That’s a problem.”  In coastal counties—presumably at higher risk—“just 42 percent of homes are covered” by insurance, reports the Atlanta Journal Constitution.  All in all, CNN points out, “not everyone will be made whole again” because “after any major disaster a patchwork of public and private actors step up to cover costs.”  Hamid points out that “Individuals will have to use some of their own resources, too.  Those who can afford it.”

The Washington Post reported on August 29th that “Only 17 percent of homeowners in the eight [Texas] counties most directly affected by Hurricane Harvey have flood insurance policies…”

The Wall Street Journal reported on September 20th that “Many Puerto Rican homeowners don’t have insurance policies to help with rebuilding in the wake of Hurricane Maria,” the devastating storm which struck less than 2 weeks after Hurricane Irma left more than a million Puerto Ricans without power.  The Miami Herald reported on October 12th that “there were just 5,675 federal flood insurance policies on an island with nearly 1.57 million housing units.  That means less than one-half of 1 percent of the commonwealth’s homes were covered. Many will instead try to tap low-interest federal loans to rebuild.”  Given that the average annual income in Puerto Rico is about $20,000 (in the 50 U.S. states, the median income is about $59,000), paying back even a low-interest loan is not going to be easy.

The III points out that “Even though homeowners’ insurance covers natural disasters related to wind damage, they do not cover the flooding that often follows storm surges from hurricanes.”  So they offer a warning to those who do have insurance: “Since insurance companies are in the business of making money, and since hurricanes can cost a region tens of billions of dollars in property damage, make sure you understand the fine print if your home is in a high-risk area. Many hurricane-related insurance claims involve disputes over how the terms ‘wind damage’ and ‘flood damage’ are defined by insurers.”

The final category of losses covered by insurance is Wildfire, Heat Waves and Drought.  “Damage caused by fire and smoke are covered under standard homeowners, renters and business owners insurance policies and under the comprehensive portion of an auto insurance policy. Water or other damage caused by fire fighters to extinguish the fire is also covered under these policies.”

Reading the above list, a question presents itself:  Why are some disastrous losses typically covered by insurance (wind damage, snow, severe cold, freezing rain, fire), while others (flooding and earthquakes) are not covered?

The Ideology of Disasters

The public understanding of disasters—as with the public understanding of many things—is heavily influenced by media coverage.  One way in which our understanding is influenced is by the media’s ideological habit of reporting on natural disasters as individual events.  (Referring to them as “natural” disasters is another ideological habit, one that I will discuss in a moment.)

I’m happy to report that the commercial media has improved in this regard, so that it has been possible to find articles and commentaries that at least mention the larger context of climate change when reporting on natural disasters.  Still, the overall coverage—and, as we’ll see, the language and operating assumptions that permeate that coverage—are characterized by a reliance on a set of ideas that are far from neutral.

Two ideas in particular, weave together in the world of media in a way that reinforces the dominant Thought System based on Individualism.  The first idea is the idea that disasters are “events” that just happen.  The second is the idea that they happen for reasons that have nothing to do with human behavior.  Let’s look at how these two ideas weave together.

Before we go any further, let me tell you what I mean when I use the sometimes-intimidating word “ideology”. There are varying definitions, but I have referred to ideology as a “set of ideas” or a “way of thinking.”  A dictionary like the Oxford English Dictionary says that the word “ideology” means “A systematic scheme of ideas, usually relating to politics or society, or to the conduct of a class or group, and regarded as justifying actions…”  Bear in mind that “systematic” does not necessarily mean “conscious.”  That is, it’s likely that the sets of ideas that most people use to organize their understanding of the world have a logic to them and fit together, whether or not we are aware that they do.  Or, for that matter, whether or not we are even aware that we HAVE an ideology!

Every disaster is, of course, an event in and of itself, and the media is justified in reporting on each event as it happens.  And it’s very important to report the many details, as the non-reporting of the ongoing disaster in Puerto Rico makes clear. But when disasters are seen as “the” problem, then it’s inevitable that the coverage will for the most part be limited to reporting on the visible and immediate destruction and subsequent relief and reconstruction efforts.   And when we leave out the connection between climate disruption and its effects on the frequency and severity of so many modern-day disasters, our understanding of any given event is limited.  We would achieve a much fuller understanding of disasters if, in addition to being reported as events, they were also seen as symptoms of the larger systems of which they are parts.

Furthermore, media reporting both reflects and shapes popular understanding when reporters continue to see storms, wildfires, earthquakes and the rest, as “natural” disasters, or what the industry often refers to as “acts of God.”

And here we see more ideological language.  Leave aside the invoking of “God” to explain natural processes, which is ideological in itself, and consider what is meant by “act of God.”  The International Risk Management Institute, an insurance industry group, defines an “act of God” as “An accident or event resulting from natural causes, without human intervention or agency, and one that could not have been prevented by reasonable foresight or care—for example, floods, lightning, earthquake, or storms.”

Weaving the Strands of Ideology

Throughout mainstream reporting on catastrophes run two ideological threads.  One thread is the event-centered thinking that removes the social and ecological context from disaster reporting.  Another thread is the “Act of God” explanations, which focus on an intentional causation and an “actor” to whom the intention is attributed.

These two ideas intertwine to assign responsibility for the event to someone who is not us, which has the political effect of focusing our response to the crisis on repair and reconstruction.

