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Forecast: Who will be able to afford to live on the coast?

Part 1: Why America should care.

As the world warms, the American middle class might be squeezed out of coastal areas by those who can afford the higher insurance premiums that will be required to live there.

NEW ORLEANS — More than half of Americans live within 50 miles of a coast.

Increasingly, they will be feeling the squeeze of global climate change.

Before Hurricane Katrina, the most expensive storm in history was Hurricane Andrew, which slammed into Florida south of Miami in 1992, killing 65 people and causing $26.5 billion in damage.

Since then, the population of the state has grown 30 percent. According to one study, if the same storm were to hit today, losses would reach $55 billion.

“People quite literally don’t care how many hurricanes hit the state or how dangerous it is,” said Robert Hartwig, chief economist at Insurance Information Institute, an industry association.

“So strong is the lure of the sea, apparently, that people discount and are willing to ignore the risks of coastal living.”

But the tide is turning. People are able to disregard storm dangers as long as they’re abstract.
Insurance premiums, however, make them concrete.

In 2006, more people moved out of Florida than into it. The population of the Keys has dropped 6 percent since the last census. Between 2005 and 2006, when local lobbying brought a reprieve from rising premiums, nearly 8,000 people fled Key West.

Yet coastal insurance may, if anything, be artificially low. Even with the higher premiums, there’s a shortage of insurance companies willing to take the risk.

The majority of home and business owners in places like Key West and New Orleans are covered by government-run carriers. With rates set as much by political as actuarial concerns, the result is huge exposure, which ultimately falls on the taxpayer.

The 2005 storm season pushed the National Flood Insurance Program $20 billion into the red. In 2006, Florida state officials kept their fingers crossed and hoped for the best. The state insurer had written more than $400 billion in policies, and a major storm would have overwhelmed the plan. A catastrophic one could have bankrupted the entire state. “Ultimately an insurer’s rates have to reflect the risk,” Hartwig said. “If they don’t, the insurer cannot operate. He couldn’t make good on his obligations.”