With more than 50 percent of the country’s population living in coastal counties, there is an urgent and extensive need to convince consumers to adopt a long-term view of catastrophic risk.
That is the conclusion of a symposium organized by The Griffith Insurance Education Foundation that drew together industry, government and academic leaders — many from disaster-prone coastal states such as California, Florida, Louisiana and Mississippi.
The symposium, “The Three Ms of Catastrophic Risk Management … Mitigation, Money and (Residual) Markets,” hosted by the Griffith Insurance Education Foundation, was held in December at The Ohio State University’s Fisher College of Business.
Symposium participants recommended that consumer education should include greater awareness of the value of mitigation — making improvements to homes to safeguard families from storms and earthquakes.
Investment in such improvements are likely to yield expected benefits over the life of the house that are considerably greater than the cost to make these improvements, according to one participant, Howard Kunreuther, Ph.D., of The Wharton School at the University of Pennsylvania and author of “At War With the Weather.”
But catastrophic risk mitigation requires a common understanding of the extended timeframe for return on investment required.
Retrofitting older homes and safer structural designs and materials for new builds require consumer and homebuilder involvement, along with industry and regulatory solutions.
Consequences of mitigation, or the lack thereof, may not arrive for years, making it difficult to convince consumers to take preventive action in the present. For instance, a study by Tobin and Calfee in 2005 indicated that 84 percent of residents in flood-prone areas had not purchased flood insurance — although nearly half were supposed to have purchased it by law.
Symposium attendees pointed to the need for consumer education that dramatizes natural catastrophe risks — similar to crash-test dummy car accident simulations — so that long-term consequences may be understood in the here and now.
“We all need to be proponents of mitigation — and that requires consumer education,” said Mississippi Insurance Commissioner Mike Chaney. “Long-term, that’s the solution to reducing losses, no matter the catastrophe.”
People need to think long-term about planning for disasters, says The Wharton School’s Kunreuther.
“By nature we are myopic and have a short-term horizon when it comes to catastrophes,” he said. “We must put in place appropriate near-term incentives, such as tax rebates and short-term loans, to encourage investment in cost-effective mitigation measures.”
Source: The Griffith Insurance Education Foundation
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