Thursday, May 28, 2015
Monday, February 23, 2015
The folks at the Program for the Study of Developed Shorelines (who maintain the Beach Nourishment viewer highlighted in my last post) have kindly shared some data with me. Below are a couple of graphs analyzing their data.
I am grateful for their taking the moment to chat with me and a beach nourishment 101 explanation. Any error in interpretation here is mine alone.
The Beach Nourishment viewer keeps track of nourishment "episodes." This is different from projects.
The US Corps of Engineers (USACE) is responsible for most beach nourishment projects. When they propose a project to Congress for funding the entire project may contain many episodes. For instance, the hypothetical "New America Beach Project" includes three episodes in which sand will be placed at the June, July, and August Beaches.
As well, this data contains episodes that include navigation projects in which dredge material from a channel was put on a beach. USACE does not consider such methods as beach nourishment just navigation.
So, some differences in definition exist depending on where you get your data and you you talk to.
The first graph shows number of beach nourishment episodes indexed to the average number per year. Clearly, there is an increase in the number of beach episodes each year over time.
It is generally accepted that the first beach nourishment project was on Coney Island in 1923. This was done at the expense of local government to build up tourism to the area- the project allowed for the famous Coney Island boardwalk..
But beach nourishment didn't really get going as public policy activity until the 1950s.
In the past (though perhaps not so much today), most nourishment projects were characterized as flood control measures. Around the 1950's the federal government began receiving a lot of pressure to step in an help out with disaster relief and prevention. I am under the impression that this is why one sees an amp up in nourishment projects around the same time.
Thus, I divided the data in the top graph into a smaller subset in the bottom graph. The year 1955 is an arbitrary start point for 'some time in the 1950's'.
Over the entire dataset there is an average of 21.6 episodes per year. Some years see a tripling and many years are around 50% -100% above average.
Over the 1955-2014 time period there is an average 31.3 episodes per year. The number of projects varies by about 50%, give or take, around the average with some years seeing a doubling of episodes.
Roughly the same can be said for the total cost per year in the next set of graphs (regardless of government cost share).
Since 1955, the average annual cost of episodes is about $196M. Since about 2000, there appears a generality that most years are about 50% more than the average with a couple years at twice the average annual cost.
The final graphs in the series show the annual cost per year of episodes as a percent of national GDP.
It also shows a bit why I became more curious about the 1950's affect.
The average cost of beach nourishment as a percent of GDP over the entire time series is ~0.003%.
The top graph shows that over the whole data series, the annual cost of nourishment projects has a percent of GDP has decreased. But notice that some early episode years, when the economy was much smaller, the total cost constituted much larger percentages of GDP.
After the WWII our economy grew substantially. Since 1955, the cost of beach nourishment as a percent of GDP shows no trend.
I don't know what this means, if anything, for policy or society.
However, what the data seems to demonstrate is that the nation spends an increasing amount of funds on beach nourishment but this total amount is bound by economic growth (as measured here by GDP). As a constant proportion of GDP, so long as the economy grows, perhaps funding for beach nourishment will too.
Tuesday, February 10, 2015
The Program for the Study of Developed Shorelines at Western Carolina University has a Beach Nourishment Viewer.
It is a cool tool that demonstrates where nourishment projects have occurred and how much it cost in real and nominal US dollar amounts. Very cool.
For instance, the south end of Figure Eight Island in NC appears to have had several nourishment efforts since the late 1970's for a total of $6.3M in 2013 dollars.
Monday, February 9, 2015
While I am settling in at work and developing a new web site. I will keep notes here.
Back in 1968, Congress passed a ginormous collection of laws better known as the Housing and Urban Development Act of 1968. Within this stack of legislation were two important insurance items: 1) The National Flood Insurance Program (NFIP) and 2) FAIR plan legislation.
Both of these programs were considered key to ensuring the stability and continued growth of the housing market. Several flood/hurricane events led insurers to pull out of coastal areas (example Hurricane Betsy). Also during this time, there was a great amount of civil unrest. Insurers began 'redlining' or rather pulling out of urban areas considered too high risk for riot (and therefore fire, vandalism, etc).
Collectively, legislators considered this a serious economic problem threatening the ability of a great many homeowners to maintain their mortgage. Also, any inability to access insurance in certain areas stymied real estate growth in those areas. The ultimate goal for policymakers was to ensure continued access to "essential property insurance" which included extended coverage (that is, the part of homeowners that covers windstorm).
The compromise between Congress and the States was a federally backed riot reinsurance and state run Fair plans. The deal was that if a state wanted to partake in the riot reinsurance program then they had to provide Fair Plans which would "make essential property insurance more readily available in, but not necessarily limited to, urban areas."
To exemplify what happens in areas that cannot get insurance take a look at google satellite photos of COBRA zones. My understanding is that it's not that people can't build in these areas it's that they can't get insurance or federal funding of any kind in these areas. In general, they remain undeveloped.
This enabled and/or led the way for states to create Joint Underwriting Associations and ultimately, "Beach Plans" or rather, joint underwriting associations that covered legislatively defined coastal areas. While the statute creating the Riot Reinsurance program expired in or around 1983, the state organized JUAs continued on.
North Carolina still has both a FAIR plan and a beach plan the North Carolina Insurance Underwriting Association (NCIUA). I'm interested in the latter.
