Wednesday, August 31, 2005

Implications of the Katrina disaster

The national guard is so drawn down by the Afghantistan and Iraq wars the DOD will send in regular troops from the already undermanned Northern Command.

Likely the levees will be unrepairable because of lack of maintainance and planning for a catastrophe of this magnitude. Several years ago I visited the Army Corps of Engineers lab and exhibit in Vicksburg on the management of Misssissippi River. While quite sophisticated, the focus of the Corps efforts was on maintaining and improving the shipping channels rather than anticipating a mass flooding disaster like Katrina's.

Most homeowners and businesses will take a total loss because conventional homeowners insurance does not cover flood losses. Such coverage is sold by a federally sponsored high risk insurance pool which charges very high premiums. It's quite similar to California's state sponsored earthquake insurance program. Not only is the latter very expensive but the coverage is very barebones--a 15% deductible, pays actual cash value rather than replacement costs, and allots only a few thousand dollars for temporary relocation expenses. (My earthquake annual premium is twice my homeowner's.)

Louisiana and Mississippi will suffer a double financial whammy because substantial portions of their state budgets are supported by gambling tax revenues. With the casinos in New Orleans and much of the lower Mississippi River river towns destroyed by the flooding, they'll sustain catastrophe tax losses. Won't be easy to convince their voters to pony up for higher personal taxes.
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