Hurricane Sandy and 2012's Other Natural Disasters Could Cost Homeowners for Years to Come

Mother Nature certainly made herself known in 2012, unleashing unusually destructive wildfires and storms across the U.S. Hurricane Sandy alone caused up to $50 billion in damage. While the spate of disasters weighs on homeowners in the near-term in the form of reconstruction costs, it may have significant long-term effects on homeowners and federal, state and local government.

2012's natural disasters could spur some homeowners and governments to take more precautionary measures to protect their properties against damage, experts say. And, though insurers may not want to admit it, their specter could nudge up insurance premiums.

Dr. Tom Jeffery, chief hazard scientist at analytics firm CoreLogic, says that this year's disasters are likely to persuade more city and state governments to hedge their bets against the possibility of severe weather.

"Homeowners really don't have any way to avoid having a hurricane occur, but certainly, as New Orleans has proven, you can build and develop mitigation measures," he said. "With the amount of damage that was done with Sandy, it does become cost-effective to start to consider those things."

Mitigation measures could include building levees in areas recently discovered to be flood-prone, artificial berms and pumping systems. Water-risk management experts already have called for the construction of a water barrier that could stave off potential storm-surge damage in New York City.

"Hurricane Sandy, just one year removed from the devastation in the Northeast from Hurricane Irene, demonstrated the importance of preparation for events that are possible, even though they may not have a high statistical probability," wrote Jeffery in "CoreLogic 2012 Natural Hazard Risk Summary and Analysis," a report released by CoreLogic on Thursday.

It's possible more homeowners may also take additional measures to protect their homes, and that buyers may steer clear of regions that are now known to be susceptible to disasters. But Jeffery says that history shows that disasters don't seem to affect buying or building activity as much as one might think.

"In the aftermath of hurricanes, there's an awful lot of damage," he said. "Yet it doesn't seem to deter anybody from wanting to build on the coast where they have a beautiful scenic view."

In the case of wildfires, which in 2012 caused the third-highest loss of acreage in more than 50 years, governments are likely to ramp up efforts to reduce flammable matter in fire-prone areas. And homeowners, wary of last year's damage, may be more inclined to adopt the practice, he added.

Reducing the amount of natural material that fuels wildfires is a change from previous strategy, which stressed fire prevention, he said. "We had Smokey the Bear syndrome," he said. "That's kind of gone by the wayside."

Insurance Premiums Could Rise

2012's natural disasters could also push flood insurance premiums higher. Premiums are set by the Federal Emergency Management Agency's National Flood Insurance Program -- the sole provider of primary flood insurance to homeowners. (Homeowners can also purchase additional "excess flood insurance" offered by private companies for damage that may exceed FEMA's coverage cap of $250,000 in building damage and $100,000 in personal property damage.)

Premiums on flood insurance for secondary homes already are set to rise because of recent legislation that eliminated subsidies provided by FEMA under the National Flood Insurance Program.

There's been a "recent push by the government to make the flood insurance program self-sustaining rather than heavily subsidized," said Burl Daniel, an insurance expert in Fort Worth, Texas.

A bill that passed Friday granting permission to FEMA, already reportedly $18 billion in debt, to borrow up to $9.7 billion to pay Hurricane Sandy claims may only increase calls for the NFIP to become self-sufficient. That could translate into higher premiums on the primary residences of many homeowners.

FEMA would not comment on the possibility of raising premiums, calling it a "longer-term" issue. But a spokesman did say that FEMA is attempting to spread word of "advisory base flood elevation" guidelines to homeowners in Sandy-impacted regions. Residents there would be well-advised to heed the guidelines, he said.

"If the Advisory Base Flood Elevation indicates a higher flood risk and a homeowner doesn't adequately elevate to mitigate that risk, when the flood maps are revised, they could face higher rates for being below the base flood elevation," he said.

Private insurers, which service FEMA's flood insurance for customers, could also alter premiums if it's discovered that premiums didn't properly reflect certain properties' flood risks, Daniel added.

To correct errors, they would have to raise insurance rates of some customers.

Homeowner's insurance premiums are even more likely to rise in areas hit by Hurricane Sandy, Daniel said. "The portion of the premium that goes to pay windstorm claims could rise over time," he said.

That's because the portion of premiums that cover wind-damage claims is determined using loss data usually spread over a 10-year period. In contrast, flood insurance premiums are based on the likelihood of flood damages over a 100-year period. Sandy's claims may have more of an impact on a 10-year average used to determine windstorm premiums than on a 100-year average used to calculate flood insurance premiums.

Allstate, a provider of homeowner's insurance, would not comment on whether it might raise homeowners insurance premiums in Sandy-affected areas. But it did say that "Allstate's prices need to reflect the costs of providing home insurance."

Hurricane Sandy's Wrath, and the Aftermath
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Hurricane Sandy and 2012's Other Natural Disasters Could Cost Homeowners for Years to Come

A National Guard Humvee travels through high water Tuesday during a patrol to check the effects of Hurricane Sandy in Ocean City, Md.

This photo provided by Philadelphia's WPVI-TV shows the Inlet section of Atlantic City, N.J., as Hurricane Sandy makes it approach on Monday.

