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Risk Mitigation

This blog is associated with the Hurricane risk Mitigation Leadership Forum Series. The Risk Mitigation Leadership Forums are a series of invitation-only events, bringing together academics, scientists, public and private sector representatives to advance hurricane risk mitigation efforts and awareness. The opinions expressed at or through the blog are the opinions of the individual author and may not reflect the opinions of RenaissanceRe Holdings Ltd. or the site sponsors.
PIA National Supports Mitigation Legislation Introduced by House Homeland Security Chairman Bennie Thompson
WASHINGTON — July 16, 2009 - The National Association of Professional Insurance Agents (PIA) today applauded the chairman of the U.S. House Committee on Homeland Security Bennie Thompson for his leadership in addressing the key concern of disaster mitigation.
Rep. Thompson (D-Miss.), Chairman of the Committee on Homeland Security, has introduced three pieces of legislation that will go a long way toward making hazard mitigation a key national priority: H.R. 3026, the Hazard Mitigation for All Act; H.R. 3027, the Pre-disaster Hazard Mitigation Enhancement Program Act; and H.R. 3028, the First Responder Innovation and Support Act of 2009.
            “Congressman Thompson’s three-pronged effort to facilitate disaster mitigation is a winning strategy in the fight to protect America from natural disasters,” said Brian T. Marino, co-chair of the national PIA natural catastrophe working group.
The bills have been endorsed by groups including the American Insurance Association, the Association of Bermuda Insurers and Reinsurers, the Property Casualty Insurers Association of America, the Reinsurance Association of America and the National Wildlife Federation.
“These legislative initiatives will go a long way toward making America a more disaster resistant nation,” said William McGraw, co-chair of the national PIA natural catastrophe working group. “We urge Congress to support this important legislation.”
On the broader issue of natural catastrophe policy, PIA supports a coordinated natural disaster catastrophe program that covers commercial and residential property and does not compete with the private sector’s capacity to provide insurance.  We also think that insurers should be allowed to price policies according to risk.
Founded in 1931, PIA is a national trade association that represents member insurance agents and their employees who sell and service all kinds of insurance, but specialize in coverage of automobiles, homes and businesses. PIA members are Local Agents Serving Main Street America SM. PIA’s web address is

Resilient Coasts: A Blueprint for Action
Resilient Coasts: A Blueprint for Action was directed by The Heinz Center and Ceres, and is endorsed by a diverse group, including The Travelers Institute, The Nature Conservancy, National Oceanic and Atmospheric Administration, the Wharton School, and the Mayor of Charleston, S.C. The blueprint's specific recommendations include:

* Enabling planning for climate impacts by providing the necessary science and decision-making tools;
* Requiring risk-based land use planning;
* Designing adaptable infrastructure and building code standards to meet future risk;
* Strengthening ecosystems as part of a risk mitigation strategy;
* Developing flexible adaptation plans;
* Maintaining a viable private property and casualty insurance market;
* Integrating climate change impacts into due diligence for investment and lending.

To read Resilient Coasts: A Blueprint for Action click here.
Making the Case for Long-Term  Flood Insurance

Howard Kunreuther and Erwann O. Michel-Kerjan from the Wharton School of the University of Pennsylvania make the case for long-term flood insurance in their paper "Market and Government Failure in Insuring and Mitigating Natural Catastrophes: How Long-Term Contracts Can Help", prepared for the American Enterprise Institute Conference on Private Markets and Public Insurance Programs, Wohlstetter Conference Center, Washington, DC January 15, 2009.

A coherent strategy is necessary to ensure a sustainable recovery from large-scale disasters and the appropriate future development of hazard-prone areas. But these issues are complex. They challenge our capacity as a nation to work together despite different agendas of key stakeholders and legislators regarding the role and responsibilities of the private and public sectors in dealing with catastrophic risks. Absence of leadership in this area will inevitably lead to unnecessary loss of lives and economic destruction in the devastated regions. 

