An official website of the United States government
Abstract Hurricanes significantly harm homeowners through physical damage and long-term financial strain due to rising insurance costs, property value loss, and repair expenses. This paper focuses on the interrelated decisions of the government mitigation funding of residential acquisitions and retrofit subsidies and of price restrictions on the insurance market in eastern North Carolina to determine the financial effects on stakeholders. The introduction of these policy interventions have impacts that propagate through the system due to risk adjustments, homeowner take-up behaviour, and insurer profit-maximising behaviour. This study uses an integrated game theoretic model to demonstrate that there are cost-effective government spending levels that reduce residential loss from hurricane damage. When insurance prices are capped at preintervention levels, the number of households and their distribution of losses, which has been altered through mitigation, leads to increased insurer insolvency. When insurance prices are allowed to adjust after mitigation, some homeowners find insurance is no longer affordable. This highlights the tradeoff between ensuring insurer stability and expanding homeowner insurance accessibility.
more »
« less
Dynamic modeling of public and private decision‐making for hurricane risk management including insurance, acquisition, and mitigation policy
Abstract We develop a computational framework for the stochastic and dynamic modeling of regional natural catastrophe losses with an insurance industry to support government decision‐making for hurricane risk management. The analysis captures the temporal changes in the building inventory due to the acquisition (buyouts) of high‐risk properties and the vulnerability of the building stock due to retrofit mitigation decisions. The system is comprised of a set of interacting models to (1) simulate hazard events; (2) estimate regional hurricane‐induced losses from each hazard event based on an evolving building inventory; (3) capture acquisition offer acceptance, retrofit implementation, and insurance purchase behaviors of homeowners; and (4) represent an insurance market sensitive to demand with strategically interrelated primary insurers. This framework is linked to a simulation‐optimization model to optimize decision‐making by a government entity whose objective is to minimize region‐wide hurricane losses. We examine the effect of different policies on homeowner mitigation, insurance take‐up rate, insurer profit, and solvency in a case study using data for eastern North Carolina. Our findings indicate that an approach that coordinates insurance, retrofits, and acquisition of high‐risk properties effectively reduces total (uninsured and insured) losses.
more »
« less
- Award ID(s):
- 1830511
- PAR ID:
- 10445416
- Publisher / Repository:
- Wiley-Blackwell
- Date Published:
- Journal Name:
- Risk Management and Insurance Review
- Volume:
- 25
- Issue:
- 2
- ISSN:
- 1098-1616
- Format(s):
- Medium: X Size: p. 173-199
- Size(s):
- p. 173-199
- Sponsoring Org:
- National Science Foundation
More Like this
-
-
Strong hurricane winds often cause severe infrastructure damage and pose social and economic consequences in coastal communities. In the context of community resilience planning, estimating such impacts can facilitate developing more risk-informed mitigation plans in the community of interest. This study presents a new framework for synthetically simulating scenario-hurricane winds using a parametric wind field model for predicting community-level building damage, direct economic loss, and social consequences. The proposed synthetic scenario approach uses historical hurricane data and adjusts its original trajectory to create synthetic change scenarios and estimates peak gust wind speed at the location of each building. In this research, a stochastic damage simulation algorithm is applied to assess the buildings’ physical damage. The algorithm assigns a damage level to each building using the corresponding damage-based fragility functions, predicted maximum gust speed at the building’s location, and a randomly generated number. The monetary loss to the building inventory due to its physical damage is determined using FEMA’s direct loss ratios and buildings’ replacement costs considering uncertainty. To assess the social impacts of the physical damage exposure, three likely post-disaster social disruptions are measured, including household dislocation, employment disruption, and school closures. The framework is demonstrated by its application to the hurricane-prone community of Onslow County, North Carolina. The novel contribution of the developed framework, aside from the introduced approach for spatial predicting hurricane-induced wind hazards, is its ability to illuminate some aspects of the social consequences of substantial physical damages to the building inventory in a coastal community due to the hurricane-induced winds. These advancements enable community planners and decision-makers to make more risk-informed decisions for improving coastal community resilience.more » « less