Now, here is where different strands of ideology intersect and reinforce each other.  When a hurricane, for example, is categorized as an act of God one idea that is reinforced is the idea that the event occurred without “human intervention or agency.”  But is that true? In the age of climate disruption, this idea is increasingly untrue.  Yet it persists, in part because it weaves together well with the other idea mentioned above, the reporting on disasters as events rather than symptoms.

Recall what I said a couple of issues ago, in Nygaard Notes #615.  I was comparing the dominant Thought System in this country, Individualistic Thinking, or IT, with another Thought System that is Systems-oriented, which I call Systalectics.  I said that IT relies on “Methodological Individualism”, which is the view that “social phenomena must be explained by showing how they result from individual actions, which in turn must be explained through reference to the intentional states that motivate the individual actors.”  Systalectics, in contrast, puts the focus on outcomes rather than motivations or intentions.  Rather than ask “Who?” and “Why?,” Systalectics looks for PATTERNS that produce OUTCOMES.

Reporting on disasters as individual events discourages us from looking for the patterns that we need to employ if we are to understand the systems at work as they relate to the outcomes that we know as “disasters.”  And, by classifying disasters as “acts of God” we are encouraged to take this as an answer to the two Individualistic “Who” and Why” questions: The Who is God, and the Why is unknown, since the ways of God are mysterious.

They weave together in this way: The reporting of disasters as individual events separate from one another encourages us to think Individualistically rather than use Systalectics.  Thinking Individualistically allows us to harbor the illusion that there are humans and there is nature, and that they are two separate things.  Systalectics never lets us forget that humans are a part of nature, and that anything that affects humans affects the ecosystem and—climate change deniers take note!—vice versa.

The ideological habit of drawing a clear line between human-caused (the industry calls them “man-made”) disasters and “natural” disasters leads us to see the former as something we can “fight” and the latter as out of our control, since they are Acts of God.  Systalectics tells us that these weather events are the outcome of system forces put in place not only by natural processes out of our control, but also by social processes that are very much within our control.  And this is the key to building political support for responses like the two Big Ideas that are discussed in the following brief essay.

Collective Responsibility and Social Insurance

I ask elsewhere in this issue of the Notes: Why are some disastrous losses typically covered by insurance (wind damage, snow, severe cold, freezing rain, fire), while others (flooding and earthquakes) are not covered?

I’m not going to answer that, as anything I would say could only be speculation.  Besides, it doesn’t matter, because when we think Systalectically we aren’t interested in placing blame, because we don’t imagine that a given problem was “caused” by a single factor or person or group who might take the blame.  Really, only two things should concern us here.  One is the fact that disasters happen. And the other is that we have the power to take collective responsibility for addressing the damage.

Philosophers refer to the choice to blame someone as “backward looking collective responsibility,” as in “Who is responsible for this thing that has happened?”  The solution-oriented side of this is known as “forward looking collective responsibility,” and here’s what the Stanford Encyclopedia of Philosophy says about it:

“Forward looking collective responsibility, unlike its backward looking counterpart, does not focus on whether a particular collective agent caused harm in the sense relevant to moral blameworthiness. Instead, it focuses on what, if anything, the agent can be expected to do with respect to remedying the harm.”

So the question we ask is not “Who did it?” but “What are we going to do about it?”  That’s a very different question, as it focuses us on our capacity for fellow-feeling, for empathy, and for action rooted in solidarity.

This idea of Collective Responsibility is the first of the two Big Ideas that I promised to discuss in this essay.

Social Insurance

The second Big Idea might be understood as the public policy expression of Collective Responsibility, and that is the alternative to private insurance known as Social Insurance.

The article on flood insurance in The Economist that I quote elsewhere in this issue includes this intriguing sentence: “In Britain private insurers include flood coverage as part of standard policies, so risks are distributed across a wider pool of policyholders.”  That idea of distributing risk across a wide pool is the essence of Social Insurance.

Social Insurance programs strive to be universal in their coverage, that is, to widen the pool as much as it can be widened.  For that reason, Social Insurance programs are typically public and mandatory.  That is, the government operates Social Insurance programs so as to assure that nobody is left out of the program, something that private insurance will never do.  Not only is this a good idea for economic reasons (the wider the pool, the more money is available and the less each individual has to contribute), but it also is based on a little-talked-about but widely shared value: Solidarity.  One for all and all for one.  Everyone is better off when everyone is better off.

It has been said that Social Insurance offers society-wide solutions to society-wide problems.  And this idea of everyone agreeing to (being required to) chip in to help people they don’t even know in their time of need is not a new idea.  The Social Insurance programs that we already have in the United States—Social Security and Medicare are the two best-known examples—have always had broad popular support.  And that’s because Social Insurance is the public policy expression of Solidarity.

Any system of insurance includes risk assessment, which is used to budget for the expected cost of the covered damages.  In a Social Disaster Insurance system, everyone would have to pay taxes based on the expected costs of future disasters.  There could be important political effects associated with this dynamic, and here’s why: As our budgeteers predict ever-higher disaster costs due to climate disruption, this pocketbook reality could be used to increase political support for real action on the climate.  If action on climate comes to be understood as a present-day pocketbook issue instead of being perceived as a bunch of environmental “extremists” screaming about polar bears (and polar bears are important!), then we will have that much more public support for taking the serious steps needed to break the cycle of increasing environmental chaos.

Taking Collective Responsibility is what we must do. Social Insurance is how we can do it.  And Solidarity is the bedrock principle upon which it all rests.  Political times seem dark right now to many of us.  But many of us also realize that the darkest time is often just before dawn.