The Perfect Storm: 2010 Hurricane Season, the worst yet?

Hurricane Katrina was thought to be the perfect storm. It punched Louisiana and Mississippi, causing horrific loss of life, tremendous damage to homes, businesses, and infrastructure for miles, and a bruised national psyche.

But, Katrina may not be the perfect storm. The perfect storm may be coming to the Gulf of Mexico this hurricane season.

There are a number of currents that are steering this perfect storm:

The most active hurricane season in recent memory – scientists have predicted that the 2010 hurricane season, stretching from June 1 to November 30, will be very active –more active than the average for the last 50 years of the previous century. The hurricane spawning waters of the Atlantic Ocean are warm, the El Niño (the “good cholesterol” of hurricanes) is weak, and La Niña (the “bad cholesterol” of hurricanes) is expected to get strong during the peak of the hurricane season.

The greatest amount of oil spilled ever in the Gulf of Mexico – there is between 40 and 100 million gallons of oil already. The relief well is the final solution.  If it fails, the possible options are untried and dangerous. We need to make good progress on the relief well and get the leak or leaks plugged quickly. Until that happens, more and more oil continues to be released into the Gulf waters.

The lack of funding for disaster response and recovery – Katrina made clear, if a hurricane occurs, people expect their government to be available and provide help. The Federal government funds its response and recovery operations using a pool called the Disaster Relief Fund (DRF).  Normally, the DRF has sufficient funding to be able to respond quickly to any crisis. But, the DRF is currently historically low. If a hurricane occurs and FEMA has to respond, the Federal disaster till is nearly empty. Funding for the DRF is tied up as a part of the Supplemental Bill – mired in a number of controversies, including a second stimulus package and supplemental war funding for Iraq and Afghanistan.

People cannot get insurance for losses from water damage – the only source of insurance for water damage from floods or hurricanes is the Federal government. Even though people may purchase their flood insurance from a private agent, all flood insurance sold in the United States comes from the Federal government. The National Flood Insurance Program has over $1.2 trillion worth of policies in effect. But, if you want to purchase flood insurance today for a possible hurricane, you cannot. The flood insurance program has not been re-authorized by Congress. That means that if you need to change your coverage, buy flood insurance for the first time, or simply renew your flood insurance, you cannot. After Congress authorizes the program again, and you contact your agent, pray that a storm or flood doesn’t occur quickly. The policy you purchase is not effective for between one and 30 days after your apply for it.

People of the Gulf Coast are economically and emotionally exhausted – many people could not evacuate before Hurricane Katrina because the storm occurred at the end of the month – when people had already exhausted their month’s earnings. This season is occurring after a year or two of the worst economic recession this country has seen since the Great Depression. The oil spill and the drilling moratorium have further increased the economic vulnerability of Gulf Coast residents. People are not just economically hurt; they are emotionally exhausted. In the last few years, there has been a parade of storms. Starting with the 2004 hurricane season, there have been a slew of hurricanes slamming into the Gulf Coast – notable among them Ivan, Katrina, Rita, Gustav, and Ike. The people of the Gulf have displayed resilience in the face of these calamities – not the stoic calm acceptance perhaps of New Englanders facing a nor’easter, but their own peculiar cadence and rhythm of the Jazz Funeral – colorfully complaining, emotionally entreating, and hyperbolically venting. But, lest it be mistaken – they have been extraordinarily resilient and tenacious. However, the reed may have been bent as far as it can go.

State governments are suffering the worst budget woes in decades – every state along the Gulf is facing massive revenue declines and higher needs. With most state legislatures having ended their annual legislative sessions, the budget for the next state fiscal year is precariously held together with one time funding, budget acrobatics, and deep cuts to core state services. If a massive disaster looms, states lack the fiscal flexibility to pay today to be reimbursed tomorrow.

Then, there are the combinations of these forces. If a hurricane approaches the BP Oil spill, many days prior to gale force winds, people and property would need to be moved out of harm’s way. Each shutdown will require weeks for a re-start. If this happens before the relief well operation is complete, it will take longer to shut off the flow of oil. More oil will be loose in the Gulf, seeking coastal marshes and beaches.

When a major storm approaches, people along the coasts try to purchase flood insurance. They may not be able to purchase flood insurance this hurricane season, at least not until Congress re-authorizes the program, the insurance companies start selling flood insurance again, and even then it won’t go into effect until after the one to 30 day waiting period.

With some science and much imagination, many more combinations can be envisioned.

Hurricanes coming, oil floating in the Gulf, cash-strapped citizens trying to weather the weak economy, the shutdowns from oil, and the shutdowns from the drilling moratorium, some with no flood insurance protection, cash strapped State governments, and little money in the Federal coffers for response or recovery.

These are the makings of a perfect storm–and, unfortunately, it could happen during the 2010 hurricane season.


Author: Madhu Beriwal, CEO & President of IEM