When catastrophe strikes, our after-the-fact response programs and protocols do a remarkable job in getting victims into shelters and in mobilizing emergency supplies and personnel so that the situation does not worsen.
All Americans, whether or not they have been victimized by catastrophe, owe our first responders an enormous debt of gratitude and thanks. We are equally indebted to the people behind the scenes — the government employees who work around-the-clock to ensure that logistics are worked out, that supplies are ordered and that funding is delivered. These men and women are too often overlooked. Their service is invaluable.
The first responders in harm's way and the government workers in makeshift outposts perform exceptionally well in this crisis mode. But, as we all know, the crisis mode is hyper-stressful, both on a human level and on a system-wide level. It requires split-second triage and prioritization that can lead to inefficiencies and unfairness.
While little can be done to completely eliminate the crisis mode, ProtectingAmerica.org believes that it can, and must, be mitigated. Clearly, programs that would improve preparedness, increase public education, enhance prevention and mitigation programs, and augment support for first responder programs would improve our national capability to prepare and protect those of us who live in harm's way.
Public education programs would help homeowners to make necessary plans and be prepared in advance of an emergency. Mitigation programs such as strong building codes and effective retrofitting programs would improve the integrity of catastrophe-prone structures so that damage would be minimized if catastrophe strikes. Experts tell us that for every dollar spent on mitigation, we save US$5—7 in future losses. An increase in first responder funding would help finance these critical programs that too often get short-changed in the give-and-take of local budgeting.
Studies in the aftermath of Hurricane Katrina suggest that the current after-the-fact recovery funding for catastrophes results in an enormous taxpayer subsidy for uninsured and underinsured properties. In fact, a Brookings Institution study (Litan, 2006) published in March 2006 found that of the first US$85 billion in taxpayer dollars spent on Katrina recovery efforts, more than US$10 billion went to cover losses for uninsured or underinsured properties.
ProtectingAmerica.org believes that in addition to minimizing the extent of catastrophic losses through prevention and mitigation programs, we should also reduce the taxpayer subsidy of recovery efforts, ensure the adequacy of recovery dollars, and improve the delivery of those critical funds to homeowners.
ProtectingAmerica.org supports the establishment of a stronger public— private partnership as part of a comprehensive, integrated solution at the local, state and national levels. The solution would include privately funded natural catastrophe funds in catastrophe-prone states that provide more protection at lower cost to consumers. These funds would serve as a backstop to the private insurance market and would generate investment earnings that, in addition to helping to pay claims in the aftermath of a mega-catastrophe, would be used for mitigation, prevention, preparation and first responder programs in each state.
We also support the creation of a national catastrophe fund that would serve as a backstop to participating state catastrophe funds in the event of a natural mega-catastrophe. Those state catastrophe funds would be financed through mandatory contributions by insurance companies in each of those states in an amount that reflects the catastrophe risk of the policies that they write in each state. These are private dollars, not taxpayer funds. The state funds would be required to set aside a minimum of US$10 million up to a maximum of 35 per cent of investment income for prevention, mitigation and public education programs.
Those states that choose to create a natural disaster fund would be able to purchase reinsurance from the national program. Rates for this coverage would be actuarially based and self-sufficient, and would only be available to state programs that have established the prevention and mitigation funding as described above.
In the event that a catastrophe strikes, private insurers would be required to meet all of their obligations to their policyholders. Should catastrophic losses exceed those obligations, the state catastrophe fund would be utilized. In the event of an extraordinary mega-catastrophe, the national backstop program would provide benefits to the state and help pay remaining claims.
Because this is a state-by-state program based entirely on risk, the likelihood of a taxpayer subsidy is virtually eliminated. This approach requires pre-event funding and relies on private dollars from insurance companies in the states that are most exposed to catastrophe. Because this program relies on the traditional private market for paying claims, the inherent inefficiencies and bureaucracy in a government-run program are eliminated. Also, because the program requires states to fund meaningful prevention and mitigation programs, catastrophe planning, protection and preparation will take place before the onslaught of catastrophe and will be in a state of continuous and rigorous improvement.
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