financing risk reduction

Session 17 Slide 17-1

Financing Risk Reduction

Session 17 Slide Deck

Objectives

17.1 Examine the Role of Insurance Coverage in Financing Risk Reduction

17.2 Examine FEMA Mitigation Grant Programs

17.3 Examine Examples of Local Funding Options


Insurance

“A promise of compensation for specific potential future

losses in exchange for a periodic payment”

Source: InvestorWords.com, 2003



Deductibles

• Fixed Amount – e.g., $1000 per event

• Percentage of Total Loss – e.g., %5 of the total loss.

• Combination deductible– e.g., Insured pays the first $500, and 5% of all costs thereafter.

How Insurance Works

• Losses to be shared across wide populations • Takes into account all of the policy-holders • Cost of compensating policy holders for all

accidents • Divides that cost • Specific definition of risk to individuals • Invest premiums



Most property owners and renters in the United States have some form of insurance that protects either the structure itself, the

contents of the structure, or both.

However, this coverage is often limited, with specific preclusions against certain

natural and technological disasters.


Policies for specific catastrophic hazards can be purchased

separately from basic insurance homeowners’ or renters’

policies, or as riders to these policies


Only those people who are likely to suffer the specific loss defined in the

policy are likely to purchase that type of policy, creating the need for much

higher premiums than if the specific hazard policy were spread across a more

general population

Adverse Selection


Methods adopted to address the problems associated with adverse selection

• The inclusion of these disasters in basic/comprehensive homeowner and renters’ policies, regardless of exposure or vulnerability.

• The introduction of government backing on insurance coverage of catastrophic events.

• Heavier reliance on international reinsurance companies.


Advantages gained through the use of insurance

• Victims are guaranteed a secure and predictable amount of compensation for their losses

• Losses are distributed in an equitable fashion, protecting many for only a fraction of the cost each would have individually incur if exposed to hazards

• Insurance can actually reduce hazard impact by encouraging policy holders to adopt certain required mitigation measures


Limitations on Hazard Insurance • Insurance can be unavailable in high risk areas. • Participation in insurance plans is voluntary. • Participation has been known to encourage

irresponsible behavior. • Many companies are pulling out of specific disaster

insurance plans. • Catastrophic losses can cause inequitable premium

increases.• Some see insurance as redistributing losses rather

than actually eliminating exposure to the hazard.


NFIP – Five Major Goals• Improve basic knowledge about flood

hazards

• Coordinate and plan new developments in the floodplain

• Provide technical services

• Move toward a practical national program of flood insurance

• Adjust Federal flood control policy to sound criteria and changing needs


Flood Disaster Protection Act of 1973

prohibits Federal agencies from providing financial assistance for acquisition or construction of buildings and certain disaster assistance in the floodplains in any community that did not participate in the NFIP by July 1,1975, or within 1 year of being identified as flood-prone


Flood Disaster Protection Act of 1973

Federal agencies and federally insured or regulated lenders had to

require flood insurance on all grants and loans for acquisition or

construction of buildings in designated Special Flood Hazard

Areas (SFHAs) in communities that participate in the NFIP


National Flood Insurance Reform Act (NFIRA)

• Increased compliance by mortgage lenders • Increased the amount of flood insurance coverage

that can be purchased.• Provided flood insurance coverage for the cost of

complying with floodplain management regulations. • Established a Flood Mitigation Assistance grant

program.• Codified the NFIP’s Community Rating System • Require FEMA to assess its flood hazard map

inventory at least once every 5 years


Three Components of the NFIP

• Identifying and mapping flood-prone communities.

• Enforcing the requirement that communities adopt and enforce floodplain management regulations.

• The provision of flood insurance.


Terrorism Risk Insurance

• First $5 million in losses from any single event is paid by insurers.

• If losses amount from $5 million to $100 billion, the insurer pays a deductible.

• If losses exceed $100 billion, neither the government nor the insurers is liable for payment beyond the initial $100 billion.


Risk Sharing Pools

Associations of public entities with similar functions that have

banded together to share risks by creating their own insurance

vehicles

FEMA HMA

“FEMA's Hazard Mitigation Assistance (HMA) grant programs

provide funding for eligible mitigation activities that reduce

disaster losses and protect life and property from future disaster

damages.” Session 17 Slide 17-19

HMA grant programs

– Hazard Mitigation Grant Program (HMGP)

– Pre-Disaster Mitigation (PDM)

– Flood Mitigation Assistance (FMA)

– Repetitive Loss Claims (RLC)

– Severe Repetitive Loss (SRL)


Hazard Mitigation Grant Program

“The Hazard Mitigation Grant Program (HMGP) provides grants to

states and local governments to implement long-term hazard

mitigation measures after a major disaster declaration.”


