The Big Uneasy

In the Westerns I watched as a boy I was fascinated by ghost towns, short-lived settlements that had been left behind by the fast pace of change on the American frontier. It was not until I went to New Orleans in the wake of Hurricane Katrina that I encountered what could very well become America's first ghost city.
I had happy if hazy memories of the 'Big Easy'. As a teenager between school and university, savouring my first taste of free­dom, I discovered it was about the only place in the United States where I could get served beer despite being underage, which certainly made the geriatric jazz musicians in Preservation Hall sound good. Twenty-five years on, and nearly two years after the great storm struck, the city is a forlorn shadow of its former self. Saint Bernard Parish was one of the districts that was worst affected by the storm. Only five homes out of around 26,000 were not flooded. In all, 1 , 8 3 6 Americans lost their lives as a result of Katrina, of whom the overwhelming majority were from

Louisiana. In Saint Bernard alone, the death toll was forty-seven. You can still the see the symbols on the doors of abandoned houses, indicating whether or not a corpse was found inside. It invites comparison with medieval England at the time of the Black Death.

When I revisited N e w Orleans in June 2007, Councilman Joey DiFatta and the rest of Saint Bernard's municipal government were still working in trailers behind their old office building, which the flood gutted. DiFatta stayed at his desk during the storm, eventually retreating to the roof as the waters kept rising. From there, he and his colleagues could only watch helplessly as their beloved neighbourhood vanished under filthy brown water.

Angered by what they saw as the incompetence of the Federal Emergency Management Agency ( F E M A ) , they resolved to re­store what had been lost. Since then, they have worked tirelessly to try to rebuild what was once a tightly knit community (many of whom, like DiFatta himself, are descended from settlers who came to Louisiana from the Canary Islands). But persuading thousands of refugees to come back to Saint Bernard has proved far from easy; two years later the parish still has only one third

of its pre-Katrina population. A large part of the problem turns out to be insurance. Today, insuring a house in Saint Bernard and other low-lying parts of N e w Orleans is virtually impossible.

And without buildings insurance, it is virtually impossible to get a mortgage.

Nearly all the survivors of Katrina lost property in the disaster, since nearly three quarters of the city's total housing stock were damaged. There were no fewer than 1.75 million property and casualty claims, with estimated insurance losses in excess of $ 41 billion, making Katrina the costliest catastrophe in modern American history. But Katrina not only submerged N e w Orleans. It also laid bare the defects of a system of insurance that divided responsibility between private insurance companies, which

offered protection against wind damage, and the federal government, which offered protection against flooding, under a scheme that had been introduced after Hurricane Betsy in 1965. In the aftermath of the 2005 disaster, thousands of insurance company assessors fanned out along the Louisiana and Mississippi coast-line. According to many residents, their job was not to help stricken policy-holders but to avoid paying out to them by asserting that the damage their properties had suffered was due

to flooding and not to wind. The insurance companies did not reckon with one of their policy-holders, former US Navy pilot and celebrity lawyer Richard F. Scruggs, the man once known as the King of Torts.

New Orleans after Katrina: where insurance failed

It may sound like just another story of Southern moral laxity - or proof that those who live by the tort, die by the tort. Yet, regardless of Scruggs's descent from good fellow to bad felon, the fact remains that both State Farm and All State have now declared a large part of the Gulf of Mexico coast a 'no insurance' zone. Why risk renewing policies here, where natural disasters happen all too often and where, after the disaster, companies have to contend with the likes of Dickie Scruggs? The strong

implication would seem to be that providing coverage to the inhabitants of places like Pascagoula and Saint Bernard is no longer something the private sector is prepared to do. Yet it is far from clear that American legislators are ready to take on the liabilities implied by a further extension of public insurance.

Total non-insured damages arising from hurricanes in 2005 are likely to end up costing the federal government at least $ 1 0 9 billion in post-disaster assistance and $8 billion in tax relief, nearly three times the estimated insurance losses. According to Naomi Klein, this is symptomatic of a dysfunctional 'Disaster Capitalism Complex', which generates private profits for some, but leaves taxpayers to foot the true costs of catastrophe. In the face of such ruinous bills, what is the right way to proceed? When

insurance fails, is the only alternative, in effect, to nationalize all natural disasters - creating a huge open-ended liability for governments?

Of course, life has always been dangerous. There have always been hurricanes, just as there have always been wars, plagues and famines. And disasters can be small private affairs as well as big

public ones. Every day, men and women fall ill or are injured and suddenly can no longer work. We all get old and lose the strength to earn our daily bread. An unlucky few are born unable to fend for themselves. And sooner or later we all die, often leaving one or more dependants behind us. The key point is that few of these calamities are random events. The incidence of hurricanes has a certain regularity like the incidence of disease and death. In every decade since the 1850s the United States has been struck by between one and ten major hurricanes (defined as a storm with wind speeds above 1 1 0 mph and a storm surge above 8 feet). It is not yet clear that the present decade will beat the record of the

1940s, which saw ten such hurricanes. Because there are data covering a century and a half, it is possible to attach probabilities to the incidence and scale of hurricanes. The US Army Corps of Engineers described Hurricane Katrina as a 1-in-396 storm, meaning that there is a 0.25 per cent chance of such a large hurricane striking the United States in any given year. A rather different view was taken by the company Risk Management Sol­utions, which judged a Katrina-sized hurricane to be a once-in-

forty-years event just a few weeks before the storm struck. These different assessments indicate that, like earthquakes and wars, hurricanes may belong more in the realm of uncertainty than of risk properly understood. Such probabilities can be calculated with greater precision for most of the other risks that people face mainly because they are more frequent, so statistical patterns are easier to discern. The average American's lifetime risk of death from exposure to forces of nature, including all kinds of natural disaster, has been estimated at 1 in 3,288. The equivalent figure for death due to a fire in a building is i in 1 , 3 5 8 . The odds of the average American being shot to death are 1 in 3 1 4 . But he or she is even more likely to commit suicide (1 in 1 1 9 ) ; more likely still to die in a fatal road accident (1 in 78); and most likely of all to die of cancer (1 in 5 ) .

In pre-modern agricultural societies, nearly everyone was at substantial risk from premature death due to malnutrition or disease, to say nothing of war. People in those days could do much less than later generations in the way of prophylaxis. They relied much more on seeking to propitiate the gods or God who, they conjectured, determined the incidence of famines, plagues and invasions. Only slowly did men appreciate the significance of measurable regularities in the weather, crop yields and infections.

Only very belatedly - in the eighteenth and nineteenth centuries - did they begin systematically to record rainfall, harvests and mortality in a way that made probabilistic calculation possible.

Yet, even before they did so, they understood the wisdom of saving: putting money aside for the proverbial (and in agricultural societies literal) extreme rainy day. Most primitive societies at least attempt to hoard food and other provisions to tide them over hard times. And our tribal species intuitively grasped from the earliest times that it makes sense to pool resources, since there is genuine safety in numbers. Appropriately, given our ancestors' chronic vulnerability, the earliest forms of insurance were prob­ably burial societies, which set aside resources to guarantee a tribe member a decent interment. (Such societies remain the only form of financial institution in some of the poorest parts of East Africa.) Saving in advance of probable future adversity remains the fundamental principle of insurance, whether it is against death, the effects of old age, sickness or accident. The trick is

knowing how much to save and what to do with those savings to ensure that, unlike in N e w Orleans after Katrina, there is enough money in the kitty to cover the costs of catastrophe when it strikes. But to do that, you need to be more than usually canny. And that provides an important clue as to just where the history of insurance had its origins. Where else but in bonny, canny Scotland?