• Reflections on the Houston Hurricane
  • While the Globe Grows, the U.K. Stalls

I have a close friend from college who lives in Houston. I worried about him and his family as Hurricane Harvey approached last weekend, and worried even more when the weather system stalled over the area. More than 50 inches of rain fell over a five-day period, a total exceeding a normal year’s precipitation for the city.

I was able to reach my friend by phone on Monday. The good news is that everyone was fine; the bad news is that five inches of water had covered the floor of his house, and people he knew were being airlifted from their homes. He anticipates that it will be a long while before life in the region returns to normal.

Our primary thoughts are with the residents of Houston, where we have an office and a large community of clients. Northern Trust made a substantial corporate donation to the relief effort, and I was happy to add to it. (Should you be so moved, the Red Cross is accepting contributions here.) But duty also requires us to reflect on the economic issues raised by the disaster.

A comprehensive damage assessment won’t be available for some time. Loss estimates range from $75 billion to $125 billion, which place Harvey among the top 10 global natural disasters of the past 50 years.

Some of the losses will be covered by insurance. Carriers are in strong financial condition, so honoring claims should not pose a threat to their solvency. Nonetheless, the property/casualty sector lost an estimated $12 billion in market capitalization in the days following the disaster.

But standard homeowner’s policies will not reimburse losses due to floods, and less than 20% of Houston-area residents have flood insurance. Almost all of those that do have coverage get it through the National Flood Insurance Program (NFIP). Unfortunately, the NFIP is nearly $25 billion in debt because of losses related to Hurricanes Katrina and Sandy; it will require substantial additional resources to deal with Harvey-related claims.

One reason for the program’s deficit is that the insurance it provides has been underpriced. “One-hundred year floods” occur much more often than once a century, and the damage they cause is getting progressively more severe. Global warming plays a role here; while debate continues over the proximate causes, the data clearly show that temperatures and sea levels are rising, making it easier for storms to gather strength and create flooding. The maps that guide the NFIP’s insurance rates have not kept current with these developments.