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.”

As the globe warms, rising rates will accelerate the depopulation of places like Key West. Residents will find themselves in a losing battle against the cost of living. Vacation homes, which already make up a large proportion of the town’s houses and apartments, will multiply as the remaining members of the middle class gradually give way to those who can afford the insurance.

The transformation will start slowly. Those who have paid off their mortgages may choose to go without coverage. But when a big storm hits, those who find it impossible to rebuild will give way to those who can afford to write off the risk.

All along the coast, climate change will transform a way of life.

“I think this will lead to development coming in the form of high-rise condos instead of individual homes,” said Becky Mowbray, the insurance reporter for the Times-Picayune in New Orleans.

“While tall steel and concrete buildings are more intrusive than small, lowslung homes, condos could be good from an environmental perspective, because it could turn more land back to nature," Mowbray said. "However, I can also imagine that it could turn beachfront vacationing into more of a class/luxury issue than it has been in the past, since only the wealthy could afford to buy at the beach. My bet is that the mountains become the new retirement destinations of choice because of the rising cost of insurance and development at the coast — I think the Florida retirement dream is over.”

After Katrina, some in New Orleans questioned the wisdom of rebuilding a coastal city so prone to devastating floods.

The idea was too controversial to gain any political support, but the post-storm economics are having a greater impact than any government policy could have. Recovery has been slower in the city center, but the higher ground across Lake Pontchartrain has boomed.

The largely white suburbs of St. Tammany Parish have been the only part of the hurricane-hit region to gain population since the storm.

“I don’t think the city of New Orleans will in my lifetime get back to much over 300,000 people,” Ivan Miestchovich, the director of the Center for Economic Development at the University of New Orleans, told National Public Radio.

“The downtown is going to be convention-oriented, tourist-and-visitor oriented. It will still have a role to play in financial services and banking," Miestchovich said. "But that said, most of those will have some kind of a satellite arrangement somewhere else.”

Mowbray had this to say about the Key West-New Orleans comparison: “If rising insurance rates will help turn cool Key West into more of a second-home resort playground for the rich, what happens when the same dynamics are unleashed on one of the poorest metropolitan areas in the country?” 

“Part of what made New Orleans such an authentic tourism destination was that it was affordable, and real musicians could afford to live there," she said. "What happens if they can’t return? And while the wealthy may be willing to pay whatever it costs for a water view in Key West, you can’t run a city like New Orleans, which stands on tourism, oil, and shipping, without workers.

“I believe these higher rates are here to stay, which will push development inland as living in New Orleans or elsewhere on the coast becomes less affordable,” she said.

“That puts centuries of investment in New Orleans at risk, and I believe will create a more car-dependent commuter culture as the density of the city is zapped and housing and development spread between [the nearby suburban cities of] Baton Rouge and Covington.”  

Forecast: The global consequences of climate change

Part 1: Why America Should Care
The Florida Keys are sinking
Can insurance cover the costs of climate change?
Who will be able to afford to live on the coast?

Part 2: The Spread of Disease
Pathogens find new habitats
Countries could backslide into poverty
How disease relates to carbon dioxide

Part 3: The Arctic Melt
Easier passage through the Arctic
A scramble for control of the Arctic
Opening the Arctic to damage

(Stephan Faris is the GlobalPost environment correspondent. Click here to buy his new book, "Forecast: The Consequences of Climate Change, from the Amazon to the Arctic, from Darfur to Napa Valley.")

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