HLSS603 APU 250 Homeland Security Resilience Discussion Response Responses should be a minimum of 250 words and include direct questions. You may challenge

HLSS603 APU 250 Homeland Security Resilience Discussion Response Responses should be a minimum of 250 words and include direct questions. You may challenge, support or supplement another student’s answer using the terms, concepts and theories from the required readings. Also, do not be afraid to respectfully disagree where you feel appropriate; as this should be part of your analysis process at this academic level.

Respond to:

In researching this week’s forum I chose to look more into the current issue of the approach of Tropical Storm Barry as it approached and began to inundate Louisiana, particularly New Orleans fifteen years after the disaster of Hurricane Katrina in 2005. According to the research there are a number of factors that are combining that are challenging to the resilience of the long and short-term issues to protect the critical infrastructures, as well as the commercial and residential areas of the city of New Orleans and other coastal areas around the country. The increase of mean sea levels, increases in tropical storms by both natural and man-made climate change, and the continued subsidence all contribute to the challenges of conducting effective resilience measures.

In order to build in resiliency from flooding there must be a major restructuring of the existing and new seawalls and levees, and increase in pumping stations allowing for an increase in the Hurricane and Storm Damage Reduction System (HSDRRS). With the increase in subsidence that has been recorded by new technologies, the only way to protect coastal cities from the rising seawaters is through a series of levies, sea walls and artificial tributaries or artificial floodgate systems. There also has to be a realization that without a dramatic turn in reversing global warming, the coastal cities of the United States will continue to lose ground to the oceans.

Even after the restructuring and repairs to the levy systems after Hurricane Katrina, which cost an estimated $14 billion, there is no guarantee of protection against a cataclysmic failure due to all of the different metrics of climate change, ice cap depletion and the rapid subsidence of coastal areas, particularly in the Mississippi Delta area. The U.S. Army Corps of Engineers (USACE) recently completed the renovation of the levee system around New Orleans with an increase in the number and height of the floodwalls. USACE estimates that after almost a dozen years of work and a very large sum of dollars, “the system will stop providing adequate protection in as little as four years because of rising sea levels and shrinking levees” (Frank, 2019).

The amount of mean sea level rise contributed by all of the natural and man-made factors has increased the impacts and occurrences of flooding in our coastal areas that present major challenges to effective resilience efforts in terms of cost and time. The study by Williams and Ismail conclude, “The reality is that it is not economically feasible to protect all coastlines from high rates of sea-level rise and catastrophic super-storms. Structures built for short term (~50 years) and modest sea-level rise (~0.5 m) should be designed such that their height can be raised and size increased in the event that even higher sea levels prevail” (Williams & Ismail, p. 62, 2015).

Due to Hurricane Katrina a series of studies was conducted to represent a Category 5 hurricane and the efforts to reduce the effects through resilient designs of the layers of defense from the rising floodwaters and storm surge. Many types of variables had to be weighed to determine the height of the repaired and new surge barriers, such as the predicted global sea rise, magnitude of storms possible, as well as the continued natural deterioration of the coastal region and subsidence along the coastal areas and Mississippi Delta region. While there is a structuring of a 50-year plan with the plan of addressing land loss and the reconnection of the Mississippi River to the delta area, there is an admissible lack of discussion beyond 2050. Resiliency efforts need to be built around the premise that sea levels will continue to rise, probably more dramatically then originally hypothesized, and buffers such as dunes, seawalls, hardened and elevated structures and a series of plans for relocation, while drastic, will need to be constructed when the cost is no longer feasible.