This paper complements other analyses ... by focusing on the risk of large-scale natural disasters, although we believe the concepts and proposals for managing these risks more effectively have relevance to other types of extreme events such as terrorism and catastrophic accidents.2 The paper is organized as follows. Section 2 discusses the evolution over the past four decades of economic and insured losses due to major catastrophes and the key drivers of this change. Section 3 proposes four guiding principles for developing sustainable insurance and mitigation programs. Section 4 focuses on the state of Florida as an example of how these principles have been violated to meet short-term objectives with respect to economic development. Section 5 focuses on the behavioral biases, notably myopia, that discourages individuals from investing in cost effective protective measures. Section 6 proposes long-term insurance contracts combined with long-term loans for overcoming these biases. The National Flood Insurance Program, which is due for renewal/changes by Congress in April 2009, is a natural candidate for these contracts as discussed in Section 7. The paper concludes with a brief summary and suggestions for future research.

“Insurance plays a vital role in America’s economy by helping households and businesses manage risks. (…)  When insurance prices reflect underlying economic costs they can encourage a more efficient allocation of resources. Efforts to keep premiums for insurance against catastrophe hazards artificially low, whether through regulation or through subsidized government programs, can encourage excessively risky behavior on the part of those who might be affected by future catastrophes.”

Economic Report of the President (2007), pp.122-123.


(It is quite remarkable that 2007 was the first year that the Economic Report of the President devoted a chapter to catastrophic risk insurance.)





Conservatives have good reason to question parts of the environmental movement’s wish-list. Proposals for new energy taxes, “green jobs” programs, and restrictions on private property use all ask conservatives to sacrifice long-standing principles in favor of a nebulous desire to save the planet. When it comes to at least one green cause, wetlands preservations, however, environmental and conservative interests appear aligned. Quite simply, governments do far more to destroy wetlands than free markets ever have, and preserving these critical areas increases natural disaster resistance.

Wetlands are areas with shallow, sometimes seasonal, water flow. They host an enormous diversity of wildlife. Before World War II, almost nobody built on them. As air conditioning made lots of previously hot, humid areas attractive, however, the Army Corps of Engineers—with encouragement from developers—drained millions of wetlands acres, built new shipping channels, and provided lots of choice building sites.

This process of wetlands destruction, lessened but still ongoing, damaged a lot of wildlife habitat and moved millions of Americans into hurricane-prone areas. Although improved warning, medical, and transportation systems have lessened casualty rates since the last period of high hurricane activity between roughly 1910 and 1940, rampant building in wetland areas puts plenty of people in areas that hurricanes often destroy.

Left undisturbed, wetlands also absorb hurricane-driven storm surges, particularly from small and medium-sized storms. Building shipping channels through swamps, on the other hand, increases storm damage. A shipping channel—the Mississippi River Gulf Outlet (the “Mr. Go”) played a major role in “letting in” the storm surge that devastated New Orleans after Hurricane Katrina.

Current national wetlands policy actually encourages destruction to continue in return for “no net loss.” Every day, developers and governments get permission to build in hurricane-mitigating coastal wetlands in return for creating new inland swamps. While the total stock of wetlands has grown modestly in most areas, current policies tend to help wildlife more than people.

Conservatives need to get behind efforts that undo the damage big government has done. The Mr. Go is already slated for closure, but dozens of other ill-conceived projects likely create similar threats. Although replacement might make sense in some cases, future policy needs to focus on maximizing wetlands’ benefits to people and preserving coastal wetlands.

Not every part of conservative wetlands policy will line up perfectly with what environmentalists have traditionally wanted. But wetlands preservation makes sense.

Coalition Letter Supporting Carper Amendment



Consumer Federation of America

American Consumer Institute

National Wildlife Federation

Republicans for Environmental Protection

Competitive Enterprise Institute

American Insurance Association

National Association of Professional Insurance Agents

Reinsurance Association of America

Association of Bermuda Insurers and Reinsurers

Allianz of America

The Chubb Corporation

Liberty Mutual Group



January 26, 2009


Honorable Thomas Carper

United States Senator

Washington, D.C.  20510


Dear Senator Carper:


            We understand that you plan to offer an amendment to establish new hazard mitigation tax credits for individual taxpayers at tomorrow’s mark-up of the economic stimulus legislative package by the Senate Finance Committee.  We are writing to express our strong support for your amendment.


            A recent study by The University of Pennsylvania’s Wharton School’s Risk Management Center found that homeowners in residences built to wind-resistant standards experienced 60 percent fewer damage claims.  Even when wind damage could not be avoided, wind-resistant building practices reduced the damages by more than 40 percent.  The Institute of Business and Home Safety has estimated that every dollar invested in mitigation yields four to seven times that amount in savings.  Furthermore, a recent study by the Multihazard Mitigation Council reinforced these findings, showing that each dollar spent on mitigation saves society an average of four dollars, with positive benefit-cost ratios for all hazard types studied.


