Science, Politics and the "Hurricane Deductible"

The idea that coastal property owners should bear some of the risks of the exposure to hurricanes is not particularly controversial. However, implementing policies to align risks with economic incentives can be challenging, and "Hurricane" Sandy provides a vivid case study in the importance of institutions where science meets politics.

Some 18 states implement what is called a "hurricane deductible" as part of insurance policies. While a normal deductible (i.e., the amount the homeowner must pay in the event of a loss, before the insurance kicks in) for property damage might be set at $2,000, the "hurricane deductible" says that if the event causing the loss is a "hurricane" then the deductible is instead set at a much higher level, such as $25,000.

The "hurricane deductible" became important following Sandy because just about one hour before the storm made landfall, the National Hurricane Center re-categorized the storm from a "hurricane" to a "post-tropical cyclone." Because insurance is regulated at the state level, different states have different "triggers" for the application of the "hurricane deductible." Some of these triggers are tied to wind speed, some to the issuance of hurricane warnings by the NHC, some to the storm's categorization, and so on. New York, for example, does not have a single trigger for the state but allows each company to set up a trigger (the mish-mash of approaches can be seen here in PDF).

For a storm like Sandy the invocation of the "hurricane deductible" is a decision with tens of billions of dollars in consequences, as losses were spread over hundreds of thousands of homes. Either individual homeowners would bear these costs (if the deductibles were invoked) or insurance companies would (if they were not). Given the massive stakes, not surprisingly in the immediate aftermath of the storm politicians were quick to act.

In New Jersey Governor Chris Christie, a Republican, issued an executive order defining Sandy as a post-tropical cyclone, invoking the NHC re-categorization:

In light of the National Weather Service’s categorization of Sandy as a post-tropical storm, it shall be a violation of N.J.A.C. 11:2-42.7 for any insurer to apply a mandatory or optional hurricane deductible to the payment of claims for property damage attributable to Sandy.

US Senator Charles Schumer, a Democrat, sent a letter to NOAA (the parent agency of the NHC) reminding them of the political consequences of their storm categorization. He expalined why to a local radio station:

“Today, we’ve sent a letter to NOAA, the weather agency, as well as to the insurance companies that we’re looking over their shoulder. We want NOAA to keep this classified as a tropical storm and to save homeowners in New York and Long Island thousands of dollars and we don’t want the insurance companies to play any games.” 

A few years back, when politics-science issues were more fashionable, there might have been outrage from scientists and other observers at the idea of a US Senator "looking over the shoulder" of a federal science agency and telling it how to make a scientific judgment. But I digress.

Issues associated with the "hurricane deductible" likely played a role in NOAA's immediate reversal in setting up an assessment team to evaluate the agency's performanceon Sandy. NOAA initially established an assessment team, to be co-chaired by Mike Smith, a widely-respected and accomplished private sector meteorologist who has also been critical of NOAA at times in the past. Involving an outsider as co-chair made good sense from the standpoint of the credibility of the assessment. However, NOAA terminated the assessment almost as soon as it was created.

In his initial work on the assessment as co-chair, Smith had identified some key questions to investigate:

• Was there a decision not to call Sandy a "hurricane" regardless of its meteorological characteristics? If this decision was made, was it made Friday (October 26th) or Saturday morning? If so, who made the decision and why?
• Was this decision the reason hurricane warnings, in spite of a large and dangerous hurricane moving toward the coast, were never issued?
• Given that an obvious large and powerful hurricane was headed for the U.S. coast, why wasn't that decision reconsidered? For example, Barry Myers, the CEO of AccuWeather, urged (on the AccuWeather.com website) the immediate issuance of hurricane warnings about eight hours before landfall. Others also urged the lack of hurricane warnings to be reconsidered.

Immediately after the termination of the assessment, Rep. Paul Broun (R-GA), Chairman of the House Subcommittee on Investigations and Oversight, sent NOAA a letter asking for a range of specific details about the curious decision (letter here in PDF, the replies from NOAA are due back to Rep. Broun this Friday).

For NOAA's part, they have since reconstituted a team to investigate their performance on Sandy comprised only of government employees, and chaired by a non-meteorologist. Smith was purged as co-chair and so too were any explicit questions about Sandy's meteorological status at landfall, prompting Smith to write yesterday:

They are ignoring the elephant in the room. Was Sandy a hurricane at landfall?

All of this still matters because the NHC still has not rendered a final determination on Sandy's actual status at landfall. Such determinations are always re-evaluated in the months after a hurricane season, when there is more time and a break from the pressures of an operational forecasting environment. The NHC explained this at the time it announced the re-categorization just before Sandy's landfall:

ALL OF THESE CONSIDERATIONS LEAD US TO CONCLUDE THAT
THE MOST APPROPRIATE CLASSIFICATION AT ADVISORY TIME IS
EXTRATROPICAL.  HOWEVER...FOR CONTINUITY OF SERVICE NHC WILL
CONTINUE TO ISSUE ADVISORIES THROUGH LANDFALL.  A POST-STORM
ANALYSIS WILL RE-EXAMINE THE TIMING OF EXTRATROPICAL TRANSITION.  

While I have every confidence in the scientists at NHC, can you imagine the consequences if they were to re-categorize Sandy as hurricane at landfall? The implications would be enormous and the political fallout immense.

We have here a situation where state and federal policy makers have already made judgments about what the science should say (for a longer list of state actions see this) yet the actual science is not yet completely in. This situation illustrates that the NHC is not well structured to play a key role in regulatory-type decision making. This is not the fault of NOAA of the NHC, but the policy makers who put NHC in such a position via policy. Accompanying the questions about Sandy's status at landfall is the messy prospect of NOAA appearing as if to cancel a partially-independent assessment for fear of the questions being asked, and replacing it with a plain-vanilla committee with a plain-vanilla mandate.

I have no opinion on (or much interest in, actually) the substantive judgment about whether Sandy should have triggered "hurricane deductibles" or not -- I have heard from experts arguments on both sides. The larger point that I am focused on is the process through which hurricane risks are translated into homeowner incentives as a case study in the institutional design of processes meant to bring science into policy making. Unfortunately, it appears that in this case weak policy design at the science-policy interface means that the role of science is far less than might have been hoped for, with political considerations instead driving the process. Worse still, NOAA faces the prospect of a scandal of some sorts based on its efforts to escape the political battles. All around, not good.