1- “Can markets for flood insurance function?” That’s a question I have on my radar to try to answer and I hope that others are working on it too. I don’t think it’s clear, but I wasn’t suggesting that the Congressional meddling with the rates issue is the silver bullet. The mkt failures you raise are serious issues as is the correlated risk issue and Chivers and Flores wrote an interesting paper on a market failure in information:

http://links.jstor.org/sici?sici=0023-7639(200211)78%3A4%3C515%3AMFIITN%3E2.0.CO%3B2-B

2- You’re about right with the numbers … we have done work adjusting the disaster damage numbers and SF 1906 is the costliest disaster on record (by close to triple), 1994 Northridge is #4 and 1989 Loma Prieta is #14. Another way to look at it, though, is that the two costliest quakes on record did as much damage as the four costliest hurricanes. Total losses since 1900 are about double for hurricanes than quakes, so not a huge difference especially considering the much higher frequency of hurricanes. On an annualized basis hurricanes do 3-4 times as much damage. Point is, hurricanes are more frequent but damage potentials are on par. My nightmare scenario is Seattle getting another M9 Juan de Fuca subduction quake directly under the city. I wonder if Paulison is even aware that Seattle has such high quake risk. I wasn’t chiding Paulison for worrying about hurricanes, I was chiding him for being uncreative.

There’s clear politicization of FEMA’s flood hazard maps, but there’s also a real problem that recurrence times are nonstationary. A hundred-year flood is not a well-defined concept on a flood plain where changing land-use changes drainage properties on the decadal scale. Under these circumstances, the notion of actuarially sound rates is misleading. This uncertainty seems to be part of the problem for private insurers. Similar uncertainties about earthquake risks seem to be killing the private earthquake insurance market in California.

Finally, on setting priorities: By my reckoning, of the 13 costliest natural disasters in US history (inflation adjusted), 11 were hurricanes and 2 were earthquakes. In the last 20 years hurricanes have caused well over $200 billion in damage in the US. According to the Insurance Information Institute (http://www.iii.org/media/facts/statsbyissue/earthquakes/), a 1906-scale earthquake in San Francisco today would cause about $108 billion in damage. But even if your $200 billion figure is correct, and if this were a 100-year event, it would pale compared to hurricanes.

If, alternately, you count loss of life instead of property damage, the disparity between earthquakes and hurricanes in the US becomes even more pronounced (Of the 15 deadliest natural disasters in US history, 6 were hurricanes and 1 was an earthquake), so I don’t have a problem with FEMA concentrating on coastal hazards. I only wish it were smarter about taking anticipatory action instead of merely reacting after disaster has struck.