Disaster Mitigation and Insurance: Learning from Katrina

Abstract

Hurricane Katrina illustrates the natural disaster syndrome. Prior to a disaster, individuals in hazard-prone regions do not voluntarily adopt cost-effective loss reduction measures. The federal government then comes to the rescue with disaster assistance even if it claimed it had no intention of doing so prior to the event. There are a number of reasons why individuals do not protect themselves prior to a disaster. They underestimate the likelihood of a future disaster, often believing that it will not happen to them; have budget constraints; are myopic in their behavior; and/or do not want to be the only one on the block modifying their structure. Given this lack of interest in voluntary protection, benefit-cost analysis can determine when a well-enforced building code would be appropriate. The article concludes by highlighting the importance of public-private partnerships as a way of reducing future disaster losses and aiding the recovery process.