Mike Simmons

References:

Frank, T. (2019). After a $14-billion upgrade, New Orleans’ levees are sinking. Scientific American. Retrieved from https://www.scientificamerican.com/article/after-a-14-billion-upgrade-new-orleans-levees-are-sinking/

Williams, S. and Ismail, N. (2015). Climate change, coastal vulnerability and the need for adaptation alternatives: planning and design examples from Egypt and the USA. Journal of Marine Science and Engineering. Retrieved from https://www.mdpi.com/books/pdfview/book/559 Making  America  More  Resilient  toward  Natural  Disasters:    
A  Call  for  Action*  
 
Howard  Kunreuther,  Erwann  Michel-­?Kerjan  and  Mark  Pauly  
Environment  Magazine    (forthcoming)    
 
Howard  Kunreuther  
James  G.  Dinan  Professor  of  Business  and  Public  Policy  
Wharton  School,  University  of  Pennsylvania  
3730  Walnut  Street,  Suite  500  
Philadelphia,  PA  19104  
Phone:  215-­?898-­?4589  
Fax:  215-­?573-­?2310  
Email:  kunreuther@wharton.upenn.edu  
 
Erwann  Michel-­?Kerjan  
Managing  Director,  Center  for  Risk  Management  and  Decision  Processes  
Wharton  School,  University  of  Pennsylvania  
3730  Walnut  Street,  Suite  500  
Philadelphia,  PA  19104  
Phone:  215-­?573-­?0515  
Fax:  215-­?573-­?2310  
Email:  erwannmk@wharton.upenn.edu  
 
Mark  Pauly  
Bendheim  Professor  in  the  Department  of  Health  Care  Systems  
Wharton  School,  University  of  Pennsylvania    
208  Colonia  Penn  Center,  3641  Locust  Walk  
Philadelphia,  PA  19104    
Phone:  (215)  898-­?2837    
Fax:  215.573.7025  
Email:  pauly@wharton.upenn.edu  
 
 
*We  thank  our  colleagues  Karen  Campbell,  Jeff  Czajkowski,  Dena  Gromet  and  Robert  Meyer  
as  well  as  the  Sponsors  of  the  Wharton  Risk  Center  Extreme  Events  Project  for  insightful  
comments.    Carol  Heller  provided  helpful  editorial  assistance.  Support  for  this  research  
comes  from  the  National  Science  Foundation  (SES-­?1061882  and  SES-­?1062039);  the  Center  
for  Risk  and  Economic  Analysis  of  Terrorism  Events  (CREATE)  at  the  University  of  Southern  
California;  CRED  at  Columbia  University;  the  Travelers  Foundation,  and  the  Wharton  Risk  
Management  and  Decision  Processes  Center.    
 
 
 
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Making  America  More  Resilient  toward  Natural  Disasters:    
A  Call  for  Action  
 
Howard  Kunreuther,  Erwann  Michel-­?Kerjan  and  Mark  Pauly  
The  Wharton  School,  University  of  Pennsylvania  
 
March  6,  2013  
 
I. Introduction
Hurricane Sandy caused an estimated $65 billion in economic losses to residences,
business owners and infrastructure owners.1 It is the second most costly natural disaster
in recent years in the United States after Hurricane Katrina in 2005, but it is not an
outlier; economic and insured losses from devastating natural catastrophes in the United
States and worldwide are climbing. According to Munich Re,2 real-dollar economic
losses from natural catastrophes alone increased from $528 billion (1981-1990), $1,197
billion (1991-2000) to $1,23 billion (2001-2010). During the past ten years, the losses
were principally due to hurricanes and resulting storm surge occurring in 2004, 2005, and
2008. Figure 1 depicts the evolution of the direct economic losses and the insured portion
from great natural disasters over the period 1970-2011.2
 
 
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FIGURE 1. NATURAL CATASTROPHES WORLDWIDE 1980-2011. OVERALL AND INSURED LOSSES
WITH TREND ($ BILLION)
Sources: Munich Re Geo Risks Research
Extreme events highlight the challenges in encouraging residents in hazard-prone areas to
protect themselves against future disaster losses. A 1974 survey of more than 1,000
California homeowners in earthquake-prone areas revealed that only 12 percent of the
respondents had adopted any protective measures.3 Fifteen years later, there was little
change despite the increased public awareness of the earthquake hazard. In a 1989
survey of 3,500 homeowners in four California counties at risk from earthquakes, only 5
to 9 percent of the respondents in these areas reported adopting any loss reduction
measures.4 Residents in flood-prone areas have demonstrated a similar reluctance to
invest in mitigation measures.5,6
 
