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HOMELAND SECURITY STUDIES AND ANALYSIS INSTITUTE
The Homeland Security Act of 2002 (Section 305 of PL 107-296, as codified in 6 U.S.C. 185) authorizes the Secretary of the Department of Homeland Security (DHS), acting through the Under Secretary for Science and Technology, to establish one or more federally funded research and development centers (FFRDCs) to provide independent analysis of homeland security issues. Analytic Services Inc. operates the Homeland Security Studies and Analysis Institute as an FFRDC for DHS under contract HSHQDC-09-D-00003.
HSSAI provides the government with the necessary expertise to conduct crosscutting mission analysis, strategic studies and assessments, development of models that baseline current capabilities, development of simulations and technical evaluations to evaluate mission trade-offs, creation and evolution of high-level operational and system concepts, development of top-level system and operational requirements and performance metrics, operational analysis across the homeland security enterprise, and analytic support for operational testing evaluation in tandem with the government’s acquisition process. HSSAI also works with and supports other federal, state, local, tribal, public and private sector organizations that make up the homeland security enterprise.
HSSAI’s research is undertaken by mutual consent with DHS and is organized as a set of discrete tasks. This report presents the results of research and analysis conducted under
Task 13-01.04.07 , Voluntary Flood Mitigation
The purpose of the task is to translate academic findings from literature pertaining to flood mitigation and specifically the Federal Emergency Management Agency’s (FEMA’s) Community Rating System Program (CRS) into an actionable policy white paper. This white paper is expected to inform FEMA’s Federal Insurance and Mitigation Administration (FIMA).
The results presented in this report do not necessarily reflect official DHS opinion or policy.
COVER PHOTO CREDITSTop Photo : NOAA
Bottom Photos: Robert Zimmerman
i
UNDERSTANDING THE VALUE
OF MITIGATION: EVIDENCE
FROM FEMA'S COMMUNITY
RATING SYSTEM AND
ELSEWHERE
White Paper
July 31, 2014
Prepared for Department of Homeland Security Science and Technology Directorate
TASK LEAD
Elizabeth Asche, PhD
Steve Chabolla
Manager, Business Enterprise Analysis Division
Daniel Kaniewski
Director, Preparedness/Response Mission Area
ii
For information about this publication or other HSSAI research, contact
HOMELAND SECURITY STUDIES AND ANALYSIS INSTITUTE
Analytic Services Incorporated
5275 Leesburg Pike, Suite N-5000
Falls Church, Virginia 22041
Tel (703) 416-3229 • Fax (703) 379-2550
www.homelandsecurity.org
Publication Number: RP13-01.04.07-01
1
Background
Over the last 30 years, there has been an increase in the impact of flooding in the United States.
Evidence of this impact includes the number of insured flood losses, the amount of insured losses per
claim, the amount of property damage due to flooding, the frequency of flood events, and various other
metrics.1 This increase has occurred throughout the United States and is not simply the result of a few
large events (such as Hurricane Katrina and Hurricane Sandy). Affected Individuals and communities are
not the only ones who bear the rising costs of flooding; the burden to taxpayers has also risen in the
wake of these events. Flood insurance and mitigation are two ways to potentially reduce these costs.
As the primary provider of flood insurance through the National Flood Insurance Program (NFIP), for
decades the U.S. Government has been attempting to reduce the financial risk that it faces in case of
flooding. The agency in charge of the NFIP, the Federal Emergency Management Agency (FEMA), has
instituted a variety of programs to encourage hazard mitigation and to increase the market penetration
of flood insurance. One of these programs, the Community Rating System Program (CRS), is the focus of
this white paper. The CRS encourages flood‐prone communities to undertake a series of hazard
mitigation efforts to lessen the impact of a flood, as mitigation is expected to reduce flood risk. If the
communities undertake hazard mitigation efforts, their residents receive flood insurance discounts. If
this program can be shown to effectively reduce flood risk and impact, participation in communities
throughout the United States will likely increase.
Introduction
The CRS faces a difficulty that occurs throughout the homeland security domain: How should we, as
stakeholders in this domain, quantify the effects of mitigation or actions taken in advance to avoid
damage? How can we determine whether the costs are worth the benefits when we infrequently have
the opportunity to test the efficacy of mitigation measures? Both academics and practitioners have
grappled with these questions over the past few decades, but the two communities have not worked
closely together to set a research agenda, combine efforts, or communicate their research effectively.