The guiding mandate (STAT. 58-45-1) of the NCIUA is as follows:
It is hereby declared by the General Assembly of North Carolina that an adequate market for essential property insurance is necessary to the economic welfare of the beach and coastal areas of the State of North Carolina and that without such insurance the orderly growth and development of those areas would be severely impeded; that furthermore, adequate insurance upon property in the beach and coastal areas is necessary to enable homeowners and commercial owners to obtain financing for the purchase and improvement of their property; and that while the need for such insurance is increasing, the market for such insurance is not adequate and is likely to become less adequate in the future; and that the present plans to provide adequate insurance on property in the beach and coastal areas, while deserving praise, have not been sufficient to meet the needs of this area. It is further declared that the State has an obligation to provide an equitable method whereby every licensed insurer writing essential property insurance in North Carolina is required to meet its public responsibility instead of shifting the burden to a few willing and public-spirited insurers. It is the purpose of this Article to accept this obligation and to provide a mandatory program to assure an adequate market for essential property insurance in the beach and coastal areas of North Carolina. (emphasis mine)So, there should be no mistaking that NC has every intent of developing its coastline with property in some way shape or form and the state has taken a leading role in ensuring that coastal risk is spread, shared or otherwise "insured."
It's not that NCIUA causes development. But, the historical precedent is set that it will not be the cause of limiting property development. No residual market stemming from this era would.
Some info about NCIUA ratemaking...
NCIUA rating statutes is 58-45-45. It is really this that I find interesting. It starts out same old, same old: "Rates shall not be excessive, inadequate, or unfairly discriminatory. Except as provided in subsections (a1), (a2), and (b)." (emphasis mine)
I am not fully knowledgeable of rating regulation throughout the nation, but I think the "except" is noteworthy. For those that think "insurer of last resort" a meaningful battle cry, then this is probably a cherished piece of legislation. The surcharge ensures that NCIUA can never undercut the regular private market.
Section (a1) is most notable:
The Association's rates shall be the North Carolina Rate Bureau Manual Rates plus a surcharge of five percent (5%) of the applicable North Carolina Rate Bureau Manual Rate for wind and hail coverage and a surcharge of fifteen percent (15%) of the applicable North Carolina Rate Bureau Manual Rate for homeowners' insurance including wind and hail coverage. It is the intent of the General Assembly that these surcharges ensure that the Coastal Property Insurance Pool is the market of last resort over and above the manual rate.The thing is, and likely reasonably so, the Bureau and the Commissioner still control the basic rate prior to the surcharge.
Even granted the surcharge, we can argue about the underlying rate AND a commissioner or some other can mess around with the coastal rate to make sure the surcharge isn't burdensome- (kinda like what they do in Florida with assessments).
One can see a little of this messing around in the Bureaus' January 2014 to the Insurance Commissioners' order (I believe a request for more information).
There the Bureau discusses their hurricane rate making practices. They use the AIR model.
Quite comical is the challenge to the scientific integrity of the model. For instance,
The AIR hurricane model has allegedly been extensively peer reviewed..." (emphasis mine).Really?! Come on now. So many other bones to pick with a model and the model decision process then whether or not it is actually peer reviewed. Most certainly, the model has been peer reviewed and is built on peer reviewed literature. Now whether that matters for what someone is trying to do or say is a separate issue.
Elsewhere, the Bureau challenges the integrity of John Rollins' review of the model because he
"... is a former employee of AIR making his "independence" somewhat questionable."Indeed, he is a former employee, Vice President actually. But also one of the best in the business on cat models and residual markets.
But, this is of no help in examining the interface of ratemaking and public politics.
While the Bureau plays the very NC card of questioning the legitimacy of the science, they outlines reasoning for all these decisions and they describe all of their own decisions they had to make in determining how best to come up with their rate requests.
For instance, they ran the AIR model using the standard catalog not the warm water catalog. This seems fairly standard for residual markets but is contrary (and one of the biggest gripes) to the private insurance and reinsurance industry.
The Bureau also excluded experienced historical losses (kinda of a weird move, I think) from the process of developing rates. There are a bunch of other decisions too no doubt steeped in expert judgement.
So, just to wrap up...
Despite an effort to keep up appearances about a NCIUA that doesn't run counter to the private market, great effort is put towards ensuring that hurricane insurance rates are 'just so' or rather, just politically acceptable.
Sunday, February 1, 2015
As I work on a new website, I'll just update here.
I have an op-ed in the Wilmington Star News.
The article reflects on the much anticipated and debated update of the 2010 North Carolina Sea-Level Rise Assessment Report. The update has entered into a year long scientific review/negotiation process. The finalized version is expected in 2016...just in time for the next gubernatorial race.
My op-ed argues that the issues at stake in coastal development are far greater than revealed by the political focus on the science of sea level. I n order to improve the democratic process and ensure the public has a say in how their community develops, the conversation must move away from a rate war and onto a debate for the environmental, economic and cultural future of the coast. Science alone cannot make these moral decisions.
The whole article is here: When science meets politics.
Wednesday, January 21, 2015
Whoa! I didn't realize it has been quite has long as it has.
Well, at the start of this year I took up an Assistant Professor position of Coastal and Ocean Policy in the Department of Public and International Affairs at the University of North Carolina Wilmington.
As I am making this transition, I am also redesigning my 'internet presence.'
I'm thinking of redirecting the blog too. Maybe something that also reflects a transition from student to professor. Hmmm, we'll see...