Flood insurance: build an ark


Flood Insurance: Build an Ark
Washington, D.C.

In “Superstorm Sandy—A People’s Shock?” [Nov. 26;], Naomi Klein describes me as a “mouthpiece for the insurance lobby” and suggests my organization’s advocacy of privatizing the bankrupt National Flood Insurance Program is motivated by the industry’s desire to remove a public sector competitor. While we would be delighted if that were true, the reality is that no major domestic insurance company has ever taken that stance. Most insurers fear, with some justification, that NFIP privatization would result in regulators forcing them to underwrite risks they would rather avoid.
Klein also notes that the R Street Institute was previously a division of “the climate-denying Heartland Institute.” That is true, although it is misleading not to mention that we parted ways with Heartland specifically over the issue of global warming. In fact, were she to research the topic, she would discover that this year every major environmental organization supported legislation to reform and scale back the NFIP, and some—such as Friends of the Earth—have joined us in calling for full privatization.

Indeed, were she not so intent on limiting her post–Hurricane Sandy inquiry solely to cases that appear to support her “Shock Doctrine” thesis, Klein might even question the powerful interests—notably in the real estate and construction sectors—that have led the charge for cheap, taxpayer-subsidized property insurance, which has enabled so much development in risk-prone and environmentally sensitive regions. Some of these same interests, joined by insurance agents and a few large domestic home insurers, are currently lobbying to expand the government’s role in subsidizing catastrophe insurance even further. We oppose this legislation, not because of who is for or against it, but because it would be terrible for taxpayers as well as the environment.

R Street Institute

Klein Replies


Ray Lehmann claims that the R Street Institute split from the Heartland Institute “specifically over the issue of global warming.” In fact, the divorce occurred only after Heartland tipped its climate denying into embarrassing parody, launching a gruesome billboard campaign comparing those who believe in global warming to murderers and terrorists. Until that point, Heartland’s insurance division—now rebranded as R Street—appeared to have no qualms with its host organization’s status as the foremost engine of climate denial since at least 2008, the year Heartland held the first of its notorious climate conferences. Indeed, the insurance division was not officially established until early 2010, by which time climate denial was arguably the policy for which Heartland was best known.

For almost two years, Heartland’s climate and insurance arms were only too happy to play both sides of the energy debate—one denying the massive scientific evidence of climate change, the other pushing ways for corporations to profit from turbulent weather. It was not until many of the organization’s insurance funders balked at the billboard controversy that R Street jumped ship, a decision with distinct financial benefits to R Street.

Speaking of financial benefits, Lehmann writes that private insurers do not advocate the privatization of the NFIP. He neglects to mention his institute’s funding relationship not only with traditional insurers but also with private reinsurers—those powerful global players that provide insurance to insurance companies, helping to cover them in cases of large-scale disasters. Like the carving up and repackaging of exotic forms of debt, reinsurance companies hedge against the big payouts that come with an increasing number of multibillion-dollar disasters by pooling, breaking up and selling off insurance risk burdens to the financial sector. In 2012 (before the billboard controversy), reinsurers such as RenaissanceRe and Allied World Assurance Company, as well as the Association of Bermuda Insurers and Reinsurers, were together projected to contribute $370,000 to Heartland’s insurance arm, which had long extolled the virtues of NFIP privatization.

It’s not hard to see why. A full privatization of the NFIP could be a clear benefit to reinsurers, as the purchase of private flood insurance on a mass scale would likely require insurance companies to hedge these new risks through the purchase of more private reinsurance. Whether it would benefit the public, however, is highly debatable, since private flood insurance—in the name of “reflecting risk” in flood-prone areas—would jack up rates, thereby pricing many longtime, low-income coastal residents out of their homes.

None of this precludes Lehmann’s perfectly valid point that there are other private interests that have different methods of profiting from climate change, including by getting taxpayers to foot the bill when their high-risk real estate developments are flooded. These subsidies need to be debated and reformed. But the solution is not to do away with affordable flood insurance at a time when horrific events like Hurricane Sandy are set to increase in frequency.



In William Greider’s “Speak Out to the Fed!” [Nov. 26], three e-mail addresses for Federal Reserve Board members were incorrect. Janet Yellen can be reached at [email protected]; Daniel Tarullo at [email protected]; and  Jerome Powell at [email protected].

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