The divide between academics, practitioners, and the public comes from a lack of understanding and
common language. This fact is particularly salient in emergency management. A FEMA training
document states that "hazard/disaster research and emergency management do not necessarily
function as one" and that “there are abysmal cultural differences between the academic world and the
1 Erwann O. Michel‐Kerjan and Howard Kunreuther, “Reforming Flood Insurance,” Science 22, no. 6041 (2011): 408-409; Howard Kunreuther, Erwann Kerjan, and Neil A. Doherty, At War with the Weather: Managing Large‐Scale Risks in a New Era of Catastrophes (Cambridge, MA: MIT Press, 2009); Elizabeth Witham, Steven Bowen, Sarah Maloney, and Richard Kohout, Financing Recovery from Catastrophic Events, discussion paper (Arlington, VA: Homeland Security Institute, 2007); Jim McKay, “Fixing Flood Insurance,” Emergency Management Magazine 9, issue 3 (2014): 17‐21.
2
practitioner world."2 It is clear that the communities could benefit from a common understanding, as
they have shared interests and objectives.
The goal of this white paper is to explore the CRS in the academic and popular literature, as well as the
recent legislative actions and ongoing work within FEMA. By bringing together often‐disparate parts of
the conversation, I provide a brief view of historical and current issues related to the CRS and
quantifying the value of mitigation. In this paper, I explain the CRS, detail the legislative landscape,
review relevant literature in academia, explain ongoing studies and programs within FEMA, and apply
knowledge from all of these areas to the problem of measuring mitigation. I conclude by making
recommendations for future research.
Key Findings
The CRS is a high interest area for Congress.
The mitigation literature is unclear regarding how individuals perceive flood risk but suggests
several reasons for individual and community mitigation decisions.
The CRS literature suggests that participating communities have common elements and that the
program’s participants may be experiencing reduced losses.
FEMA’s Federal Insurance Mitigation Administration has several ongoing initiatives pertaining to
the value of mitigation.
Decision makers lack a comprehensive understanding about the payoffs from mitigation, but
they can learn from work in academia and policy.
Community mitigation will only happen when there is community participation and funding
available.
A Brief History of the NFIP and the CRS
Established in 1968, the NFIP initially provided subsidized flood insurance in economically crucial but
geographically risky regions where either a private insurance market did not exist or the insurance was
more expensive than residents were willing to pay.3 The NFIP no longer subsidizes all policies, but is still
responsible for providing flood insurance to the vast majority of the flood‐prone regions of the United
States. The authors of the NFIP intended it to “better indemnify property owners from flood losses,
reduce future flood‐related losses through community floodplain management measures, and reduce
2 Arthur Oyola‐Yemaile and Jennifer Wilson, “Social Science Hazard/Disaster Research: Its Legacy for Emergency Management Higher Education,” in The Future of Emergency Management: Papers from the 2005 FEMA Emergency Management Higher Education Conference William L. Waugh Jr., ed. (Emmitsburg, MD: Higher Education Project, Emergency Management Institute, National Emergency Training Center, 2005), 82, accessed March 30, 2014, http://www.training.fema.gov/EMIWeb/edu/emfuture.asp.
3 American Insurance Association, Studies of Floods and Flood Damage, 1952‐1955, discussion paper (American Insurance Association, 1956).
3
future disaster assistance costs through insurance and floodplain management.”4 The first of the three
goals has been accomplished. The second and third are currently in progress, but their effectiveness is
unknown, as I will discuss later in this paper. If flood events continue to increase in both frequency and
severity, and if more of the population resides in flood‐prone areas, the NFIP will become increasingly
important at both the federal and local levels. Programs associated with the NFIP, such as the CRS, will
also gain visibility as a means to mitigate the associated risks.
