THE PREDICTION RACKET: Constructing, Characterizing and Governing Florida’s Hurricane Risk by Jessica L. Weinkle B.S., University of Texas at Austin, 2003 M.A., Columbia University, 2005 A thesis submitted to the Faculty of the Graduate School of the University of Colorado in partial fulfillment of the requirement for the degree of Doctor of Philosophy Environmental Studies Program 2013 This thesis entitled: The Prediction Racket: Constructing, Characterizing and Governing Florida’s Hurricane Risk written by Jessica L. Weinkle has been approved for the Environmental Studies Program. ________________________________________________ Roger A. Pielke, Jr. ________________________________________________ Lisa Dilling October 8, 2013 The final copy of this thesis has been examined by the signatories, and we find that both the content and the form meet acceptable presentation standards of scholarly work in the above mentioned discipline. IRB protocol # 12-0581 iii Abstract Jessica L. Weinkle, (Ph.D., Environmental Studies) The Prediction Racket: Constructing, Characterizing, and Governing Florida’s Hurricane Risk Dissertation directed by Professor Roger Pielke, Jr. The prediction racket describes a situation in Florida where insurance rate decision makers look to catastrophe models to reduce uncertainty about future loss and in the process characterize ever more risk. To alleviate the racket’s affect on the public, the Florida legislature mandated its residual market, Citizens Property Insurance Corporation (Citizens), provide “affordable property insurance.” However, Citizens struggles to satisfy its mandate because disagreement about the risk detracts from constructive debate needed to reconcile conflict between insurer economic sustainability and insurance affordability. This undermines legislative efforts and threatens Florida’s democratic process. This dissertation examines the interrelated social and decision process of constructing understanding of the hurricane risk, negotiating its characterization, and implementing insurance. Three independent research projects address each part of the process. First, I consider the conflicting claims that hurricane losses have increased due to geophysical changes or social changes. I assemble a global dataset of hurricane landfalls and find no long-period trends, supporting earlier research conclusions that societal changes explain increasing losses. Second, I present the ratemaking process as wholly political and examine the role of catastrophe models in the evolution of Florida’s hurricane risk affordability and insurability. I find that, over the period of analysis, conflict over modeling science attributed to the decline of perceived insurability of iv Florida’s hurricane risk. I conclude that without a means to judge the scientific quality of the models, they serve in the ratemaking process simply as political tools to support interests’ preferred rate decisions. Finally, a policy evaluation of Citizens identifies trends in its success and failure meeting the goal of affordable property insurance. I attribute responsibility for performance to four main factors: 1) the use of Citizens as means to deflect market judgments of risk, 2) the logical impossibility of an actuarially sound residual market, 3) the politicization of the hurricane risk, and 4) false assumptions in the state’s economic model. The dissertation concludes with a list of policy options designed to expand the scope of debate beyond one of insurance ratemaking and towards considerations of policy that improve the availability of affordable property insurance. To Grandpa Bones (W. Stanley Weinkle) and Papa Chicky (Bernard S. Chaikin) vi Preface I began my research on Florida’s governance of risk with a personal inquiry of deconstructing my own constructs of reality about Florida and its notorious urban quagmire, Miami. After many hours of a circular internal dialog of “What is the problem? Why do I think that?” that amounted to overly philosophical navel gazing, I found that I too had a vision for Florida’s future. My vision was a relic of 1970’s Miami, The Keys were still largely undeveloped, few had cell phones, and the waterways were abundant with Square Grouper. I had no personal experience of these days past and therefore, fancied the vision from music, photographs, and stories from older generations. My vision of the future as a relic of the past also depicts my idea of a good time: less population density, fewer electronics, and way fewer developed and surveillanced landscapes. That is, true to my hometown, I highly value fun and modern social developments have impinged on my fun times. Though money is a great value to maximize; it is ultimately, just a means to more fun. In my mind, Florida’s problem was its inability to resist society’s changing ideas about how best to make merry. This of course is silly. It has now been many years since I lived in Miami. During a trip back to gather data for my dissertation research I was able to experience and see Miami from a whole new