Hurricane Risk Mitigation Blog

The countries that we studied use a variety of policies to reduce losses from natural hazards that are similar to policies used in the United States.  As we have previously reported, mitigation policies, assessing and mapping hazard risk, land use planning, building codes, and public awareness, can be used to reduce the risk of losses from natural hazards.⁵ In France, for example, the government provides hazard mapping information to depict areas prone to landslides, earthquakes, floods, and avalanches to identify high-risk areas where construction will be prohibited.⁶ Like the United States, the countries we studied also use land use planning to determine how best to develop hazard-prone areas. Germany, for example, imposes strict land use planning requirements that prohibit new development in areas designated as floodplains.  Also like the United States, some of these countries use building codes to make structures more resistant to natural hazards. In Australia, regional governments have improved standards beyond those required under the national building code maintained by the Australian Building Codes Board to make structures more resistant to hazards such as cyclones and earthquakes. Further, policies in some countries are designed to educate the public on the importance of mitigation.  Japan, for instance, disseminates information on natural hazard risks through different media, including television, radio, newspapers, seminars, and lectures.  As in the United States, state-level and local governments in all of the countries we studied have primary responsibility for formulating and implementing policies to reduce losses from natural hazards.  Local governments in New Zealand are primarily responsible for implementing risk assessments and mitigation policies, for example, and Swiss cantons are responsible for implementing mitigation policies that they develop in coordination with the federal government and other participants.

The countries we studied also participate in a variety of international efforts to minimize natural hazard risk.  We found that these efforts are consistent with key practices in collaboration that we identified in prior GAO work.⁷ For example, the Council of Europe defines a common goal to improve resilience to major risks, including natural hazards—a key practice in collaboration.  Defining and articulating a common outcome is a key practice in collaboration we have previously identified. The United Nations International Strategy for Disaster Reduction has created a set of principles to monitor, evaluate, and report on disaster risk reduction, which is consistent with developing mechanisms to monitor, evaluate, and report on results— another key practice we identified. In addition, a wide range of stakeholders, including U.S. agencies, participate in cooperative strategies and programs. For example, the U.S. Geological Survey is a key participant in the Global Earthquake Model, a public-private partnership among academia, governments, and the insurance industry to calculate and communicate earthquake risk worldwide.  And the U.S. Forest Service participates in the Global Wildland Fire Network, which provides a forum for wildfire management professionals, researchers, and others to work on wildland fire risk management and disaster reduction at the local, national, regional, and global levels.

The six countries we studied use a variety of approaches to insure natural hazard risk and regulate insurers. Generally, their approaches involve both the government and the private sector. In four countries with government insurance approaches, property insurance policies include natural hazard insurance coverage at a fixed premium, and three of these countries have a government guarantee.  All six countries have some type of private insurance approach, and four of these countries offer optional coverage of various natural hazards and have risk-based premiums.

Australia uses a private sector approach under which coverage for most natural hazards is included with private homeowners insurance.  The cost of natural hazard insurance is market driven and involves no government intervention.  According to a report commissioned by the Insurance Council of Australia, an estimated 23 percent of residential households do not have property or contents insurance, leaving them without basic natural hazard coverage. To cover potential losses, insurance companies purchase reinsurance from private companies. 

 France uses a government approach to insurance, which involves a mandatory extension to property insurance policies provided by the private sector. Policyholders pay an additional cost of 12 percent of the property insurance premium for coverage against natural hazards.  The French government must declare a state of natural disaster for coverage to take effect. According to agency officials, 90 to 95 percent of homes have property insurance and therefore have coverage against natural hazards. French insurance companies can purchase reinsurance from private companies or from a government reinsurance agency.

Under Japan’s cost-sharing approach, the government and private insurers share the cost of losses from earthquakes.  Private insurers are required to offer Earthquake Insurance on Dwelling Risks (EIDR), but policyholders can decline it.  An EIDR policy may cover all, half, or some of the losses to the insured building, its contents, or both, and policyholders may obtain premium discounts for meeting specified earthquake-resistant building standards.  By law, all EIDR insurance policies are automatically reinsured with the Japan Earthquake Reinsurance Company (JER).  JER is then reinsured by private insurance companies and the Japanese government. According to the Non-Life Insurance Rating Organization of Japan, approximately 40 percent of households had EIDR in 2005.

Finally, five countries have a centralized (federal-level) agency to regulate the private insurance industry. Three of these government agencies regulate the entire financial services industry—for example, the Australian Prudential Regulation Authority oversees banks, building societies, insurance companies, and other entities.  Some of the functions of some of these agencies include authorizing insurance companies to do business, assessing solvency, and determining whether insurance companies comply with regulations.  Australia and Germany have private sector-only approaches to insurance, and government involvement in pricing insurance is limited.  For example, in Germany, prices are controlled only with respect to the company’s overall financial safety and the equal treatment of all policyholders.

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