Created in 1990, the CRS aims to increase flood insurance prevalence, increase mitigation efforts, and in
so doing, decrease federal disaster expenditures. The CRS is a voluntary program that offers incentives
to communities that undertake hazard mitigation measures. These incentives take the form of flood
insurance discounts—the more hazard mitigation measures a community undertakes, the greater the
discount enjoyed by that community's residents.5 The discounts range from 0 percent to 45 percent, and
each 5 percent decrease is considered a change in "class." Class 10 indicates that a community has not
undertaken enough mitigation measures to qualify for a discount, and Class 1 indicates that the
community has undertaken enough mitigation measures to qualify for the maximum insurance discount.
The majority of communities that participated in the program as of 2009 were in Class 8, 9, or 10.6
In recent years, the CRS has gained in both recognition and participation. With increasing regularity, the
CRS’s administrative staff is asked to explain the program to a variety of audiences. As the CRS gains
visibility, the mitigation measures that the system credits will come under scrutiny. Key questions
stakeholders will likely ask CRS staff will likely include “Which are the most effective mitigation
measures?” and “What is the benefit of mitigation?” The CRS office has commissioned several studies
this year directed, in part, at answering these questions. There are other potential research
opportunities outlined in the final section of this report that may inform the discussion about the value
of hazard mitigation generally, and specifically in the context of the CRS.
Congressional Actions
Over the past four decades, the NFIP has undergone many reforms and changes. These are detailed
throughout the academic and popular literature, and most are beyond the scope of this white paper. I
discuss recent legislative efforts that have a direct impact on the CRS below.
4 PricewaterhouseCoopers, Study of the Economic Effects of Charging Actuarially Based Premium Rates for Pre‐FIRM Structures, discussion paper (Federal Emergency Management Agency, 1999).
5 A community receives points for a series of hazard mitigation measures, with the most points going to activities that are purported to provide the most risk reduction. Furthermore, there is no free lunch in the CRS. The program finances insurance discounts in participating communities by raising rates throughout the country. Last year, the program gave $280 million in discounts, which required raising rates 9 percent everywhere.
6 Elizabeth Ann Asche, “The Effect of Flood Risk on Housing Choices and Community Hazard Mitigation” (PhD dissertation, University of California, Santa Barbara, 2013).
4
Signed into law by President Obama on July 6, 2012, the Biggert‐Waters Flood Insurance Reform Act of
2012 (BW12)7 established risk‐based insurance rates and eliminated some flood insurance subsidies.
However, just over a year later, Congress repealed most of the reforms because the risk‐based rates
that FEMA had started charging were not affordable for many homeowners. During recent congressional
debates on insurance reforms, policymakers pointed to mitigation as an option to both protect citizens
and reduce the financial burden borne by the federal government.8 The CRS, with its link to insurance
discounts, has taken center stage in this discussion.
On April 3, 2014, the House Subcommittee on Economic Development, Public Buildings, and Emergency
Management held a hearing titled “Disaster Mitigation: Reducing Costs and Saving Lives,” which
included a discussion of the CRS. Witnesses from the National Association of Counties, the National
Emergency Management Association, the Association of State Floodplain Managers, and the Associate
Administrator for the Federal Insurance and Mitigation Administration testified. Members of the
subcommittee showed significant interest in the CRS and asked witnesses many questions about it.
Several witnesses emphasized the need to show the value or return on investment of mitigation in order
to encourage communities to participate. Of note, the representative from the Association of State
Floodplain Managers suggested that Florida citizens saved $191 million in premiums by participating in
the CRS.
It is apparent that in the current legislative environment, there is a need for clear metrics that convey
the value of mitigation efforts. However, not all mitigation efforts require the same resources or afford
the same benefits in every community. Hydrology and climate vary throughout the United States, and
choosing the right combination of mitigation activities will depend on a community’s physical and
economic environment. Therefore, it might be advantageous to develop a way to demonstrate the costs
and benefits of various mitigation strategies, as well as potential interactions among them. With this
information, communities could choose the mitigation activities that are most appropriate for their
needs.
Academic Literature
There have been many studies in both the physical and social sciences that pertain to hazard mitigation
and a few that pertain specifically to the CRS. In this section, I explain studies that are representative of
the themes within the literature and that have findings that are translatable into policy prescriptions. It
is important to note that there are limitations to academic studies, and decision makers should not use
one study alone to justify policy. Rather, decision makers should be aware of academic literature
relevant to their domain and use it to spark discussion on novel or alternative methods and
perspectives. Many academic studies rely on assumptions to make complicated problems more
7 Pub. L. No. 112‐141 (2012).
8 Disaster Mitigation: Reducing Costs and Saving Lives: Hearing before the House Subcommittee on Economic Development, Public Buildings, and Emergency Management, 113th Cong. (2014).
