FINANCING MITIGATION: A ROLE FOR LINKING RISK REDUCTION AND RISK TRANSFER. Carolyn Kousky Wharton Risk Center University of Pennsylvania

Transcription

1 FINANCING MITIGATION: A ROLE FOR LINKING RISK REDUCTION AND RISK TRANSFER Carolyn Kousky Wharton Risk Center University of Pennsylvania October 26, 2017

2 Risk Center s Policy Incubator

3 Federal flood risk reduction dollars Kousky, C. and L. Shabman (2017). Funding Flood Risk Management: Pre or Post Disaster? Water Economics and Policy. 3(1):

4 FEMA mitigation grants floods only Pre Disaster Mitigation (PDM) Program Pre disaster Flood Mitigation Assistance (FMA) Program (Severe) Repetitive Flood Claim Program Post disaster Hazard Mitigation Grant (HMG) Program , , , , TOTAL ,882

5 CDBG DR (millions on nominal $s) 18,000 Appropriations (millions of nominal USD) 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0

6 Do we need a federal new model? Pros of Ex Post Funding More cost effective Opportunities to rethinking development patterns and infrastructure siting Risk likely more salient Cons of Ex Post Funding Money given only where events occur, not targeted at great risk reduction, most cost effective investments, equity considerations Huge sums in supplementals have overwhelmed local governments leading to accusations of fraud; also long delays Penalize the good actors Appropriations often escape normal scrutiny and analysis Pre disaster mitigation demand not being met

7 Harnessing insurance for mitigation? As disaster losses are lowered through hazard mitigation, the cost of insuring the residual risk decreases, increasing insurability and affordability. Disaster insurance can potentially be used to overcome financing challenges or provide a financial incentive for investments in risk reduction in a more direct or effective way. Public insurance programs can take a holistic approach to risk management.

8 Research questions Can insurance effectively incentivize risk reduction before a disaster? To what extent can insurance incentivize risk reduction after a disaster through funding to build back better? Can public programs and risk pools provide greater incentives for risk reduction?

9 Harnessing premium reductions

10 Building back better the case of ICC Up to $30,000 for mitigation given to substantially damaged properties insured through NFIP Included in policies since 1997 Parallels to law and ordinance coverage Costs $4 to $70 per policy

11 Not widely used Total ICC Claims by Year (millions of 2016 USD) $350 $300 $250 $200 $150 $100 $50 $0

12 How is it used? Single Family Homes, % 0.21% 61.72% 30.46% Demolition Elevation Other Relocation

13 Insurance or grant? ICC is straddling the divide between insurance product and grant We need both. Insurance product to assist homeowners in compliance with updated floodplain regulations: (1) paid quickly, (2) covers the full costs of all upgrades to be compliant, and (3) triggered by a flood claim. Grant for risk reduction: (1) used by any property in an at risk area, (2) covers a wide range of mitigation options, (3) can be used pre flood.

14 Public insurance programs Linked to land use regulations Financial incentives for household and community level risk reduction Use savings from financing to increase mitigation dollars

15 Flood insurance gap Estimates of NFIP Take up Rates 100% 90% 80% 70% 60% 50% 40% 30% 20% 50% 10% 0% SFHA Nationwide 20% Sandy affected areas in NY % 12.0% 1% Baton Rouge 2016 Harris County Puerto Rico Insured Uninsured

16 Thank you!