When Disaster Happens


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The effects of tornadoes, hurricanes, earthquakes, and tsunamis and the economics of recovery and safety. A saferoom in described with costs, construction guidelines and funding options.

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When Disaster Happens

  1. 1. WHEN DISASTER HAPPENS:<br />The Effect of Tornados, Hurricanes, Earthquakes and Tsunamis and the Economics of Recovery and Safety<br />
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  3. 3. TORNADOS<br />
  4. 4. HURRICANES<br />Satellite Photo of Hurricane Katrina one day before landfall on August 28, 2005<br />
  5. 5. EARTHQUAKES<br />US Geological Survey photo: Collapsed and burned buildings from Loma Preita, California Earthquake of October 17, 1989.<br />
  6. 6. TSUNAMIS<br />U.S. Navy photo of a coastal village in Sumatra after the 2004/2005 East Asian Tsunami<br />
  7. 7. 2006 Hawaiian Earthquake<br />Magnitude of 6.7<br />1,130 Houses Damaged<br />29 Houses Deemed Uninhabitable<br />Most powerful since 1983<br />Declared a major disaster area<br />Disruption in Electrical Power and Communications<br />Landslides<br />Sinkholes<br />Destruction to buildings, schools, and roads<br />
  8. 8. Damage Estimates<br />$100 - $150 million range<br />Insured losses below $25 million NOT INCLUDING:<br /> Public Buildings<br /> Infrastructure<br />Considered non-catastrophic due to low insured losses<br />
  9. 9. Factors for Minimal Insured Losses<br />Hawaii ranks 33rd in earthquake premium coverage<br />Property owners have option to purchase insurance through alternative providers<br />High deductibles<br />Earthquake compliant building codes<br />
  10. 10. Impact<br />Increasing demand for insurance coverage<br />Fewer insurance providers due to risk<br />Higher premium costs for consumers<br />Reduced access to coverage due to price increases or lack of providers<br />
  11. 11. Hurricane Katrina<br />Hit the Gulf Coast in 2005<br />Percentage of homeowners with Flood Insurance was low<br />Mandatory Insurance Requirements were strengthened<br />Increased awareness that the United States has exposure to natural disasters such as Earthquakes and Tsunamis<br />
  12. 12. Initial Damage Estimates<br />$21 billion in damages to commercial buildings <br />$36 billion in equipment damages<br />$75 billion in residential buildings and contents<br />$231 million in electric utility damages<br />http://www.marshall.edu/cber/research/katrina/Katrina-Estimates.pdf<br />
  13. 13. Initial Damage Estimates cont…<br />$3 billion in highway infrastructure<br />$1.2 billion in sewer system infrastructure<br />$4.6 billion in commercial revenue<br />http://www.marshall.edu/cber/research/katrina/Katrina-Estimates.pdf<br />
  14. 14. 2004/2005 Indian Tsunami<br />December 26, 2004 Earthquake triggered a Tsunami<br />One of the worst natural disasters in history<br />Impacted the coastlines of 12 countries in South Asia and East Africa<br />350,000 dead and missing<br />Economic losses in excess of $4.45 million<br />
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  17. 17. Early Warning Systems<br />Tsunamis<br />Underwater Sensors<br />DART – Deep –Ocean Assessment Reporting of Tsunami buoys<br />Radar data from satellites<br />Sea level monitoring/tide gauge stations<br />Global Seismographic Network<br />Tsunami Ready Program – Community Education and Preparedness<br />Earthquakes<br />Cannot be predicted<br />The USGS is committed to improve the ability to detect earthquakes through the study and analysis of earthquake events and improvements in the Global Seismographic Network<br />
  18. 18. Risk Management<br />Insurance is an important component of loss mitigation<br />Insurance provides funds for rebuilding<br />Insurance reduces economic loss<br />Disaster can provide an economic boost as communities and individuals with adequate funding rebuild and replace aging structures and infrastructure<br />
  19. 19. Insurance Risks<br />Non-Catastrophic Risks<br />Policy costs are spread across many policy holders at a lower premium price<br />Frequency of claims can be predicted<br />Claims are paid from assets, cash flows, debt, reinsurance<br />Catastrophic Risk<br />Limited number of policy holders<br />Limited capacity of insurance companies to cover disaster losses<br />Regulations discourages insurance companies from accumulating cash reserves<br />
  20. 20. Reinsurance<br />A tool for insurance companies to hedge their portfolios<br />Reinsurer accepts a portion of the risk<br />Primary insurer shares a portion of the premiums<br />Risks are layered<br />
  21. 21. Reinsurance Example<br />Loss from an earthquake exceeds $100 million<br />Primary insurance company pays $100 million<br />Reinsurance company pays the excess<br />A portion of the excess may be transferred to a retrocessionary in exchange for a premium<br />After a catastrophe, primary insurers may have a difficult time acquiring affordable reinsurance<br />