5
tractable, and decision makers should interpret the results with caution. Therefore, I use the term
“suggests” rather than “finds” or “shows” in the following discussion.
Hazard Mitigation in Academic Literature
Before discussing which hazard mitigation activities are most valuable, it may be worthwhile to
understand why hazard mitigation is or is not undertaken at an individual or community level. Risk
perception, experience, affordability, and community buy‐in have been suggested as significant factors
that affect an individual’s or community’s decision to undertake mitigation efforts.9 The presence of
post‐disaster assistance and insurance have also been suggested as possible substitutes for mitigation.10
Several studies have suggested that communities that are larger, wealthier, and have higher property
values are more likely to invest in mitigation.11 Wealthier communities have more money available to
invest in a host of different activities. One study used evidence from the CRS to explore the relationship
between adaptive capacity and socio‐economic status, suggesting that wealthier communities have
more capacity to effect collective action and respond to environmental threats.12 This suggests that the
CRS will likely have highest participation in wealthier communities and that another option for funding
mitigation, such as grants, may be necessary in communities that lack the necessary resources.
One of FEMA's historical hazard mitigation grant programs, the Repetitive Flood Claims Program,
offered to purchase properties that have been damaged by flooding multiple times.13 One study
examined the factors that affect residents’ decision to accept these offers and relocate permanently
after multiple flood losses.14 The results suggest that relocation offers are less likely to be accepted if
property is in good condition, if community is very important to residents (strong attachment to
neighborhood), or if household income is higher. The study’s results also suggest that relocation offers
are more likely to be accepted if residents fear future flooding or if they trust local officials. The findings
9 Howard Kunreuther, "Mitigating Disaster Losses through Insurance," Journal of Risk and Uncertainty 12, no. 2‐3 (1996): 171‐187; Raymond Burby and Steven French, "Coping with Floods: The Land Use Management Paradox," Journal of the American Planning Association 47, no. 3 (1981): 289‐300; Raymond J. Burby, “Hurricane Katrina and the Paradoxes of Government Disaster Policy: Bringing about Wise Governmental Decisions for Hazardous Areas,” Annals of the American Academy of Political and Social Science (2006).
10 Mark J. Browne and Robert E. Hoyt, “The Demand for Flood Insurance: Empirical Evidence,” Journal of Risk and Uncertainty 20, no. 3 (2000): 291‐309.
11 John Posey, “The Determinants of Vulnerability and Adaptive Capacity at the Municipal Level: Evidence from Floodplain Management Programs in the United States,” Global Environmental Change 19, no. 4 (2009): 482‐493; Erwann O. Michel‐Kerjan and Carolyn Kousky, "Come Rain or Shine: Evidence on Flood Insurance Purchases in Florida," Journal of Risk and Insurance 77, no. 2 (2010): 369‐397.
12 Posey, “The Determinants of Vulnerability and Adaptive Capacity at the Municipal Level.”
13 This program was eliminated in BW12. FEMA can now purchase repetitive loss properties under the “Flood Mitigation Activities” grant program, as described in the “Hazard Mitigation Assistance Unified Guidance” document, accessed June 30, 2014, http://www.fema.gov/media‐library/assets/documents/33634?id=7851.
14 Edward L. Kick, et al., "Repetitive Flood Victims and Acceptance of FEMA Mitigation Offers: an Analysis with Community‐System Policy Implications," Disasters 35, no. 3 (2011): 510‐539.
6
from this paper, incorporating more than two decades of other empirical and theoretical research,
suggest that both trust in local officials and connection with community are very important in individual
mitigation decisions.
