Insurance, Disaster ; Federal Reserve District, 5th

Betty Joyce Nash

English

Research Papers in Economics

SUMMERTIME SUPPLY AND DEMAND
Foreign Students Fill Beach Jobs During
the High Season
T
his is the second summer in a row that Agata
Korzeniewska has worked at Food Lion Store No. 2503,
located at milepost 14.5 in Nags Head, N.C. Korzeniewska,
22, is from Warsaw, Poland, an economics major with three
years left until graduation.
Her countrymen abound in this Outer Banks beach
town, where the high season unemployment rate is about 
2.5 percent and able bodies like hers are crucial to satisfying
the consumption habits of tourists. Not only are the Polish
students abundant, but also Russians, Thais, Bulgarians, and
Turkmen, among other nationalities, pedaling their cruiser
bicycles up and down the Croatan Highway.
“I want to learn English,” says Korzeniewska, whose
English is already near perfect. “It’s a good program
for students.”
Korzeniewska is referring to the J-1 visa program and the
international firms that pair students with U.S. jobs, plus 
collect a fee for the service. In general, firms that recruit,
interview, and place international students don’t assist in
many other logistics, such as housing and transportation,
nor does Food Lion. In 2006, the State Department issued
about 128,000 visas for summer travel nationwide, with
2,488 for work in North Carolina. This summer Food Lion
employed about 500 international students in 32 stores
along the East Coast, from Ocean City, Md., to Myrtle
Beach, S.C. Without them, it’s easy to imagine tourist season
business grinding to a halt — or at least, firms having to 
dramatically raise both wages and prices in order to attract
qualified laborers.
Rick Chance is manager of the Food Lion in South Nags
Head. The store has an easy-to-use, online application 
system that it once hoped would solve its summertime 
problem of filling jobs, but it hasn’t lived up to expectations.
The system collects no more than two applications a month,
Chance says. Most U.S. college students like to work in bars
or clubs, he says, making it difficult to find capable workers
to stock groceries, retrieve carts, and cash out shoppers.
About half the store’s summertime staff consists of foreign
students. “With the huge business in the summer, we have to
go outside,” Chance says. “These kids are really great.
They’re eager to do a good job.”
As an economics major, Korzeniewska understands the
basic need for foreign workers like herself, and she is glad for
the opportunity. Here, she earns $8.75 an hour, at least $3
more than she would likely earn in Poland, she says. After
her 8 a.m. to 4 p.m. shift concludes, she bikes across the
street to the Sonic drive-in for her second job.
Korzeniewska lives with 16 other students in a five-
bedroom house in Kill Devil Hills. But it’s not so bad, she
says. And she gets two days off a week to hang out on the
beach. With her savings, she expects to head to Florida at
the end of the summer. By the end of September, her visa
expires and she heads home to Warsaw. — DOUG CAMPBELL
STORM SEASON
South Carolina Law Expands 
Coastal Coverage
I
nsuring the coast is risky business and growing riskier.
Coastal insurance has been either hard to come by or 
expensive since the storm season of 2005. The demand for
payouts post-Hurricane Katrina stretched insurance firms
to the limit, and that’s created more demand for reinsurance,
leading to price increases all the way around. According to
the National Association of Insurance Commissioners,
firms lost 4 cents for every $1 in premium collected between
1985 and 2005 in South Carolina. That includes just over 
$3.7 billion in losses (in 2005 dollars) from Hurricane Hugo,
which clobbered the coast in 1989.
Two weeks into the 2007 hurricane season, with forecasts
calling for a 50 percent chance of a big storm on the East
Coast, the state Legislature passed a coastal insurance bill.
Among other provisions, the law expanded the territory
covered by the S.C. Wind and Hail Underwriting
Association, a state pool backed by insurance firms. 
The pool sells wind insurance when homeowners can’t get it
anywhere else, at above-market rates. (The National Flood
Insurance Program insures properties in flood-prone areas.)
The new law also allows tax-free catastrophe savings
accounts for policyholders to pay deductibles, and provides
8 Region Focus • Summer 2007
SHORTTAKES
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Agata Korzeniewska pauses while at work in a Nags Head Food
Lion, a summer job she obtained through the J-1 visa program.
REGION FOCUS REWORK SUMMER ISSUE  9/20/07  4:17 PM  Page 8tax credits for homeowners who make storm-resistant
improvements, such as hurricane-proof siding.
Property insurance rates there have risen between 20 
percent and 100 percent since 2005. Even though South
Carolina did not take a storm hit in 2005, carriers revisit
risk models and update rate structures after blockbuster