What Types Of Projects Can Be Funded By The Hazard Mitigation

Grant Program?

• Reduce or eliminate the losses from future disasters.

• Potential savings must be more than the cost.

• Protect either public or private property or to purchase property that has been subjected to, or is in danger of, repetitive damage.


Examples of HMGP Projects

• Acquisition of real property • Retrofitting structures and facilities • Elevation of flood prone structures • Vegetative management programs• Minor flood control projects • Localized flood control projects • Post-disaster building code related activities


Who is Eligible to Apply for HMGP Funds

• State and local governments.

• Indian tribes or other tribal organizations.

• Certain non-profit organizations.

• Individual homeowners and businesses may not apply directly to the program; however a community may apply on their behalf


How to apply for the Hazard Mitigation Grant Program

• State will advertise that Hazard Mitigation Grant Program

• Contact their local government

• Local governments should contact their State Hazard Mitigation Officer


HMGP Funding

• FEMA provides 15 percent of the total disaster grants awarded by FEMA

• FEMA can fund up to 75 percent of the eligible costs

• State or grantee must provide a 25 percent match

• Funding provided to states under the CBDG program from HUD can be used to meet the non-federal share requirement


Minimum Project Criteria

• Does your project conform to your State's Hazard Mitigation Plan?

• Does your project provide a beneficial impact on the disaster area, i.e. the State?

• Does your application meet the environmental requirements?

• Does your project solve a problem independently?

• Is your project cost-effective?” Session 17 Slide 17-27

How are potential projects selected and identified

• Meet certain minimum criteria

• Most cost-effective and appropriate projects are selected for funding

• State prioritizes and selects project applications

• FEMA eligibility review


Pre-Disaster Mitigation (PDM)

“The Pre-Disaster Mitigation (PDM) program provides funds to states, territories, Indian

tribal governments, communities, and universities for hazard mitigation planning

and the implementation of mitigation projects prior to a disaster event.”


PDM Eligible Projects• Property Acquisition and Structure Demolition• Property Acquisition and Structure Relocation• Structure Elevation• Mitigation Reconstruction• Dry Floodproofing of Historic Residential

Structures• Dry Floodproofing of Non-residential Structures• Minor Localized Flood Reduction Projects• Structural Retrofitting of Existing Buildings


PDM Eligible Projects• Non-structural Retrofitting of Existing

Buildings and Facilities

• Safe Room Construction

• Infrastructure Retrofit

• Soil Stabilization

• Wildfire Mitigation

• Hazard Mitigation Planning

• Management CostsSession 17 Slide 17-31

Flood Mitigation Assistance (FMA)

“The Flood Mitigation Assistance (FMA) program was created as part of the National

Flood Insurance Reform Act (NFIRA) of 1994 (42 U.S.C. 4101) with the goal of

reducing or eliminating claims under the National Flood Insurance Program (NFIP).”

Session 31 32

FMA Eligible Projects

• Property Acquisition and Structure Demolition

• Property Acquisition and Structure Relocation

• Structure Elevation

• Mitigation Reconstruction

• Dry Floodproofing of Historic Residential Structures

• Dry Floodproofing of Non-residential Structures

• Minor Localized Flood Reduction Projects

• Hazard Mitigation Planning

• Management Costs


FMA Grant Types

• Planning Grants

• Project Grants

• Management Cost Grants


Repetitive Flood Claims (RFC)

“The Repetitive Flood Claims (RFC) grant program provides up to $10 million is

available annually for the Federal Emergency Management Agency (FEMA) to provide

RFC funds to assist states and communities reduce flood damages to insured properties

that have had one or more claims to the NFIP.”


RFC Eligible Projects

• Property Acquisition and Structure Demolition• Property Acquisition and Structure Relocation• Structure Elevation• Dry Floodproofing of Historic Residential

Structures• Dry Floodproofing of Non-residential Structures• Minor Localized Flood Reduction Projects• Management Costs


Severe Repetitive Loss (SRL)

“The Severe Repetitive Loss (SRL) grant program provides funding to reduce or

eliminate the long-term risk of flood damage to severe repetitive loss structures insured

under the National Flood Insurance Program.”


SRL Eligible Projects

• Property Acquisition and Structure Demolition• Property Acquisition and Structure Relocation• Structure Elevation• Mitigation Reconstruction• Dry Floodproofing of Historic Residential

Structures• Minor Localized Flood Reduction Projects• Management Costs


Factors for Probability of Implementation

• Political Support

• Public Support

• Support of Business Community

• Support from Community and Non-Profits Groups

• Cost

• Short-term versus Long-term benefits


Factors for Funding and Leveraging of Resources

• Local funding source

• State funding sources

• Federal funding sources

• Private sector and Foundations

• Leveraging resources


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