Some suggest community pride or buy‐in are important factors that affect community‐wide mitigation
decisions. For example, one study looked at Fort Wayne, Colorado, a community that had recently
experienced flooding, and found that a "political choice was made to identify publicly mitigation and
recovery values represented by 14 systematically assessed recovery and mitigation options."15
Community leaders outlined the tradeoffs between costs and benefits of different mitigation and
recovery options to the residents, enabling the residents to make an informed decision concerning the
options that were right for them. The idea that a community’s residents are able to choose mitigation
and recovery options has gained traction in recent years—this “grassroots” or “bottom up” approach
has been described in resilience literature.16
A 2012 article reviewed 16 international academic studies that examined factors that drive flood
mitigation behavior.17 The authors found that, although there are a growing number of studies regarding
the relationship between individual flood risk perception and mitigation behavior, the “current focus on
risk perceptions as a means to explain and promote private flood mitigation behavior is not supported
on theoretical or empirical grounds.”18 They suggested, however, that there has been a lack of research
into how adopted mitigation measures change future risk perception, i.e. how mitigation at one point in
time may reduce risk perception in the future. In a related effort, an article on the perception and
communication of flood risks included 57 peer‐reviewed articles.19 The authors found that there is a lack
of studies on flood risk communication and its link to mitigation and adaptation. These two literature
reviews suggest that more research needs to be done into both the communication of flood risk and the
relationship between flood risk perception and mitigation.
The CRS in Academic Literature
There have been several studies of the CRS in academic literature. Two of note focused on flood events
in Florida. The first looked at the change in local mitigation policies that are credited in the CRS over
time, suggesting that jurisdictions learn from and adapt to changing hazards and environmental
15Claire B. Rubin and Daniel G. Barbee, "Disaster Recovery and Hazard Mitigation: Bridging the Intergovernmental Gap," Public Administration Review 45 (1985): 57.
16 “Webinar—Resilience & Resilience Systems—Considerations for NYC Coastal Communities,” U.S. Resilience System (May 12, 2014), accessed May 28, 2014, http://us.resiliencesystem.org/webinar‐resilience‐resilience‐systems‐considerations‐nyc‐coastal‐communities.
17 P. Bubeck, W. J. W. Botzen, and J. C. J. H. Aerts, "A Review of Risk Perceptions and Other Factors that Influence Flood Mitigation Behavior," Risk Analysis 32, no. 9 (2012): 1481‐1495.
18 Ibid., 1481.
19 Wim Kellens, Teun Terpstra, and Philippe De Maeyer, "Perception and Communication of Flood Risks: A Systematic Review of Empirical Research," Risk Analysis 33, no. 1 (2013): 24‐49.
7
conditions.20 The second assessed the impact of mitigation measures, finding lower claims for elevated
homes and communities that participate in the CRS at the Class 5 level, suggesting “communities could
be more strongly encouraged to join (the CRS) program and to achieve a lower CRS class.”21
Another study examined the relationship between the built environment and flood impacts in Texas.
The authors of this study found that counties that have developed wetlands and/or built more
impervious surfaces sustain more property damage than those that have not. They also found that
counties that participate in the CRS and/or have dams experience reduced flood damage and that the
effect of CRS participation is stronger than the effect of dams.22
Two recent doctoral dissertations used CRS data. The first, “Community Flood Hazard Mitigation and the
Community Rating System of National Flood Insurance Program,” looked at CRS participation in North
Carolina counties.23 The findings suggest that flood history and physical risk factors increase the
likelihood of local hazard mitigation adoption and that local governments can improve flood hazard
mitigation by instituting regulations that are more stringent than NFIP minimum requirements.
The second is my own dissertation,
“The Effect of Flood Risk on Housing
Choices and Community Hazard
Mitigation,” which looked at
evolving flood risk in the United
States and how historical flood risk
interacts with participation in the
CRS to predict insured losses.24 In
part of it, I displayed the benefits of
mitigation graphically and showed
that the CRS may be achieving its
goal of reducing insured flood losses
in communities that face high flood
risk. The graph at left shows
historical risk on the x‐axis and
predicted insured flood losses on the
y‐axis. My results suggest that as
20 Samuel D. Brody, et al., "Policy Learning for Flood Mitigation: A Longitudinal Assessment of the Community Rating System in Florida," Risk Analysis 29, no. 6 (2009): 912‐929.
