Americans need better disaster relief and insurance programs

Climate change is here. A record for disaster damages was set in 2017. Such record-breaking is the new normal. Hurricane Irma was the strongest storm observed in the Atlantic. Hurricane Harvey set a new rainfall record for North America. Records were set for scorching heat across the southwest, preventing airplanes from taking off and endangering lives. The northern California wildfires are the costliest on record. And climate scientists predict continued record breaking. These climate changes act as a threat multiplier, exacerbating growing losses from where and how we build. But we are not helpless in the face of worsening extremes.

Two goals should be at the top of our policy agenda: closing the disaster insurance gap and closing the risk reduction gap. These gaps refer to the facts that many people do not have disaster insurance and much cost-effective risk reduction has not been undertaken. The result is post-disaster financial hardship, growing disaster assistance, slower recovery times, and overall less resilient communities.

{mosads}There are multiple reasons for these gaps. Useable, locally specific, risk information is hard to come by. Financing models for risk reduction are absent or hard to access. Homeowners don’t know how to identify and prioritize risk reduction appropriate for them. Disaster insurance is expensive in high-risk areas and is often excluded from homeowners policies, creating confusion.

There is a disconnect between those that benefit from development and those that pay disaster costs. People tend to be overly optimistic when the sun is shining. Politicians are divided on how much of disaster costs should be borne by everyone and how much should fall on the shoulders of those living in hazardous areas or communities making building decisions. This long list of confounding challenges need not hinder policy solutions. By uniting expertise across disciplines and sectors, combined with political will and creative thinking, we can build a stronger and safer society.

An easy place to start is improved risk communication. Whether you’re looking at homes to buy or rent or making improvements to one you own, information on hazards, damages they may cause and have caused in the past, and what you can do to reduce the risks should be available with a click or swipe. We have the technology to make this possible and to integrate information into existing platforms, but it will require public-private partnerships.

Next, we can use disasters, which focus public attention on risks, to improve preparedness. I know this firsthand. Even though I study disasters, my family had never purchased a generator, despite living in an area prone to power outages. After a record-setting blizzard several years ago left us all sleeping in my older son’s room, warmed by a space heater charged by running a cord through several feet of snow from our next door neighbor’s house, we finally bought one.

Harnessing disasters to be windows of opportunity requires incorporating risk reduction into rebuilding. The Obama administration had required publicly funded projects take account of increasing flood risks. President Trump rescinded this mere days before Hurricane Harvey hit. Congress should take it upon themselves to reinstate these requirements on public spending.

More than 90 percent of all federal dollars for flood risk reduction are tied to presidential disaster declarations. Making better use of these dollars, however, requires advanced planning. Further, it takes months or years for federal funds to get into the hands of those ready to mitigate or move elsewhere. We can’t leave victims in limbo or they choose to forgo risk reduction. Streamlined funding, direct to households, and tied to advanced plans, could help more people make safer decisions post-disaster.

We can close the mitigation gap at a community, level, too. Risk reduction can be integrated into community activities in a way that maximizes value to residents. For instance, several communities have created parks along their rivers, simultaneously improving livability, creating recreational opportunities, spurring economic growth, and minimizing flood damages.

Finally, we must ensure everyone has the resources to recover when a disaster does hit. This means closing the disaster insurance gap. Disaster aid is often insufficient for families or takes too long. Especially for lower or middle income families that might not have the savings to fund their rebuilding, insurance is essential. Unfortunately, too few people are insured. After Hurricane Harvey, less than 20 percent of those flooded had flood insurance and at the time Hurricane Maria hit, less than 1 percent of households in Puerto Rico had flood insurance.

One approach to remedy this is to have states mandate disaster coverage be included in homeowners policies. Doing so would ensure everyone was financially protected. It would, however, create two financial challenges: affordability for the homeowner and catastrophic exposure for companies. Luckily, these challenges can be tackled with the right public policy.

Insuring disasters is expensive. While most years are quiet, one catastrophic event can result in astronomical claims. For these times, insurance companies must have access to adequate funds to prevent bankruptcy. This makes disaster insurance pricey and leads companies to place limitations on coverage, such as hurricane deductibles, or reduce the number of policies they have in the highest risk areas.

If floods were included in homeowners policies, prices for those in the riskiest areas would increase. On the one hand, this is good because the market should be pricing this risk for sound decisions to be made. But there will be some low and moderate income families for whom the higher cost poses a financial burden.

To help these families, Congress should create a means-tested assistance program, funded with federal tax dollars. The White House proposed just a such a program in its list of flood insurance reforms but Congress has not acted. Such assistance, though, should go beyond premium assistance to also include assistance with risk reduction, including relocation.

An all-perils homeowners policy, however, increases bankruptcy risk from concentrated exposure. This has been overcome in the terrorism insurance market by a federal program that provides an explicit federal backstop to companies when industry-wide losses exceed a predefined threshold. Such a program could be created for other disasters, too, and the threshold placed high enough so that it does not replace private reinsurance.

A warming planet, combined with densification in risky areas, requires us to take a new approach to handling extreme events. Luckily, we know what to do. Let’s build something positive form the devastating wreckage of the 2017 hurricanes. Let’s build a new national commitment to natural disaster risk management.

Carolyn Kousky, Ph.D., is director for policy research and engagement at the Wharton Risk Management and Decision Processes Center at the University of Pennsylvania.