-
Abstract Coastal communities are increasingly vulnerable to hurricanes, which cause billions of dollars in damage annually through wind, storm surge, and flooding. Mitigation efforts are essential to reduce these impacts but face significant challenges, including uncertainties in hazard prediction, damage estimation, and recovery costs. Resource constraints and the disproportionate burden borne by socioeconomically vulnerable groups further complicate retrofitting strategies. This study presents a probabilistic methodology to assess and mitigate hurricane risks by integrating hazard analysis, building fragility, and economic loss assessment. The methodology prioritizes retrofitting strategies using a risk‐informed, equity‐focused approach. Multi‐objective optimization balances cost‐effectiveness and risk reduction while promoting fair resource allocation among socioeconomic groups. The novelty of this study lies in its direct integration of equity as an objective in resource allocation through multi‐objective optimization, its comprehensive consideration of multi‐hazard risks, its inclusion of both direct and indirect losses in cost assessments, and its use of probabilistic hazard analysis to incorporate varying time horizons. A case study of the Galveston testbed demonstrates the methodology's potential to minimize damage and foster equitable resilience. Analysis of budget scenarios and trade‐offs between cost and equity underscores the importance of comprehensive loss assessments and equity considerations in mitigation and resilience planning. Key findings highlight the varied effectiveness of retrofitting strategies across different budgets and time horizons, the necessity of addressing both direct and indirect losses, and the importance of multi‐hazard considerations for accurate risk assessments. Multi‐objective optimization underscores that equitable solutions are achievable even under constrained budgets. Beyond a certain point, achieving equity does not necessarily increase expected losses, demonstrating that more equitable solutions can be implemented without compromising overall cost‐effectiveness.more » « less
-
This article deals with household-level flood risk mitigation. We present an agent-based modeling framework to simulate the mechanism of natural hazard and human interactions, to allow evaluation of community flood risk, and to predict various adaptation outcomes. The framework considers each household as an autonomous, yet socially connected, agent. A Beta-Bernoulli Bayesian learning model is first applied to measure changes of agents' risk perceptions in response to stochastic storm surges. Then the risk appraisal behaviors of agents, as a function of willingness-to-pay for flood insurance, are measured. Using Miami-Dade County, Florida as a case study, we simulated four scenarios to evaluate the outcomes of alternative adaptation strategies. Results show that community damage decreases significantly after a few years when agents become cognizant of flood risks. Compared to insurance policies with pre-Flood Insurance Rate Maps subsidies, risk-based insurance policies are more effective in promoting community resilience, but it will decrease motivations to purchase flood insurance, especially for households outside of high-risk areas. We evaluated vital model parameters using a local sensitivity analysis. Simulation results demonstrate the importance of an integrated adaptation strategy in community flood risk management.more » « less
-
Abstract. Regional hurricane risk is often assessed assuming a static housing inventory, yet a region's housing inventory changes continually. Failing to include changes in the built environment in hurricane risk modeling can substantially underestimate expected losses. This study uses publicly available data and a long short-term memory (LSTM) neural network model to forecast the annual number of housing units for each of 1000 individual counties in the southeastern United States over the next 20 years. When evaluated using testing data, the estimated number of housing units was almost always (97.3 % of the time), no more than 1 percentage point different than the observed number, predictive errors that are acceptable for most practical purposes. Comparisons suggest the LSTM outperforms the autoregressive integrated moving average (ARIMA) and simpler linear trend models. The housing unit projections can help facilitate a quantification of changes in future expected losses and other impacts caused by hurricanes. For example, this study finds that if a hurricane with characteristics similar to Hurricane Harvey were to impact southeastern Texas in 20 years, the residential property and flood losses would be nearly USD 4 billion (38 %) greater due to the expected increase of 1.3 million new housing units (41 %) in the region.more » « less