21 Michel‐Kerjan and Kousky, "Come Rain or Shine.” 394.
22 Samuel D. Brody, et al., "Identifying the Impact of the Built Environment on Flood Damage in Texas," Disasters 32, no. 1 (2008): 1‐18.
23 Jingyuan Li, “Community Flood Hazard Mitigation and the Community Rating System of National Flood Insurance Program,” (PhD dissertation, East Carolina University, 2012).
24 Asche, “The Effect of Flood Risk on Housing Choices and Community Hazard Mitigation.”
Figure 1: Predicted Loss Per Claim by Risk
8
historical risk increases, CRS‐participating communities are expected to have decreasing losses, but
nonparticipants are expected to experience increasing losses.
Some of the literature suggests that CRS participants experience more insured losses than
nonparticipating communities do. I display these loses in the graph to the left. At low levels of historical
risk, CRS communities are predicted to have greater insured losses than nonparticipating communities
do. This is not entirely surprising, considering that historical experience is one of the drivers of hazard
mitigation adoption. The more important question for determining the value of mitigation is “how bad
would the losses have been if the communities were not program participants?” One of the FEMA
studies currently underway attempts to answer that question for building codes by modeling disasters,
as described below.
Ongoing Relevant FEMA Studies
Due in part to the requirements of BW12 and in part to increased program participation, FEMA’s Federal
Insurance and Mitigation Administration (FIMA) has undertaken and sponsored several studies
pertaining to the CRS and mitigation activities. These studies are in various stages of completion, but it is
important to note that they are underway, as their results should be part of the “value of mitigation”
discussion. All of the studies have different goals, but the results of each will bring greater clarity to the
question, “what is the value of mitigation?”
As part of BW12, FEMA was required to author a study on including building codes in NFIP.25 The results
of this study suggest that most NFIP communities already administer building codes, the most significant
benefits of including building codes would arise from required added elevation above base flood
elevation (freeboard), and property damage would be lower for properties that were built with building
codes enforced. The report suggests several lines for future research, including a study on the
enforcement of building codes in communities that have adopted them, a study on the cost of adopting
and enforcing building codes, and a study of the effectiveness of building code requirements in reducing
flood‐related damage to building and contents.
Along similar lines, there is work in progress to determine the impact of building codes on natural
disaster losses, starting with a pilot study in FEMA Region 4. The study is based on “losses avoided” and
models pre‐ and post‐2000 conditions to compare losses before and after the imposition of building
codes. The study looks at flood, seismic, and wind hazards and uses parcel‐level data for the entire
region’s 500‐year floodplain.
FIMA recently completed the first part of a study with Texas A&M University to determine which
activities are most effective in reducing flood losses. Preliminary results suggest that freeboard and
retaining floodplain as open space are the most effective CRS activities. This implies that some
mitigation activities are more effective than others, as is suggested in the academic literature.
25 “Including Building Codes in the National Flood Insurance Program,” Federal Emergency Management Agency (2013), accessed March 30, 2014, http://www.fema.gov/media‐library/assets/documents/85960.
9
Fort Collins is one of the top communities that participate in the CRS, with an insurance discount of 30
percent and a rating of Class 4.26 In the Colorado flooding of 2013, Fort Collins’s mitigation activities
were tested and seemed to have succeeded; the city experienced only four insured losses, compared to
a neighboring city that experienced 400 insured losses. There is a project underway in FEMA Region 8 to
compare Fort Collins’s experiences and losses with those of the neighboring community.
In the recently released 2014‐2018 FEMA Strategic Plan, Administrator Fugate emphasized the need to
“enhance the effectiveness, financial stability, and affordability of the National Flood Insurance
Program” as one of 16 key objectives.27 Within the description of this objective, FEMA suggested that
the NFIP will strengthen its service to policyholders in its communities in part by “educating on
measures to mitigate flood risk” and to “create public/private partnerships to encourage a culture of
private mitigation and risk‐based decision making.” In educating policyholders and communities and
creating public/private partnerships, FEMA should be able to clearly describe the benefits of mitigation.