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Even after the devastating 2004 and 2005 hurricane seasons, a large number of residents
had still not invested in relatively inexpensive loss-reduction measures with respect to
their property, nor had they undertaken emergency preparedness measures. A survey of
1,100 adults living along the Atlantic and Gulf Coasts undertaken in May 2006 revealed
that 83 percent of the responders had taken no steps to fortify their home, 68 percent had
no hurricane survival kit and 60 percent had no family disaster plan.7
A survey of nearly 800 residents in coastal counties during Hurricane Irene in 2011
revealed that less than half of storm shutter owners in the state of New York actually
installed them to protect their windows before the hurricane came. The others did not
because it would have “taken too long.” This is an interesting example of mitigation
measures being purchased but not utilized.8
On the positive side, 89 percent of respondents of this survey in North Carolina and 88
percent in New York indicated doing at least one storm preparation activity (e.g., buying
water and food reserves and batteries). But these are short-term preparation actions that
required limited effort. Many fewer households undertake protective measures when
preparedness requires considerable foresight, effort and capital.
Key decision makers who authorize development of hazard-prone areas after dams or
levees are built may unintentionally reinforce this behavior. There is compelling evidence
that residents moving into these areas feel completely safe, when in fact, they are still at
risk for catastrophes should the dam or levee be breached or overtopped.9 If a
catastrophic disaster occur, the damage is likely to be considerably greater than would
have occurred had the lower but still positive level of risk been correctly perceived. This
 
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behavior with its resulting consequences has been termed the levee effect. Public officials
exacerbate the problem by not enforcing building codes and imposing zoning restrictions.
A graphic example highlighting this point is the development of New Orleans following
Hurricane Betsy in 1965 after the Corps of Engineers agreed to build massive hurricane
protection levees to surround New Orleans and nearby communities. The city planning
commission approved new subdivisions between 1967 and 1972 in areas that had been
flooded by Betsy.10
II. Why Are Those at Risk Reluctant to Invest in Loss Reduction Measures?
Consider the following two illustrative scenarios:
Example 1: The Anderson family recently moved to a community that is subject to
flooding, and has been asked by a local company whether they want to invest $1,500 to
flood-proof their house so it is less susceptible to water damage. They are told that
hydrologists have estimated that the annual chance of a severe flood affecting their home
is 1/100 and that should such a disaster occur, flood-proofing their home will reduce their
damage from what it would have been by $40,000. The family is not willing to incur this
cost because they are not really that worried about the likelihood of flooding, even when
offered an opportunity to look at the data.
Example 2: The Benson family has lived in the same community in a house identical to
the Andersons for many years. They are concerned about the flood problem, and have
looked at the data, but feel they are not in a financial position to incur the $1,500 upfront
cost of flood-proofing because of budget constraints. They are postponing this decision
“until next year” as they have in previous years.
 
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These examples highlight two key problems in getting people to invest in cost-effective
risk-reduction measures:
1. People chose to ignore the chance of future flood damage (“It will not happen to
me”), even when they are provided with scientific information on the risk
2. The expected benefits from mitigation over the expected life of the house, do not
justify the high upfront cost today, given other pressing demands on the budget.
Decision Making under Risk and Uncertainty
A key challenge in taking steps to reduce losses from natural disasters is to recognize the
limitations of public and private decision makers in dealing with risk and uncertainty and
then design incentives that help them make more informed and efficient choices.
Many of the biases and simplified decision rules that characterize human judgment and
choice under uncertainty reflect automatic, emotional non-analytic thinking.11 In this
regard, risk is often treated as a feeling rather than as a statistical concept.12 While
intuitive perceptions of risk are relatively accurate over a broad range of situations, they
can lead to systematic deviations from expert assessments, especially for unfamiliar risks
that involve small probabilities and high degrees of uncertainty but do not trigger natural
reactions of dread. The risk associated with natural hazards falls into this category.
Logical assessments of risk, such as probability estimation, and Bayesian updating,
require considerable time and attention. If the Andersons or Bensons in our examples
were to use analytic processes to make better decisions, they would have weighed the
upfront investment in flood proofing their home against the expected discounted benefits
 
