Coming across as “negative”

This past week, I was chided by State Representative Todd Hunter as having “come off negative to the coast.”  I didn’t have a chance in the crowded hearing room with a three minute time limit to respond then and there, so let me try now.

I do not think I am negative at all to the Texas coast.  I actually like the coast.  I go down to Galveston a few times a year with my family and enjoy the sand and water.  (I could do without the traffic between Houston and Galveston, but that’s another story.) I have friends who live on the coast.  Some were badly hurt by Hurricane Ike. I feel badly about that and I feel badly about their insurance situation.  I’ve enjoyed bird watching and photography both in Winnie and Port Aransas. Perhaps it’s my lack of perception, but people on the coast don’t strike me as much different than other Texans with whom I generally get along just fine.  So, if the issue is some sort of personal bias against the coast or some dislike of its geography or scenery, that’s just utterly, totally not true.

I suspect, however, that’s not what was meant.  I suspect what was meant was that I haven’t supported the coast in getting a lot of help from other Texans or the Texas government in dealing with its insurance situation. I haven’t demonized the insurance industry as the cause of the problems. And I haven’t expressed a lot of sympathy for the predicament in which coastal residents find themselves.  I think I can fix one of the problems, but probably not the others.

Sympathy.  I do sympathize with the insurance situation of people on the coast.  I don’t like the fact that many of them, particularly the less wealthy, have to pay high prices for insurance.  I sure wish hurricanes weren’t a correlated risk of low frequency events that pushes prices higher.

But I also sympathize because they are the victims of a misguided government program which, every year it continues, tends to make the situation worse. I sympathize because they are the victims of changing climate and changing science over which they have little control. And I sympathize because I fear they are subject to manipulation by politicians who often take a short run view.

Government programs that displace the private market over a long perod of time — such as TWIA — have a tendency to be very hard to get rid of.  Exhibit A might be the hearing this week. That’s because people come to rely on them. So, when TWIA has rates well below what a market would charge, and it has them over long periods of time, it encourages development on the coast.  It encourages people to build businesses and houses, and larger businesses on the coast. They do so because they believe that the government program will continue — or because they just focus, as many of us do all the time, on the short run.  The result, however, is that we now have more property than a market would create facing a large risk of loss.  And that market is filled with nice people and nice children and worthy small businesses and important big businesses and schools. We have hopes and dreams struggling to succeed in the community that government helped create.

And then what happens?  Precisely because the government is selling cheap insurance, the private industry won’t compete. The physical and intellectual infrastructure to sell private insurance on the coast decays. Sure, maybe there are other reasons, but you need to do a lot of work on me to persuade me that insurers are colluding — for no apparent reason — in just refusing to write insurance on the coast.  Maybe one or two irrational insurers has an undue fear of writing risk on the coast.  But insurers compete all the time on what constitutes good business.  And reinsurers seem remarkably able to do business on the coast in a market where the price is unregulated. Surely, if TWIA weren’t in the way for years selling insurance at rates that could not be actuarially justified and that relied on other insurers and government picking up the ultimate tab, or if insurers hadn’t been fearful of the Texas Department of Insurance, which lives in a political universe, vetoing actuarially realistic rates that take time and money to develop, a large chunk of private insurers would be on the coast. Government thus converts what might have been the temporary evacuation of scared insurers from the Texas coast following Hurricane Celia into a permanent exodus.

And then it gets worse.  We have global warming and climate science and Katrina and cheap computer modeling so that it’s now believed that the hurricane risk on the coast is far greater than that which history alone would reveal. So, now we’ve trapped people.  We’ve erected communities and predicated lives on premises that no longer seem to hold. The insurance industry, if it was ever coming back, is more scared than ever.

None of this was the fault of the people on the coast.  They couldn’t have forecast that people would no longer believe that historic evidence on hurricane frequency and severity would no longer be believed fully applicable.  So, when people who are paying for an ever greater subsidy start saying, “party’s over,” I sympathize very much with their situation.

But …

Laws and government can not run on sympathy alone. And the truth is if we don’t have serious reforms, the problems are only going to get worse.  It is going to resemble exactly what Commissioner Kitzman described this past week as “rearranging the deck chairs on the Titanic.” So, what I’m afraid of is that after I smile and smile and express my personal sympathies,” I’m going to advance policy positions that people on the coast, many of whom have been misled for decades, still aren’t going to like.