The Linearity (or Nonlinearity) of Mitigation Benefits
As I suggested in the introduction, there are often disconnects between groups that study the same
subject from alternative perspectives. Sometimes statistics from academic reports are taken out of
context and utilized in other domains, which may lead to a fundamental misunderstanding between
different groups that are trying to achieve the same end. There is one statistic of note in the mitigation
domain that is taken out of context quite frequently: that mitigation saves $4 for every $1 spent. This
implies that the payoff to mitigation is linear, meaning that each $1 put in to mitigation is worth $4 in
future benefits for each dollar and that the payoffs from different types of mitigation are the same, as
shown in the figure at right.
In the sections above, I have shown that
mitigation is complicated and that not all
mitigation activities have the same benefit or
payoff. This fact should inform not only the
decisions and policies that are made, but also
the way mitigation is discussed. In the
following section, I explain where the $4‐to‐
$1 ratio comes from, what it was intended to
provide, and how we should change the way
we talk about mitigation to take into account
the complexity of the issue, based on some
academic work and economic intuition.
26 Poudre Fire Authority and Fort Collins Utilities, Northern Colorado Regional Hazard Mitigation Plan 2013 Annual Report (Fort Collins, CO: Poudre Fire Authority and Fort Collins Utilities, 2013), accessed May 20, 2014, http://www.fcgov.com/file‐gateway/?id=135.
27 “FEMA Strategic Plan 2014‐2018,” Federal Emergency Management Agency (2014), accessed July 16, 2014, http://www.fema.gov/fema‐strategic‐plan.
Figure 2: Linear Mitigation Payoff
10
The $4‐to‐$1 statistic is based on a study published in 2005 by the Multihazard Mitigation Council of the
National Institute of Building Sciences28 and work conducted by Rose, et al.29 The relevant quote from
that study is, “On average, a dollar spent by FEMA on hazard mitigation (actions to reduce disaster
losses) provides the nation about $4 in future benefits.” This quote is based on an estimate that societal
benefits from FEMA mitigation grants totaled $14 billion, compared with $3.5 billion in costs.30 The
quantified benefits included reduced direct property damage, direct business interruption loss, indirect
business interruption loss, nonmarket damage, human losses, and cost of emergency response. These
were measured against costs taken from the FEMA grants database.
This study was a comprehensive, independent review of previous FEMA mitigation projects funded by
three separate grant programs in support of hazard mitigation between 1993 and 2003. While this
report was researched, compiled, and written by a group of experts in the field and follows a rigorous
cost‐benefit methodology, the resulting statistic seems to be too loosely applied. In fact, Rose, et al.,
caution that “the benefit calculations and the benefit‐cost ratio results are valid only at the aggregate
level.”31
Contrary to Rose’s instructions, instead of quoting the “average” part of the metric, many individuals
outside of academia simply claim that every $1 of mitigation is worth $4 of savings. The importance of
the mathematical term average cannot be overstated. If one omits the fact that this number is an
average, it implies that the payoffs to mitigation are constantly increasing or linear. This is not
necessarily true, nor is it a sufficient way to describe mitigation actions.
Consider, for example, two mitigation expenditures. The first is a fixed‐cost project, such as a dam. A
dam cannot be broken into pieces to determine the benefit of each additional square foot of concrete; it
is either present or not present.32 The second is a mitigation process activity like a public awareness
campaign. It could be that an additional dollar spent on risk awareness will reduce future damages by
more than $1 up to a point, but that each additional dollar a community spends beyond that point will
not reduce future damages by more than $1, if at all. In economics, this is referred to as decreasing
marginal returns. We could also consider a combination of activities that may initially reduce damages
by less than $1, but as a community invests more money in the set activities, the activities together
reduce damages by more than $1.
28 Multihazard Mitigation Council, “Natural Hazard Mitigation Saves: Independent Study to Assess the Future Benefits of Hazard Mitigation Activities,” in Findings, Conclusions, and Recommendations, vol. 2 (Washington: Federal Emergency Management Agency of the Department of Homeland Security by the Applied Technology Council under contract to the Multihazard Mitigation Council of the National Institute of Building Sciences, 2005).
29 Adam Rose, et al., "Benefit‐Cost Analysis of FEMA Hazard Mitigation Grants," Natural Hazards Review 8, no. 4 (2007): 97‐111.
30 Ibid., 98.
31 Ibid., 100.
32 Dams can be built to different specifications to withstand a variety of events. For the sake of simplicity, assume that all dams are the same size.