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over time in the form of reduced losses from future disasters and found the measure to be
cost-effective.
This paper suggests ways of addressing and overcoming this challenge: coupling longterm strategies for managing disasters with short-term incentives so that those at risk are
willing to undertake the required measures now.
Behavioral Factors Impeding Adoption of Mitigation Measures
There is considerable evidence indicating that individuals do not make efficient tradeoffs
between expected costs and benefit.13 The simplest explanation as to why individuals fail
to invest in adaptation and mitigation measures in the face of transparent risks is lack of
affordability. If the Bensons have limited disposable income after purchasing necessities,
limited credit and no way to borrow at reasonable interest rates, they would choose not to
make these investments.
The Benson’s decision to avoid making this investment is reinforced by their focusing on
the upfront costs of risk reduction measures relative to the delayed benefits of suffering
less damage from floods that might occur in the future.
14,15
Even before making this
tradeoff, individuals residing in harm’s way may decide not to undertake mitigation
measures if the likelihood of the disaster is below their threshold level of concern. In a
laboratory experiment on purchasing insurance, many individuals bid zero for insurance
coverage against low probability events, apparently viewing the probability of a loss as
sufficiently small that they were not interested in protecting themselves against it.16 This
may explain why the Anderson family did not invest in loss mitigation measures..
 
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III. The Role of Insurance in Incentivizing Mitigation
Insurance, as a risk sharing mechanism, can play an important role in linking mitigation
with financial protection should a disaster occur. People often buy insurance that makes
good economic sense. They buy property insurance on their homes. They buy collision
insurance on their new cars. They buy life insurance if they have dependents. But
insurance against extreme events, such as floods and earthquakes, poses problems
because these events are rarely experienced. People tend to ignore them or be unaware of
their consequences until it is too late.
Yet insurance, if priced properly, delivers the greatest value precisely in cases of
relatively rare events that can cause large losses: high benefits in the form of claim
payments in return for relatively low premiums paid over time. The insurance premium
itself can act as a powerful signal as to the likelihood of a loss in the face of individual
attempts to ignore the risk. Insurance also has the potential to encourage investment in
loss reduction measures through premium discounts reflecting expected reduced claims
following a disaster.17
Guiding Principles for Insurance
For insurance to play these important roles we propose the following three guiding
principles.
Principle 1: Premium reflecting risk. Insurance premiums should reflect risk to signal to
individuals how safe they are and what preventive or protective measures will reduce
their vulnerability to property losses. Risk-based premiums should also reflect the cost of
 
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capital that insurers need to integrate into their pricing to assure adequate competitive
returns to their investors.
Principle 1 provides a clear signal of the expected damage cost to those currently residing
in areas subject to natural disasters and those considering moving into these regions.
Insurers will also have an economic incentive to reduce premiums to homeowners and
businesses investing in cost-effective loss-reduction measures, and those at risk will have
an economic incentive to implement those measures.
On the other hand, if insurance is poorly designed and premiums are unrelated to risk or
to changes in risk, individuals are likely to underinvest in loss reduction measures. For
example, if high risk premiums are heavily subsidized, this will lead to an
underinvestment in mitigation because the premium reduction for undertaking this
investment would be smaller than it should be or even zero.
Insurance commissioners in several states have constrained premiums in hurricane-prone
coastal regions by either suppressing the rates private insurers may charge and/or by
providing coverage at distorted premiums through state organizations. The most extreme
example is Florida. Through its state-operated insurance company, Citizens Property
Insurance Corporation, homeowners residing in hurricane-prone areas pay highly
subsidized rates that undercut private insurers’ premiums. Over the past eight years,
Citizens has ballooned to become the state’s largest insurer, with about 1.4 million
policies at the beginning of 2013.18
 