storms like Katrina. Reports of condominium insurance
hikes as high as 700 percent grabbed everybody’s attention. 
The nearly one-quarter of South Carolinians who live in 
the seven counties that lie along the state’s 187 miles 
of coastline have reason for concern. Residential and 
commercial property there is insured to the tune of about
$150 billion and it’s growing. 
The major piece of the law includes the tax incentives the
state is offering to insurance firms to encourage them to
write policies along the coast. The details are still being
worked out, but one provision credits firms for policies on
properties previously eligible for coverage only through the
state wind pool. 
Economist Don Schunk of Coastal Carolina University
says that tweaking market incentives works better than
heavy-handed regulation. “What we’re seeing in South
Carolina has been a fairly good model,” he says. “We don’t
know how everything is going to play out over the next 
few years, but to offer incentives to encourage companies 
to write policies, to get the homeowner to hurricane-proof
their homes, we [economists] tend to like that kind of activ-
ity.” He noted that premiums began to stabilize 
and new carriers entered the market even before the 
legislation passed because the industry had observed 
the bill’s progress.
While the South Carolina legislation may mitigate 
availability and affordability of insurance in risky areas, the
fundamental problem remains: Rates have been underpriced,
and that’s contributed to overdevelopment on the coastlines.
Between changing weather patterns and the population shift
toward the U.S. coasts, catastrophes seem unavoidable.
Paying for them is likely to become even more of 
a problem.
Acatastrophe by its nature is unexpected and expensive,
and is defined by the industry as an event that reaches 
$25 million or more in claims. Economists Kip Viscusi of
Vanderbilt University and Patricia Born of California 
State University at Northridge used a large data set on home-
owner’s insurance coverage between 1984 to 2004 that
documented the effect of blockbuster catastrophes on
firms. The results were published in a National Bureau of
Economic Research working paper in 2006.
In short, they found that a catastrophe reduces total 
premiums earned and the number of firms providing 
coverage. Because losses stem from a small number of huge
events, the insurer may have trouble covering the costs.
Insurers typically compensate by raising rates after events,
but that may not be enough. 
“In the absence of adequate reinsurance, the firm may go
bankrupt or may choose to exit a state where there is a 
substantial exposure to such catastrophic risks,” according
to the authors. After Katrina, for example, several major
insurers either left coastal states altogether or chose not to
renew certain policies.
In South Carolina, according to Allison Love of the S.C.
Insurance News Service, Allstate declined to renew 10,000
policies; State Farm, 1,000; and the S.C. Farm Bureau, just
under 3,000. — BETTY JOYCE NASH
UPDATE
Progress of Southeast Rail Corridor 
A
n 850-mile high-speed rail corridor stretching from
Washington, D.C., to Florida continues to exist on
paper only. But in the 18 months since Region Focus last
reported on the Southeast High Speed Rail Corridor, some
progress has been made.
The U.S. Department of Transportation designated 10
regional high-speed rail systems in 1992, including the
Southeast Corridor. The overarching idea is to provide 
an alternative intercity means of transport beyond airplanes
and automobiles, perhaps helping to contain traffic 
congestion on roads and at airports. 
Earlier this year, the N.C. Department of Transportation’s
Rail Division collected a $1.5 million grant from the Virginia
Rail Enhancement Fund for completion of an environmen-
tal impact statement for the Richmond-to-Raleigh stretch
of rail. Meanwhile, fieldwork has been conducted for 
several other portions of the corridor.
Kevin Page, chief of rail transportation with the Virginia
Department of Rail and Public Transportation, says this
methodical approach is necessary. All parties want to be con-
fident about the costs, benefits, and feasibility of the project
before trying to secure federal funding for construction. On
the current schedule, hearings on the latest environmental
studies will conclude in 2010.
“Without the plans we will continue to be unsure about
the level of funding required, and ... that is why the environ-
mental studies continue,” Page says. — DOUG CAMPBELL
Summer 2007 • Region Focus 9
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RF SUMMER HR2pg9 - 9/21/2007 3:35 PM

Storm season : South Carolina law expands coastal coverage

http://www.richmondfed.org/publications/research/region_focus/2007/summer/pdf/short_takes.pdf

Storm season : South Carolina law expands coastal coverage

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