A stitch in time, so the old saying goes, saves nine. The idea of investing in mitigation activities in the United States to reduce the impacts of natural disasters has been around for a while. The authority to set aside funding for pre-disaster mitigation (PDM) was originally established in 1998 under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. The goal of PDM is to reduce overall risk and reduce reliance on federal funding in future disasters.
Prior to the passage of the Disaster Recovery Reform Act of 2018 (DRRA), the amount available for pre-disaster mitigation was appropriated separately on an annual basis, which could lead to delays and gaps in funding. The DRRA included a series of reforms, shaped by the Federal Emergency Management Agency (FEMA), that amended the funding to 6% set aside from estimated annual disaster grant expenditures. This new dedicated funding stream created a National Public Infrastructure Pre-Disaster Mitigation fund (NPIPDM) as well as a new program to streamline access to this pre-disaster funding called the Building Resilient Infrastructure in Communities, or BRIC program.
Investment in Pre-Disaster Mitigation
The BRIC program is intended to decrease a community's vulnerability before a disaster strikes by incentivizing new and innovative mitigation projects, including infrastructure and support of community systems critical to emergency management. FEMA is focused on investing in pre-disaster mitigation because it is cost-effective: society saves 6 dollars for every 1 dollar spent on advance hazard mitigation through federally funded mitigation grants, according to the National Institute of Building Science. Savings can be seen in terms of safety, security, and overall economic prosperity.
For real savings, effective implementation is also key. The BRIC program is designed to complement an overall National Mitigation Investment Strategy, which is focused on improving the coordination of mitigation investments and disaster resilience priorities across various federal programs and stakeholders. This strategy report was brought together by the Government Accountability Office following a disorganized response to Hurricane Sandy in 2015 that was found to have reduced the effectiveness of federal investments in mitigation. To solve the issues highlighted, the strategy’s goals include:
- Working with partners to build a shared understanding of the value of mitigation
- Creating a shared risk vocabulary
- Improving communication and access
- Fostering integration of mitigation into standard professional practices
- Developing recommendations for future investment in mitigation priorities
When FEMA invited feedback on how to best operationalize some of their goals for the BRIC program AIR offered recommendations, including incorporating best practices from the insurance industry.
Consistent Measures of Potential Impacts
In developing a system of risk-informed funding, FEMA is considering where to find sources of risk data and assessing their limitations in terms of quality and usefulness for determining the most cost-effective solutions at the local or national level.
The (re)insurance industry has lessons to offer when it comes to creating and maintaining a data-driven risk portfolio. Starting with a baseline risk assessment at the national scale and across multiple perils is key not only to helping ensure consistency across jurisdictions but also to identifying potential areas for mitigation projects. High-quality national data sets are increasingly available to help build this baseline, which can be enhanced by high-resolution exposure data from local jurisdictions where available. It can be updated periodically with data from completed projects and as improved national data sets are available. Making results from the baseline assessment publicly available could have several benefits in helping grant seekers build their proposals, including making it easier to identify opportunities for regional or cross-border projects.
Once in place, this assessment could then inform Key Performance Indicators (KPIs), including losses avoided and population- or culture-based metrics. Any performance metrics should be clearly defined to better measure progress toward economic, social, cultural, and equity-based goals. When it comes to building such a system, testing and validating are essential; assessing prior projects will help show if the required data can be collected and can help identify gaps. Testing scenarios can also help verify if these measures work as intended for evaluating and monitoring grant projects.
Another aspect of grant evaluation should be the extent to which applicants have identified potential private sources of funding, such as resilience bonds or other innovative solutions from the capital and insurance markets.
An Accessible View of Risk
BRIC projects will incorporate a Benefit-Cost Analysis (BCA), measuring future benefits of a hazard mitigation project compared to the cost of completion. FEMA specifically asked how its constituents can conduct these analyses more quickly and efficiently and sought recommendations on developing measures demonstrating cost-effectiveness.
For more than 30 years, catastrophe models have been the insurance industry standard for measuring potential damage from natural hazards—even in areas with no recorded history of effects. They combine physical models of natural hazards, including floods, hurricanes, severe storms, earthquakes, and wildfires with engineering models of the vulnerability of buildings and infrastructure. Catastrophe models produce a range of simulations to determine expected damage over time and across a wide range of plausible scenarios—all coupled to a sophisticated financial engine.
Designed to efficiently manage regional and national portfolios of insured risks, catastrophe models are regularly used to quantify the benefits of resilience investments, whether broad scale or at individual locations. Models allow users to account for the complex variables that give rise to damaging winds, floods, and other hazards, helping to identify what is driving overall risk, and how that might best be overcome. These models may be useful as alternatives or complements to existing BCA tools that often require significant detail and engineering input—complexity that may be a barrier to effective economic analysis.
Partnering with Industry to Improve Building Codes and Enforcement
Building codes are the cornerstone of a resilient community: effective codes and enforcement reduce losses following disasters, as studies by the Insurance Institute for Business & Home Safety (IBHS), AIR, and others have shown. Yet FEMA is aware that less than 35% of communities have adopted the latest hazard-resistant building codes.
To help solve challenges in building code adoption and enforcement, increased education and better coordination across governments, insurers, and the building and resilience communities can improve outcomes for all. Government officials can work more closely with the insurance industry to understand the risk analysis, data, and tools that inform the underwriting process. For example, ISO’s Building Code Effectiveness Grading Schedule (BCEGS) program rates communities on a scale of 1 to 10, and insurers consider the benefits of improved loss experience when pricing policies in highly rated communities. Engaging with organizations such as the International Code Council and supporting efforts to train local officials will also improve building codes and code adoption. Also, helping to grow the next generation of building professionals and enforcement can address an ongoing labor shortage.
Better Supporting Resilience Investments
FEMA has been experiencing “extraordinary” interest in pre-disaster mitigation programs, with a 500% increase in applications in the most recent grant cycle. Clearly a robust, transparent, and scalable system to manage the grant process is necessary for the future success of BRIC.
Learning from catastrophe modeling techniques can help FEMA—and applicants to these programs—evaluate more cost-effective projects and improve resource management to better leverage grant funds. Risk models themselves may prove to be a useful complement to existing BCA tools, particularly in early-stage planning and in managing a portfolio of projects at regional and national scale. Certainly, working with the (re)insurance industry and understanding the substantial risk evaluation systems already in place would assist BRIC in better supporting resilience investments in public safety and welfare.