A woman is lifted into a National Guard vehicle after leaving her flooded home Tuesday at the Metropolitan Trailer Park in Moonachie, N.J.

Boats are left piled on each other in Brick, N.J., on Tuesday after Hurricane Sandy struck.

The Kunta Kinte-Alex Haley Memorial sits in floodwaters in downtown Annapolis, Md., on Tuesday, after the superstorm and remnants of Hurricane Sandy passed through that city.

Ocean City municipal employees Michael Brown, left, and Enos Jones fill a truck with debris as they clean the boardwalk Tuesday after the effects of Hurricane Sandy in Ocean City, Md.

A woman rides her bicycle through a flooded street in the Red Hook section of Brooklyn on Tuesday after Hurricane Sandy caused extensive damage in New York City.

This photo taken Tuesday in New York City shows what appear to be transformers exploding after much of lower Manhattan lost power during Hurricane Sandy. Much of New York was plunged into darkness Monday by a superstorm that overflowed the city's historic waterfront, flooded the financial district and subway tunnels and cut power to nearly a million people.

One World Trade Center and large portions of lower Manhattan and Hoboken, N.J., are seen without power from Jersey City, N.J., on Tuesday.

In New York City, an uprooted tree blocks 7th street near Avenue D in the East Village as a result of high winds from Hurricane Sandy on Monday.

Sailboats rock in choppy water at a dock along the New York's Hudson River Greenway during the storm on Monday.

The facade of a four-story building on New York's 14th Street and 8th Avenue collapsed onto the sidewalk on Monday.

Firefighters respond Monday at the scene of the building collapse on 14th Street and 8th Avenue in New York.

John Constantine makes his way out of his house after winds from Hurricane Sandy toppled a tree  in Andover, Mass., on Monday.

Johnny Jones watches the Indian River rise in Sussex, Del., from the longtime family home  where he and his brother, David, have spent their entire lives.

A row of houses stands in floodwaters at Grassy Sound in North Wildwood, N.J., as Hurricane Sandy pounds the East Coast on Monday.

Michael Wirtz, of Wilmington, Del., braves floodwaters and high winds that arrive with Hurricane Sandy along North Michigan Avenue in Atlantic City, N.J., on Monday.

A fallen tree rests on top of a car in the Cliffwood Beach section of Aberdeen, N.J., on Monday.

A few dozen people take refuge from Hurricane Sandy at a Red Cross shelter on Monday in Deer Park, N.Y.

A Rehoboth Beach, Del., resident watches the waves crash in Monday's storm.

Curious onlookers get a closer glimpse at rising water from the Hudson River as it overtakes a bank drive-through in Edgewater, N.J., on Monday.

Water floods Bayville Avenue in Bayville, N.Y., on Monday as a result of Hurricane Sandy.

Jake Wilkerson, 20, and Kaityln Baker, 21, both of Annapolis, Md., struggle with their umbrellas as Hurricane Sandy approaches that city on Monday.

A surfer rides a wave Monday at the Virginia Beach Fishing Pier at 15th Street in Virginia Beach, Va.

People wade and paddle down a flooded street Monday as Hurricane Sandy approaches in Lindenhurst, N.Y.

Water from the Hudson River surrounds a hotel in Edgewater, N.J., on Monday as Hurricane Sandy lashes the East Coast.

A construction crane atop a luxury high-rise dangles precariously over New York streets after collapsing in high winds from Hurricane Sandy.

A New York City firefighter and police officer look at the collapsed construction crane dangling precariously atop the luxury high-rise.

A worker clears a tree dropped by the high winds prior to landfall of Hurricane Sandy in Shrewsbury, Mass., on Monday.

A warning sign displays a directive near downtown Philadelphia ahead of Hurricane Sandy's landfall on Monday.

Lower Manhattan goes dark during hurricane Sandy on Monday, as seen from Brooklyn, N.Y.

A storm surge hits a small tree as winds from Hurricane Sandy reach Seaside Park in Bridgeport, Conn., on Monday.

As Hurricane Sandy bears down on the East Coast, Ron Croker, left, and Tim Wood, wheel a personal watercraft to a safer location in Ocean City, Md.

Trees bend in the wind and driving rain in downtown Philadelphia ahead of Hurricane Sandy's landfall on Monday.

A house is inundated by flood water as Hurricane Sandy approaches on Monday in Center Moriches, N.Y.

A couple posing for a picture get hit by a wave in Hampton, N.H., on Monday.

The storm floods streets on Monday in Hampton, N.H.

Debris and water close Virginia Dare Trail after wind and rain from Hurricane Sandy left many roads flooded and impassable in Kitty Hawk, N.C., on Monday.

A car is submerged in the Dumbo section of the Brooklyn borough of New York, as the East River overflows during Hurricane Sandy on Monday.

In this Oct. 26, 2012 photo, residents walk past tree branches and power lines felled by Hurricane Sandy in Santiago de Cuba.


See also:
Hurricane Sandy Victims' Electric Bills Show Charges for Power Despite Blackout

Hurricane Sandy Batters Home Sales in Storm-Affected Areas
Home Insurance for Hurricanes and Floods

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