DI Digest Idea 4 Nov 97

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4.	Flood Compensation: Perverse Subsidy?
	Why not insure against flood? Insurance is the sharing of risk. Individuals pay an annual premium to protect their property, crops or life. These funds are pooled, and used to reimburse the few individuals who suffer from unusual or catastrophic events. In effect, those contributors who are financially hit are compensated by all those who are not. The industry consists of three main players: individual policy-holders, the primary insurers (insurance companies) and re-insurers (insurance companies which insure the primary insurers). An insurance company re-insures itself against an unusually large number of claims, from widespread storm or drought for example, by itself taking out insurance with a re-insurance company. Four European and US re-insurance companies dominate the world market, which is becoming increasingly unwilling to cover weather-related damage such as floods. Worldwide, the insurance industry took losses of $200 billion from bad weather in 1991-97, paying out $16 billion in US claims alone for Hurricane Andrew in 1992. Even against the global insurance turnover of $1,400 billion, these figures are not small. The trouble with flood insurance is that floods are relatively predictable, if your house is in a flood-plain, it is likely to get flooded in a flood, and if it isn't, it won't. Some areas flood often: Bangladesh had severe floods in 1954, 1955, 1961, 1962, 1968, 1969, 1970, 1971, 1974, 1987 and 1988 - the 1988 floods directly affected nearly half the population. So if you do live in a flood-prone area, you are unlikely to get flood insurance except at a ridiculously high price, and if you don't, you probably don't need it. Not surprisingly, in many countries flood insurance is not available on the consumer market. In some places the government operates a flood compensation scheme. In the USA, there is federal disaster relief (80% goes on floods), and taxpayer-subsidized flood insurance (which has had to borrow $442 million from the Treasury in the past two years to pay claims). Nearly half the payouts from US flood insurance goes to repeat flood victims - who make up a mere 2% of policy-holders. Some argue that both flood insurance and government flood assistance are a form of perverse subsidy, publicly-funded support for activities which undermine sustainable development. Flood assistance, they say, encourages people to live in flood-prone areas, discourages them from flood-proofing their homes, and increases political pressure to build on flood-plains. More flood-plain buildings, more drainage of riverside wetlands, more floods: a classic downward spiral of environmental degradation. This is, perhaps, a somewhat Northern and market-oriented analysis. Those hit by floods in a South-African township or Rio de Janeiro favela, tend to be the poorest in society. They can't afford flood insurance, almost never get government flood compensation, and have no realistic option of moving somewhere safer. [flood assistance can support downward spiral of environmental degradation] FLOODFACTS Northern China's Huang He (Yellow River) erodes so much of the region's yellow loose soils that silt is continually deposited on the river bed, which rises steadily. Across much of its flood-plain the Huang He is 25 meters or more above the surrounding fields. Bangladesh has experienced 11 severe floods since 1954. For example, in 1970, a storm surge from a Bay of Bengal cyclone coincided with both high tide and peak flows down the Ganges and Brahmaputra river systems. Some 13 million Bangledeshi then lived less than 10 feet (3 meters) above sea level. Between 150,000 and 300,000 died.
	urban tsunami n. - the effects of the extra 2.5 billion people expected over the next 30 years in Third World cities, mainly in Asia.
	Hulsey, Brett. Subsidizing Disaster: How your tax money and weak wetland protection increase your risk of being flooded. Madison, WI: Sierra Club, 1997.
*Virtual Idea*	Floodplain Management and Assistance in the USA FEMA USA - Flood Mitigation Information.