Climate change is causing rising oceans and more extreme weather. Even as beachfront development continues, beachfront living is growing ever more perilous. What happens when all the insurance companies decide to stop insuring anything by a beach?

We're not there yet, obviously. But many states like Florida are already dealing with a distinct reluctance of private insurance companies to touch their risky beachside property. It's not just rising insurance bills; it's a world in which the state is forced to serve as insurer of last resort, whether or not they can actually afford to pay the price tag for rebuilding whenever it comes due. This is mostly a post-Katrina phenomenon, so the new quasi-public insurance world has not been tested with a major disaster yet. It will not be pretty when it happens.

Eduardo Porter today writes about the slow, but ongoing large-scale retreat of the insurance industry from risky properties threatened by climate change. He notes that there are bad social consequences either way: if insurers do stop insuring risky properties, the government must figure out how to cover them; if they don't stop insuring risky properties—either from greed, a gambling instinct, or fear of being assaulted by politicians and attorneys—insurance companies risk being hit with disaster bills that could leave them insolvent. Porter speaks common sense:

Insurers won't be able to stay in markets where they can't align premiums with rising risk. Government regulators must acknowledge this fact. Policy makers must also realize that the enormous subsidies for Americans to build in harm's way are ultimately counterproductive.

It sounds so easy, if only the world operated on common sense. Hell, just allowing insurance companies to accurately price policies for beachfront housing would lead to an immediate procession of homeowners away from the beach, because only the very rich would be able to pay the premiums. In reality, there is a huge amount of money already invested in existing beachfront property, and another huge amount of money still flowing into beachfront (or beach-area) development, and both homeowners and developers have powerful economic incentives to protect their own political interests by ensuring that the state stays on their side. Meanwhile, the rest of us are waiting for the next huge hurricane that will stick every citizen of, say, Florida with a gigantic bill to cover the insurance costs of beachfront homeowners who knew that this would happen sooner or later. Already, the public pays countless millions of dollars to replenish eroding beaches in a losing battle against Mother Nature. It can't go on forever.

Old beach houses in Florida are usually small and not luxurious. That's because their owners knew they might get blown away in a hurricane one day. They were relatively easily replaceable. Now, though, our shores are draped with expensive luxury housing and condos. And when the seas rise, and the hurricanes come, they will be washed away just as surely as the old-timey shacks were. And their owners will be looking to recoup their value. And if the insurance companies can't pay, ultimately, the public will have to.

Sooner or later, we're going to have to tell beachfront property owners: you're own your own. You get a nice view. In exchange, you accept the risk of being washed away. Take that deal, or move to higher ground.

[Photo: Flickr]