In a future blog entry, I’ll continue to set forth my recipe for progress. It starts, however, with honesty. The good people on the coast have to acknowledge that, however faultless they may be, there are issues with asking other people to pay for their insurance needs. The people on the coast have to acknowledge that, although their choices may be constrained and difficult, they, like all of us, make choices about where and how to invest. The people on the coast have to acknowledge the inconvenient truth that the best climate models and damage models predict far greater risk than those in the past, even in areas of Texas that haven’t suffered a serious hit for a while. And the people on the coast have to acknowledge that continued subsidization and continued allocation of scarce resources on that basis can only make the problem worse. Personal attacks, as have been made, on people who tell the truth as they see it doesn’t help the process. In return, I’ll acknowledge a desire to limit the pain in a transition to a fairer, more efficient and sustainable approach.


The curious case of Corpus Christi

Today’s Corpus Christi Caller has an interesting article that purports to show a special immunity of the Corpus Christi area to hurricane risk, which is said to be no more than that facing New York City. The article is based on a report from NOAA published since 2010 and apparently brought to the recent attention of Todd Hunter, Corpus Christi’s state representative. It’s based on data from 1887 forwards that attempts to calibrate the comparative risk of landfall both within Texas and throughout the Gulf and Eastern Seaboard.

Here’s the key picture which, though not shown in the report, appears to underlie the article’s conclusions and quotations.

Return periods of Atlantic hurricanes

Return periods of Atlantic hurricanes by county

See the blue 19 next to Corpus Christi and the blue 20 next to New York City. This is supposed to show that the risk of hurricanes in those two regions are similar: one every 19 or 20 years a hurricane will strike within 50 miles. And see the orange 9s next to Galveston and Brazoria counties. That is supposed to show that the risk of hurricanes in those two regions are greater, once every 9 years.

The evidence gets a bit more complicated, however, if one looks at the next picture in the NOAA document, one not mentioned in the Caller article. It shows the history of major hurricanes based on historic evidence from 1887 to 2010. Although the coastal bend (33-40 years) still comes out better than the east Texas coast (25-26 years), the ratio isn’t as great as for all hurricanes. Moreover, the comparison with New York City now fails. The Big Apple gets hit only once every 68 years.

Major hurricane return periods

Return period for major Atlantic hurricanes by county

So, what are we to make of all this? I would say not too much. What the NOAA report lacks is any notion of statistical significance that would make it particularly useful in drawing fine grained distinctions between areas of the Texas coast. It might just be that what the pictures show is significantly good and bad luck. Drawn from a sample of just 130 years or so, one might expect to see distributions of return periods that varied from county to county. Perhaps some trends might be observable, such as greater strike frequency in Florida than Texas, but what the report lacks is a “p-value,” the probability that one would see variations in the data as large as those exhibited in the graphics simply as a matter of chance. I’m not faulting NOAA for this; it would be very hard to develop such a statistic and it was purporting to capture historic evidence only. Moreover, our climate is dynamic. Storm tracks and storm frequency can change as a result of global weather phenomenon. Thus, while one should not ignore historic data, you have to be very careful about projecting it into the future or using it to make highly specific projections.

So, should the report be ignored? No. Perhaps curious atmospheric features (jet stream placement) and geographic features such as the placement of Cuba indeed give Corpus Christi a little shield. And if Corpus Christi wants to argue on that basis for lower rates for southwest coastal Texas and higher rates for the eastern Texas coast, I wouldn’t be mightily opposed. Somehow, however, I don’t think that’s where coastal Texas wants to go in the upcoming legislative session. Recognition of large differences based on geography in catastrophe risk isn’t the best basis on which to plead risk socialization and rate uniformity. (More on that point soon!)

Isaac and Jefferson County TWIA Exposure

No need for anything close to panic yet, but as pointed out by Eric Berger (the best writer on the subject I know) of the Houston Chronicle, there is some risk that Hurricane Isaac will make landfall near Jefferson County (Beaumont / Port Arthur). The graphic below shows one projection.

GFS forecast for Isaac as of 7 a.m. Thursday morning. (IPS MeteoStar)

What’s TWIA’s maximum exposure in Jefferson County? As of June 30, 2012, it was $8.4 billion. Now, of course no hurricane would wipe out every stick of property in the county, but if you start adding Jefferson exposure together with that of neighboring Chambers County ($1.7 billion) there is some modest cause for concern. If more projections start to indicate the Texas coast as the landfall point for Isaac, I’ll try to take a harder look at damage projections.
TWIA Statistical Report of 6/30/2012 Exhibit 5C page 1 of 9

TWIA Statistical Report of 6/30/2012 Exhibit 5C page 1 of 9