Erwann Michel-Kerjan

Evaluating Flood Resilience Strategies for Coastal Megacities

Integration of models for storms and floods, damages and protections, should aid resilience planning and investments. Recent flood disasters in the United States (2005, 2008, 2012); the Philippines (2012, 2013); and Britain (2014) illustrate how vulnerable coastal cities are to storm surge flooding (1). Floods caused the largest portion of insured losses among all catastrophes around the world in 2013 (2). Population density in flood-prone coastal zones and megacities is expected to grow by 25% by 2050; projected climate change and sea level rise may further increase the frequency and/or severity of large-scale floods (3–7).

Come Rain or Shine: Evidence on Flood Insurance Purchases in Florida

In the U.S., flood insurance is provided essentially through the National Flood Insurance Program (NFIP), a public-private program established in 1968. In the past 10 years, the program has radically expanded to cover

Redesigning Flood Insurance

1.1 trillion in assets today. This paper provides a detailed analysis of the largest flood insurance sample ever studied by focusing on the state of Florida, which accounts for 40 percent of the entire NFIP portfolio. We study the demand for flood insurance with a database of more than 7.5 million flood policies-in-force for the years 2000-2005, and all the claims filed in Florida during that period. We answer four questions: What are the characteristics of the buyers of flood insurance? What types of contracts (deductibles and coverage levels) are purchased? Where and when are claims paid and to what extent does mitigation work? How are prices determined and how much does NFIP insurance cost? Given the recent significant increase in the cost of catastrophes worldwide and the debate about the role that insurance can play to enhance adaptation to climate change, the responses to these questions shall be of interest to other countries too.

Catastrophe risk models for evaluating disaster risk reduction investments in developing countries.

Improved knowledge from a range of disciplines will be needed to price the much-needed financial products appropriately. Insurance and government assistance play central roles in ensuring economic and social resilience in the aftermath of catastrophes in developed countries. Around the globe in the past decade, disasters have led to unprecedented claims payments to insured victims, and government relief to aid the uninsured and the affected communities has risen to historic levels (1–3). Increases in population, property values, and concentration of assets in hazard-prone areas are primary causes (2). Recent climate studies indicate we should also expect more extreme weather-related events in the future (4–6). The cumulative expected exposure of the U.S. government to catastrophes over the next 75 years could reach

Critical Infrastructures under Threat: Learning from the Anthrax Scare

7 trillion (7).

How Does the Corporate World Cope with Mega-Terrorism? Puzzling Evidence from Terrorism Insurance Markets

Major natural disasters in recent years have had high human and economic costs, and triggered record high postdisaster relief from governments and international donors. Given the current economic situation worldwide, selecting the most effective disaster risk reduction (DRR) measures is critical. This is especially the case for low- and middle-income countries, which have suffered disproportionally more economic and human losses from disasters. This article discusses a methodology that makes use of advanced probabilistic catastrophe models to estimate benefits of DRR measures. We apply such newly developed models to generate estimates for hurricane risk on residential structures on the island of St. Lucia, and earthquake risk on residential structures in Istanbul, Turkey, as two illustrative case studies. The costs and economic benefits for selected risk reduction measures are estimated taking account of hazard, exposure, and vulnerability. We conclude by emphasizing the advantages and challenges of catastrophe model-based cost-benefit analyses for DRR in developing countries.

New Challenges in Critical Infrastructures: A US Perspective

Conventional thinking in emergency and crisis management focuses on the application of codified procedures to unforeseen contingencies. Modern societys increased dependence on critical infrastructures and the emerging vulnerabilities of these large-scale networks create challenges that are hard to meet with conventional tools of crisis management. This article discusses the inherent vulnerabilities and explores the requirements of effective preparation for escalatory network breakdowns.

Quantifying Riverine and Storm‐Surge Flood Risk by Single‐Family Residence: Application to Texas

Terrorist attacks that have succeeded abroad since 2001, as well as others that were prevented, indicate that the threat of a large-scale attack is real and will be with us for a long time. Focusing on the United States, the United Kingdom, and Germany, this article analyzes the role that insurance can play in providing commercial enterprises with financial protection against the economic consequences of major terrorist attacks.The article begins by explaining the design and key features of terrorism insurance programs operating today in each of the three countries (TRIA in the U.S., Pool Re in the U.K., and Extremus in Germany). The authors then provide a detailed comparative analysis of the evolution of prices and take-up rates (based on as yet unpublished data), with particular attention to financial institutions. For those who think the U.S. is the most likely target for mega-terrorism, the findings are somewhat puzzling. On average, for example, companies in the U.S. do not pay even half as much for comparable coverage under TRIA as companies pay in Germany under Extremus. This raises important questions. Is terrorism coverage under the U.S. insurance program now drastically underpriced? If so, what would be the likely consequences of another large-scale attack in the U.S.? On the demand side, the authors observe a dramatic increase in take-up rates in the U.S. since 2003, revealing increased corporate concern. By contrast, the market penetration in Germany remains remarkably low.The article also discusses the concept of pricing by contrasting two possible measures of price: premium over total insured value (measure commonly used today) versus premium over maximum annual compensation (real quantity of insurance purchased). Empirical evaluation of these two measures using data on these markets reveals a significant contrast.As the new Congress studies the future of terrorism risk financing after 2007, a better understanding of these programs in the U.S. and Europe and of the recent evolution of these markets will be critical. The analysis provided in this paper shall help corporate and government decision makers develop more effective protection programs against the economic consequences of mega-terrorism to ensure national security and economic growth.

Determining tropical cyclone inland flooding loss on a large scale through a new flood peak ratio-based methodology

The emergence of a larger threat spectrum -terrorism, sabotage, local conflicts, political unrest, and natural disasters- combined with the growing globalization of economic activities, makes networks highly vulnerable. Rethinking national vulnerabilities requires the creation and the improvement of long-term public-private partnerships. The article discusses the US Presidential initiative launched in 1996 -the first initiative worldwide to put these issues on the top-level agenda- as well as the national structure of developed partnerships. It might constitute a starting point for other countries to develop their own national strategy, adapting it of course to their own national particularities.Terrorists attacks in 2001 show, however, that such an initiative constitutes nothing but a first step in a general process to build preparedness nationwide; America still remains highly vulnerable. I conclude with a few myths that must be confronted to deal more efficiently with these new large-scale risks at an international level.

Managing Catastrophic Risks Through Redesigned Insurance: Challenges and Opportunities

The development of catastrophe models in recent years allows for assessment of the flood hazard much more effectively than when the federally run National Flood Insurance Program (NFIP) was created in 1968. We propose and then demonstrate a methodological approach to determine pure premiums based on the entire distribution of possible flood events. We apply hazard, exposure, and vulnerability analyses to a sample of 300,000 single-family residences in two counties in Texas (Travis and Galveston) using state-of-the-art flood catastrophe models. Even in zones of similar flood risk classification by FEMA there is substantial variation in exposure between coastal and inland flood risk. For instance, homes in the designated moderate-risk X500/B zones in Galveston are exposed to a flood risk on average 2.5 times greater than residences in X500/B zones in Travis. The results also show very similar average annual loss (corrected for exposure) for a number of residences despite their being in different FEMA flood zones. We also find significant storm-surge exposure outside of the FEMA designated storm-surge risk zones. Taken together these findings highlight the importance of a microanalysis of flood exposure. The process of aggregating risk at a flood zone level-as currently undertaken by FEMA-provides a false sense of uniformity. As our analysis indicates, the technology to delineate the flood risks exists today.