Insurance, US to Pay For Hurricane Cleanup

AUGUST 1992: Hurricane Andrew, estimated cost $30 billion.

May 1992: The Los Angeles riots, estimated cost $850 million.

October 1991: The Oakland fires, estimated cost $1.5 billion.

While dollar figures represent only a portion of the real toll of the past year's national disasters, they are the quantifiable costs that can be traced to someone's pocketbook.

Who pays the tab for national disasters?

About 50 to 75 percent of the cost of all national disasters is paid for by the private insurance policies of individual homeowners and businesses, say insurance and government officials.

They say that the trend in dealing with national disasters has been, and increasingly will be, toward relying on private insurance, instead of on traditional government-subsidized grants and low-interest loans.

As disaster costs mount and the federal budget deficit grows, those who take the greatest risks - by living in disaster-prone areas, for example - will be asked to be more aware of, and assume more financial responsibility for, their choices.

A case in point is the Federal Insurance Administration's national flood insurance program, says Marc H. Rosenberg, vice president of the Insurance Information Institute.

Modeled after private insurance but federally guaranteed, the insurance has been such a success that the program's payouts now regularly exceed what the government must spend for flood disaster relief, he says.

"It used to be that disaster assistance was no-interest loans [to rebuild]," says Mr. Rosenberg. "From a public policy viewpoint you want people to be aware of the risk they're choosing to take and to pay for it, and with disaster assistance it works the opposite - why would people want the certain expenditure of flood insurance versus the uncertainty of getting a no-interest loan [in the event of a disaster]?"

Flood insurance, available only through the government, equitably spreads the responsibility for taking risks and even begins to create better building stock, Rosenberg says.

This is because it requires policyholders to build to meet flood-resistant codes and to live in municipalities that have instituted land use plans that help to avoid or reduce flood damage.

Congress is now negotiating the details of legislation that would create a similar earthquake insurance plan to be backed by the government, but sold by private insurers.

Meanwhile, estimates of the tab for Hurricane Andrew ratcheted up daily last week from $10 billion, to $15 billion, and then to $30 billion. That would be four times more than the nation's costliest previous natural disaster, Hurricane Hugo in 1989, estimated by the federal government to have caused $7 billion in damage.

In south Florida, where damage was caused more by high winds than by water, private insurance is expected to shoulder close to 75 percent of the cost of Andrew's devastation, says Rosenberg. In Louisiana, where more water-related damage occurred, federal flood insurance claims will offset the burden on private insurance.

Who pays for the rest of the hurricane damage "is an incredibly mixed bag," says Bob Hunter, president of the National Insurance Consumer Organization. "The integrated response, public, private and...the thousand points of light [voluntary efforts] is pretty good."

Besides what the victims themselves must pay out of pocket, there is an array of disaster relief expenditures by federal, state, and local government agencies, and by charities such as the Red Cross and churches.

The Federal Emergency Management Agency, which coordinates the disaster relief efforts of 27 agencies, will most likely need an injection of new cash for its disaster account, says a House Appropriations Committee aide.