11
The figures to the right show the
notional payoff to different types
of mitigation.
This work indicates that mitigation
should be discussed in a dynamic
context and that the payoffs to
different types of mitigation will
vary by both location and time.
There is no reason to believe that
the benefits to mitigation should
be considered linear or that every
mitigation process or project
should be considered the same. In
fact, in “A Dynamic Model for
Costing Disaster Mitigation
Policies,” the authors adapted a
cost model from the 1950s to
demonstrate the nonlinear trade‐
offs in disaster management.33 They suggested that there is an optimal point between mitigation and
recovery that minimizes the total cost of a disaster, and that this point moves as governments or
communities learn from past experiences. On a related note, Mileti suggested that "most strategies for
managing hazards ... (cast) hazards as static and mitigation as an upward, positive, linear trend,"
whereas in reality, natural disasters are not problems that can be solved in isolation.34 He suggested
shifting to a policy of "sustainable hazard mitigation" that would link economic and social resiliency with
wise land‐use decisions, a suggestion that seems to be validated by the literature and credited within
the CRS.
Future Research
It is clear from the literature that we do not yet understand how to quantify the benefits of mitigation.
We also do not know how to convey the value of mitigation to local communities or to policymakers,
beyond the “$4 for every $1 spent” statistic that is often cited. However, research is underway that will
help us better understand which mitigation activities have the highest payoff and why some
communities have fewer losses than others. Below, broad gaps in the literature and in our
understanding are highlighted, with potential studies or research topics suggested.
33 Nezih Altay, Sameer Prasad, and Jasmine Tata, "A Dynamic Model for Costing Disaster Mitigation Policies," Disasters 37, no. 3 (2013): 357‐373.
34 Dennis S. Mileti, Disasters by Design: a Reassessment of Natural Hazards in the United States (Washington: Joseph Henry Press, 1999), 2.
Figure 3: Notional Non‐Linear Mitigation Payoffs
12
The payoffs to mitigation are poorly understood.
More research needs to be conducted into the way mitigation projects, like dams, and processes, such
as public awareness campaigns, interact with one another and how they affect risk perception.
There are process and project forms of mitigation, as described above. What are the
cost/benefit curves of different types of mitigation?
How do these different forms of mitigation interact with one another?
Which types of communities, in terms of economy and geography, will benefit from different
types of mitigation?
Community mitigation will only happen when there is community participation and funding.
More research needs to be conducted into the reasons communities and individuals decide to
undertake mitigation measures.
The CRS offers an ideal starting point for this research because it is a voluntary community‐
based program that also gives quantifiable benefits to individuals. Why do some communities
participate and others do not?
It is not clear if the CRS encourages communities to undertake mitigation measures or
communities that have already undertaken mitigation measures decide to join the program as
an afterthought. There are likely communities in both situations. It may be beneficial to study
the CRS scores that communities receive when they initially join the program and determine
which communities had mitigation measures in place prior to joining.
Congress has asked FEMA to conduct a study on community‐based flood insurance. This study
could offer an opportunity to explore the way different types of communities approach flood
risk. What type of community might be willing to share the risk of flooding among its residents?
How might this flood insurance be funded?
How does FEMA’s Whole Community Approach tie in with community mitigation? By engaging
in dialog in the Whole Community context, can FEMA encourage community mitigation?
If the frequency and magnitude of flooding in the United States continue to increase, understanding
both the value of mitigation and the drivers of mitigation will become more and more important
throughout the country. To adequately address these issues, academics, practitioners, and decision
makers need to unite. To begin this dialog, we need to change the way we talk about mitigation. We
should start by abandoning or appropriately caveating the $4‐to‐$1 statistic and move toward a
discussion of a dynamic set of mitigation activities that will vary based on individual community
characteristics.
FEMA’s recently undertaken studies are a good start, but more efforts need to be taken to align
academic research with policy needs. To understand the effect of mitigation activities on the community
level, studies like the ones in FEMA Region 8 and FEMA Region 4 and those outlined above should be
done throughout the country. This effort would require engagement at the community level, an in‐
13
depth study of community resilience and dynamics, and an understanding of technical tools that can be
utilized to model disasters that have not yet occurred.
14
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15
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