Insurance against Disaster

The death toll from the Los Angeles earthquake is nearing that of the Loma Prieta temblor that rocked the San Francisco area only four years ago. It is a stern reminder of the unfinished business in quake-proofing California freeways and buildings and of the increasing frequency of these huge natural disasters.

The latest big earthquake is also an urgent reminder of the need for a national disaster insurance program, which would reduce the taxpayer burden for disaster relief and force those in flood, earthquake or hurricane zones to buy risk-based, market-cost insurance. No longer can the nation, and those living in high-risk areas, view these calamities as once-in-a-lifetime accidents of nature that are worthy of emergency bailouts.


Property damage in Southern California is estimated to exceed $30 billion -- as much as Hurricane Andrew inflicted on the Southeast in 1992. Californians may shoulder the human burden of this loss but federal aid, grants and loans will cover the lion's share of the economic losses, as was the case in Florida and in the Midwest flooding last year. And that, in turn, will reduce the incentives for residents of those areas to take necessary precautions against the next occurrence.

One solution is to require people living in risk areas, whether flood or earthquake or volcano or hurricane, to have basic disaster insurance. That would spread the risks and costs, and lower individual premiums, while reducing the claim on the federal treasury for emergency relief.


The national disaster protection bill now before Congress aims to meet this objective. It has the backing of state insurance officials, consumer groups and insurers. It would create a national reinsurance fund, financed by insurance company premiums, that would help to make disaster insurance available in all parts of the country. Premium taxes would also provide states and localities assistance in enforcing tougher building codes and developing emergency plans.

States that did not bring their building and safety codes up to standard would be denied certain federal disaster relief funds. So would individuals who chose not to carry disaster insurance. Sponsors of the bill claim cumulative federal savings of more than $7 billion over five years.

Rates would vary with the risks of the area; people in Baltimore would pay less than residents of Ocean City or Miami.

Fewer than a quarter of Californians and a quarter of those in the Midwest flood plain now carry disaster insurance; the rest depend on government relief. The natural disaster protection bill would enable them, and prod them, to protect themselves against the danger that they know is waiting to strike once again.