perspective. While lounging in a pool at midnight with views of the city and a warm ocean breeze, I found that this modern day version of fun really wasn’t so bad. Instead, the way the powers-that-be have molded Miami over the last 30 years or so has created something quite spectacular. I found the ambient purple lighting quite nice. But what makes Miami special, its passionate pursuit for fun, is also its fatal flaw because the antithesis of fun is, seemingly, moral responsibility. During my research, I came across several instances of people claiming that Miami has a dearth of morality. Indeed, some directly warned me about shady politics in the city and the vii state. Though I appreciated their sincerity, I know from experience that shady politics is a way of life for Miami residents. For example, when I was a child, my elementary school principal was ousted for forging students’ grades and attendance records1. While undergoing trial for corruption during the aftermath of Hurricane Andrew, the mayor of Miami Beach, Alex Daoud, was also accused of jury tampering by offering disaster assistance. Recent news, demonstrates a continued pattern. In early September the New York Times2 told of the consecutive indictment of three South Florida area mayors and mentioned several others charged of corruption in the past. Such brash accusations do not mean the end of a political career in the Sunshine State. The current governor, Rick Scott has clearly demonstrated this by running for office (and winning) after his own bout with heavy corruption charges3. Finally, let us not forget, South Florida’s botched democratic process in the presidential elections of 2000 and 2012. Like the sirens of Greek mythology, Miami beckons with its twinkling lights and promise of pleasure, yet underneath the glamour one finds it permeated with social strife and unscrupulous politics. While Miami pursues fun, and the money to make it possible, the city becomes ever more lustrous and its ability and willingness to respond to the humanitarian needs of its resident population seems to dwindle. The idea of Miami as a “world-class city” is often invoked in defense of its actions. The phrase connotes greatness in human accomplishment and a city that strives for dignity and social stability. But failures of the democratic system demonstrate very public ways in which public policy makers consistently fail to advance the public interest over those of a powerful elite. In planning for the future, balance needs to be 1 AP. 1990. Principal Ousted. The Times-News. Sept. 30. 2 http://www.nytimes.com/2013/09/02/us/arrests-of-3-mayors-reinforce-floridas-notoriety-as-a- hothouse-for-corruption.html?src=me&ref=general&_r=0 3 http://www.politifact.com/florida/statements/2010/may/21/bill-mccollum/rick-scott-former- healthcare-ceo-barely-escaped-pr/ viii found between the bullish quest for fun and the moral responsibility to residents that comes with being at the forefront of social change and a respected world-class city. My grandfather and his brother having fun in Miami Beach; February 7, 1931. State Archives of Florida, Florida Memory, http://floridamemory.com/items/show/136585 Acknowledgments After I read the synopsis of a book or the abstract of a paper, I read the acknowledgements. I find that acknowledgments place the author into an intellectual and social context. In a way, acknowledgements serve as a type of confession where the author admits that their work does not come from a wellspring of brilliance or tenacity. Instead, the writer acts only as a conduit for expressing the shared knowledge, experience and charity of their community. Much of my motivation for study and writing comes from an odd affection for a good argument. Because of this, I appreciate clever commercials, interesting political campaigns, and lighthearted tiffs. I owe a great many people for this interest and to whatever talent in the practice of rhetoric one may consider as part of my repertoire. Foremost, I owe a great gratitude to my parents, Jeff and Ondrea Weinkle, for their unwavering support of my amorphous intellectual pursuits. My father taught me the moral value ix of rhetoric as an essential tool of justice while my mother entertained most all of my arguments as I learned how not to make them. My academic advisor, Roger Pielke, Jr. served as the “World’s Best Advisor.” Over the last several years, he encouragingly read and listened too my many musings of variable quality. But I am most appreciative of his committed moral support, insightful life lessons on tact, and teachings of argument as a form of art. Rade Musulin significantly contributed to my depth of understanding about the interface of the insurance industry and public policy. His knowledge inspired a great appreciation for human factors, hopes and fears, behind the process of governing Florida’s hurricane risk. The other members on my academic committee, Max Boykoff, Bill Travis, Lisa Dilling, and for a time, Gary McClelland, each contributed to my professional development in different ways.