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If Principle 1 is applied in hazard-prone areas where premiums are currently subsidized,
some residents will be faced with large price increases. This concern leads to the second
guiding principle.
Principle 2: Dealing with equity and affordability issues. Any special treatment given to
consumers at risk should come from means-tested, tax-financed insurance vouchers and
not through cross-subsidized insurance premiums.
Principle 2 is important if individuals residing in hazard-prone areas find that their
premiums increase considerably when rates become risk-based. For some homeowners,
higher premiums will impose an unexpected financial burden should they purchase a
policy voluntarily or be required to do so. For these reasons, insurance vouchers financed
by general taxation (not by higher premiums paid by lower risk individuals), may be the
best way to make the risk-based rates equitable. Note that Principle 2 applies only to
those individuals who currently reside in hazard-prone areas. Those who decide to locate
in the area should be charged premiums that reflect the risk.
Principle 3: Multi-year insurance. To overcome myopia and encourage investment in
preventive and protective measures, insurers should design multi-year contracts with
fixed annual premiums.
Today, property insurance contracts are issued on an annual basis which discourages
long-term thinking. Multi-year insurance contracts would benefit homeowners by
assuring them coverage at reasonable premiums following a catastrophe. With annual
contracts, insurers may discontinue coverage for some policyholders in high-hazard areas
 
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following catastrophic losses, particularly if state regulators do not allow them to increase
premiums. An advantage of multi-year contracts for insurers is a decrease in their
marketing costs as they do not have to concern themselves with renewal of policies. It
also reduces the variance with respect to claims payments since insurers are now
diversifying their risk across time as well as across policyholders.
Multi-year insurance can be implemented only if insurers are permitted to charge prices
that reflect long-term risk, and to adjust these premiums over time if risk changes. Today
indeed, insurance premiums in many states are restricted to be artificially low in hazardprone areas, contributing to the non-marketability of multi-year insurance for protecting
homeowners’ properties against losses from large-scale natural disasters. In addition,
uncertainty regarding costs of capital and changes in risk over time deters insurers from
extending their contracts beyond a single year.
Encouraging Investment in Loss Reduction Measures
The above three insurance principles should make it financially attractive for those at risk
to invest in mitigation measures, particularly if the insurance policy is coupled with a
home improvement loan so that the upfront costs of the loss-reduction investment is
spread over a few years.
Suppose the Anderson family and the Benson family are required to buy an insurance
policy as a condition for their mortgage. Assume also that the premiums reflect risk
(Principle 1). The policy is a 5-year contract with annual premiums stable over this
period (Principle 3). The two families are now each offered a 5-year home improvement
 
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loan for flood-proofing their homes at an interest rate of ten percent. Each family now
has to decide whether or not to undertake the measure.
Recall that both families were reluctant to invest in mitigation measures for different
reasons. The Andersons perceived the risk to be below their threshold level of concern;
the Bensons faced budget constraints. If flood insurance were required as a condition for
a mortgage, then a home improvement loan could encourage each family to invest in
mitigation.
Suppose the Anderson and Benson families are told that if they invest in mitigation, their
annual premium over the next five years will be lowered due to the reduction in expected
annual claims that the insurer pays each family – in this case $400 [i.e. 1/100 ($40,000)].i
If each family takes a 5-year home improvement loan to cover the $1,200 mitigation cost
at an interest rate of 7.5%, the annual loan cost will be $290. Thus there is a net saving to
them of $110 (i.e., $400 – $290) for each of the next five years. From a financial
viewpoint, this package should be attractive to both families. The key innovation would
be to market the insurance and the home improvement loan as a package, with the
combination paid off in annual premiums.
If the new flood insurance premiums are now higher than before, an insurance voucher
could be offered to current lower-income homeowners to reflect the unexpected increase
(Principle 2). Over time, vouchers would eventually disappear as homes were re-sold
except for those original families who retained ownership. The voucher would not
preclude families from receiving a premium discount reflecting the reduced losses from
future disasters due to investments in loss reduction measures.
 
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Reframing the Problem of Risk
Another complementary way to make people want to invest in protection today is to
reframe the problem of risk so that people believe potential future …
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