Now that the levees apparently withstood Hurricane Gustav, the question remains, is New Orleans an insurable risk, given its geographical challenges–sitting so far below sea level, in the path of hurricanes and with leaky levees all that's standing in the way of another major flood? One of NU's award-winning agencies argues that respect, attention and insurance must be provided.
W. Anderson Baker, president of Gillis, Ellis & Baker in New Orleans, earned an Honorable Mention in the 2007 "NU Commercial Insurance Agency of the Year" award program. (You may read the profile of how his agency survived and prospered following Hurricane Katrina by clicking here.)
Mr. Baker, who had to evacuate his home and office this past week as Gustav approached, made an eloquent case for standing by the Big Easy come hell or high water in a recent NU "Final Say." Read on and tell us what you think:
Abandoning The Big Easy Would Leave U.S. Up The Creek
By W. Anderson Baker III, CPCU, ARM
Congress will apparently not add catastrophic wind coverage to the National Flood Insurance Program. Im sure that makes sense. It was obvious no one was going to accept the premise that the pricing would have been actuarially sound, which set up the argument that one group of people would be subsidizing the lifestyle of others, and even though our entire tax system is based on this premise, thats an argument for another day.
However, accepting the premise that people on the coast would have had their rates subsidized, I would ask: Who gets to live in New Orleans?
Leaving aside second homes, mansions on the beach, and hotels with 20-story ocean views, lets talk about the more practical matter of who gets to live in New Orleans.
Just the stevedores? Perhaps the tugboat captains? Of course, the deckhands on the tugs will be needed. After the tugboats push the barge alongside the dock, and the stevedores unload the barges, the cargo needs to be transported by truck to a rail yard. Well probably need truck drivers.
The trucks will likely need maintenance, so mechanics will be necessary.
Someone needs to feed all these people, or at least sell them food.
If one of the butchers cuts his hand, hell need a doctor and a nurse. When he gets to the emergency room, someone will have to take his medical information to get the claim processed. If the accident was serious, he may need to be transported in an ambulance with a driver and staffed by a paramedic.
This extrapolation could go on and on until you have a million people serving one of the nations largest ports.
Who depends on that port?
New Orleans is the nations largest port for steel imports used in all areas of the nations manufacturing economy. If the stevedores cant move it in New Orleans, the price of steel goes up (steel doesnt come through New Orleans because the ship captain likes the music here), increasing the costs to our marginally competitive manufacturers.
We can play the same game all over again with the farmers in the Midwest who export grain all over the world.
What would happen to the inland manufacturing economies and the nations economy if the port of New Orleans was no longer open for business because risk-based insurance pricing had closed it? Would the farm equipment dealers sell fewer tractors? Would the equipment manufacturers then have to lay off workers?
While the factory workers are waiting for cheaper steel, what are the farmers doing? What port will the grain move through, and at what cost? This comes at a time when food prices worldwide are at record highs.
Does closing the Port of New Orleans impact the rest of the country? Yes. In fact, it affects the rest of the world.
So, when people from the inland states suggest that those along the coast should pay 10-times higher insurance rates, the inlanders should be asked: Whats it worth to you? Which jobs in the heartland of the country should be sacrificed on the principle of risk-based pricing?
The problem with risk-based pricing is that most insurers have not rushed in with actuarially-priced capacity.
Perhaps insurers have been waiting for favorable court rulings. Weve had those, at the federal appellate level and the State Supreme Court. They have said flood is flood, not wind, for claims purposes. Yet were still waiting for the capacity.
If wind had been part of the NFIP over the past two years, New Orleans would be much further along in its recovery than it is today. While the conventions in town are well attended, there are vast areas of New Orleans in dire need of affordable and available insurance.
Who gets to live in New Orleans, or any coastal city? This is a larger economic question that deserves a more thoughtful response than the knee-jerk retort of risk-based pricing.
In the meantime, while we in New Orleans are stuck with that answer from the market, the recovery of our area is stuck with the reality of homeowners and commercial premiums still double what they were prior to Katrina, if coverage is available at all, except through our Louisiana Citizens coastal plan.
When the city collapses under the weight of risk-based pricing, and the cost of steel increases, and the cost of handling grain exports soars, the government will come up with a number of tax incentives, subsidies, etc., that will shift the costs to the rest of the country. Is it truly better late than never?
Nearly three years after Katrina, the recovery of a great city is still impaired. While the tourist attractions are up and running, and the conventioneers are treated to a nice visit, businesses and homeowners are struggling with insurance availability and affordability issues.
The U.S. Senate was rightadding wind to the NFIP was a lousy idea. Taxpayers should not be left holding the bag.
Private industry should provide the solution. Until they do, I guess itll be just the stevedores and I who get to live here.
W. Anderson Baker III, CPCU, ARM, is president of Gillis, Ellis & Baker Inc., in New Orleans. His firm received an Honorable Mention last year in the NU Commercial Insurance Agency of the Year award program.
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