  22. 22. Insurance Linked Securities<br />Funding source for catastrophic risk<br />Liquidity for catastrophic loss from the U.S. debt and equity market<br />Not linked to interest rates and credit default<br />Risk premium is high<br />Offshore companies are required<br />Insurance Linked Securities (ILS) as an asset class are expected to grow<br />
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  24. 24. Disaster Relief Management Efforts<br />Basic needs – food, water, shelter, medical care – are front line necessities for survivors<br />Inclusion of victims in planning and rebuilding of the community<br />Assistance groups should be focused on their area of expertise<br />Needs of men, women and children are not the same<br />Aid should be distributed according to needs<br />Education for aid groups on international standards set by major groups such as the International Committee of Red Cross and the Sphere Project<br />Careful management of grants and financial aid<br />Debt relief can provide funds for reconstruction<br />
  25. 25. Staying safe- a consumers choice for disaster safety<br />A Retail Level Mitigation Product for Consumers:<br />
  26. 26. SAFEROOM<br />
  27. 27. FUNDING A SAFE ROOM<br />Cost: $2,500 to $6,000<br />SBA Disaster Loans allow homeowners to use disaster funds to construct a safe room.<br />Tornado Shelters Act provides community block grants to construct tornado safe shelters in mobile home parks that have at least 20 units.<br />
  28. 28. FUNDING A SAFE ROOM<br />FHA 203(k) Rehabilitation Loans and FHA 203(b) New Construction Financing allow borrowers to use funds for wind shelters<br />Hazard Mitigation Grant Program provides assistance to states and local communities. Grants can be used to fund protection projects for public or private properties.<br />Pre-disaster mitigation programs.<br />
  29. 29. A SAFE ROOM PROVIDES PROTECTION FROM MULTIPLE DISASTERS<br />Wind hazards from tornadoes and hurricanes<br />Protects from strong winds and flying debris<br />Can be located in a bathroom or closet<br />A separate detached shelter can be constructed either above ground or below ground<br />
  30. 30. Interior Safe Room Characteristics<br />Must be a “room within a room”<br />Proper construction insures the room will remain intact if the house is destroyed<br />Safe rooms built within the interior provide safe and quick access<br />Should provide complete protection from winds of 250 mph<br />
  31. 31. FEMA Construction Guidelines<br />6-inch to 12-inch concrete masonry walls <br />Vertical and horizontal steel bar reinforcement<br />Fully poured 3000 psi concrete<br />6-inch thick horizontally and vertically reinforced concrete<br />Plywood covered wood stud walls filled with dry-stacked concrete blocks<br />Hollow metal doors that meet FEMA 320 design specs<br />12-gauge or greater steel sheets with plywood sheeting and wood studs<br />
  32. 32. Accessibility and Comfort<br />All occupants should be able to access the safe room<br />Do not block with furniture or use as storage<br />Safety is the primary function of a safe room<br />Comfort is achieved with adequate space for each occupant and adequate supplies<br />Space needs vary from 5 to 10 feet per person depending on catastrophic event<br />
  33. 33. Supplies<br />Flashlight<br />Extra batteries<br />Fire extinguisher<br />First aid kit<br />Radio<br />Air horn for emergency signaling<br />Water<br />Food – depending on catastrophic event<br />
  34. 34. References<br />Athukorala, P. and Resosudarmo, B.P. (N.D.) The Indian Ocean Tsunami: Economic Impact, Disaster Management and Lessons. Division of Economics, Research School of Pacific and Asian Studies, Austrailian National University<br />Burton, M. L. and M.J. Hicks (2005) Hurricane Katrina: Preliminary Estimates of Commercial and Public Sector Damages, September 2005, Center for Business and Economic Research, Marshall University, WV accessed on October 24, 2009 at http://www.marshall.edu/cber/research/katrina/Katrina-Estimates.pdf<br />FEMA (2003) Residential Safe Rooms: Background and Research. March 2003. U.S. Department of Homeland Security, Washington, D.C. accessed on October 24, 2009 at http://www.fema.gov/library/viewRecord.do?id=1971<br />King, R.O. (2006) Tsunamis and Earthquakes: Is Federal Disaster Insurance in Our Future? CRS Report for Congress, Congressional Research Service, The Library of Congress, November 7, 2006 <br />Nakada, P. (2009) Insurance-Linked Securities: Last Asset Class Standing. Insurance Finance & Investment, March 15, 2009. Vol. XIV No. 6, accessed on October 24, 2009 at http://www.rms.com/Publications/RMSRiskMarkets_IFI_031509.pdf<br />Offenheiser, R.C. (2005) Tsunami Response: Lessons Learned – Testimony for the record of the Senate Foreign Relations Committee, February 10, 2005<br />USGS (2006) Tsunami Hazards – A National Threat. USGS Fact Sheet 2006-3023<br />