            As we understand it, the Carper Amendment creates a new mitigation tax credit program.  It provides a 30-percent credit for qualified hurricane, earthquake and tornado mitigation expenditures with respect to existing homes.  Under your Amendment, the maximum amount of the credit for aggregate eligible expenditures in any taxable year is not to exceed $1500.


            It is becoming increasingly clear that increased attention to risk reduction and mitigation should be at the heart of our planning for the future.  We are pleased to support your amendment, which offers an environmentally-responsible and fiscally-sound approach to hazard mitigation that will drive job creation at the local level.  Our message is that mitigation works.  It is prevention that will keep the cost of future Federal disaster relief lower.  We commend you for taking the lead in this effort and are pleased to endorse the Carper Amendment.


Very truly yours,


Consumer Federation of America

American Consumer Institute

National Wildlife Federation

Republicans for Environmental Protection

Competitive Enterprise Institute

American Insurance Association

National Association of Professional Insurance Agents

Reinsurance Association of America

Association of Bermuda Insurers and Reinsurers

Allianz of America

The Chubb Corporation

Liberty Mutual Group

Swiss Re




GAO Report: Natural Hazard Mitigation and Insurance
On 22 December 2008, Orice M. Williams, Director of Financial Markets and Community Investment at the United States Government Accountability Office, sent a report entitled Natural Hazard Mitigation and Insurance: The United States and Selected Countries Have Similar Natural Hazard Mitigation Policies but Different Insurance Approaches to 3 members of the House.
The summary reads as follows:

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.


As agreed with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after the date of this report. At that time, we will send copies of this report to interested congressional committees and other parties. In addition, the report will be available at no charge on GAO’s Web site at .




6Hazards noted refer to mainland France only and not its territories.

7GAO, Results-Oriented Government: Practices That Can Help Enhance and Sustain Collaboration among Federal Agencies, GAO-06-15, (Washington, D.C.: Oct. 21, 2005).

Amanda Staudt’s Nine Principles

December 3rd, 2008
During her panel titled, “Climate Change and Adaptation Strategies,” Amanda Staudt from the National Wildlife Federation itemized nine “Shared Principles for Minimizing Risk from Hurricanes, Storms and Flooding in the Face of Global Warming”:

  1. Remove incentives for development in high risk areas such as floodplains and coastal land vulnerable to sea-level rise. 
  2. Invest in restoration of and increased protection for natural buffers for flooding. 
  3. Reconsider the strategy of levees. 
  4. Take global warming into account in building practices. 
  5. Allow insurance rates to reflect risk exposure. 
  6. Target government assistance to focus on people and not insurance. 
  7. Educate citizens about avoiding risk.  
  8. Reduce global warming pollution to minimize future catastrophic risk. 
  9. Use the best available science for policy making.

David Conrad, Senior Water Resources Specialist, National Wildlife Federation, who spoke during the panel, “Building Codes and Land Use,” adds the following in an on-the-record statement:

"The National Wildlife Federation comes at hazard reduction from this standpoint. By locating people in communities in the highest hazard areas we are undercutting our people for the losses they sustain but also many of these areas are some of the most important environmental areas like wetlands, flood plains, and shoreline areas are enormously valuable for wildlife and often the most important support for fisheries and bird life. Preserving these resources is incredibly important to society for their beauty, for recreation but if we make errors in where we build or build unwisely we pay a double price for both the losses we sustain and the losses that nature sustains at the same time. Wise use of our lands and shorelines and waters is critical to the success of our society."

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PIA National Supports Mitigation Legislation Introduced by House Homeland Security Chairman Bennie ThompsonUse SHIFT+ENTER to open the menu (new window).
Resilient Coasts: A Blueprint for ActionUse SHIFT+ENTER to open the menu (new window).
Making the Case for Long-Term Flood Insurance Use SHIFT+ENTER to open the menu (new window).
WETLANDS - AN ENVIRONMENTAL ISSUE FOR FREE MARKETEERS by Eli Lehrer in NewMajority.comUse SHIFT+ENTER to open the menu (new window).
Coalition Letter Supporting Carper AmendmentUse SHIFT+ENTER to open the menu (new window).
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