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Our nation recently commemorated the one-year anniversary of Hurricane Katrina and the five-year anniversary of the 9/11 terrorist attack. Although these disasters were very different, both of their anniversaries starkly remind us of dangers that we ignore at our peril. And just as the catastrophes differed, so too have our society’s reactions to them. The 9/11 attack inspired a nationwide call to action against terrorism and fundamentally changed how national security threats are addressed, but Katrina’s devastation has not inspired a similar response to the threat of natural disasters. Like the 9/11 attack, Katrina must become a paradigm-shifting event, lest similar tragedies occur. The tremendous risk to Americans from natural disaster is very real�and the need for heightened readiness has never been greater. The dangerous combination of aggressive building along our coastlines and more frequent and severe hurricanes for the next 15 to 20 years (as scientists are predicting) requires a serious rethinking of how we prepare for major storms. More than 86 million people live in communities along the hurricane-prone Gulf and Atlantic coasts. As of 2004, there was more than $7.2 trillion in insured property in these at-risk communities. Despite the threat of severe storms and the reality of ever-expanding vulnerable communities, public policy still focuses on recovering from, rather than preventing, the kind of destruction that Katrina wrought. As a nation, we should not be satisfied with a strategy that focuses only on picking up the pieces after another great American city�be it Houston, Miami, or New York�is devastated by a major hurricane. We should not accept practices that actually make us more vulnerable by ignoring threats and encouraging risk. We must enact policies that move us from our failed post-catastrophe mentality to an active system of prevention and protection. Of course, the recognition that reform is needed is nothing new; a variety of potential changes have been suggested since Katrina. But some ideas are better left on the shelf. For example, some have proposed creating new government insurance mechanisms. Although such programs may get us from one day to the next, they are no panacea. Also, further government intrusion inevitably will lead to a less robust private market, inefficient allocation of capital, unfair subsidization, and more building in catastrophe-prone regions�precisely the mistakes that we can no longer afford. PREVENT THE LOSS So what measures would help prevent catastrophic losses to life and property�and do so for the long term? First and foremost, state and local governments must protect people directly through loss-prevention policies, such as enactment and enforcement of strong and appropriate building codes and sensible land-use planning. Effective building codes�those that mandate standards for survivable construction and durable materials and those that provide for vigilant enforcement�result in homes and businesses that withstand even severe storms. Closely controlling land use to prevent weakening of natural defenses against flooding ensures that coastal terrain can endure high winds and surging waters. Mitigation policies such as these can make the difference between a community recovering quickly from disaster and a community remaining devastated for many months. For example, after a series of catastrophic storms that displaced coastal residents and cost the state billions in insured losses, Florida implemented a state-funded program that provides free inspections for eligible homes and businesses. The program helps residents comply with the state’s latest building codes and has received more than 40,000 applications since August�far exceeding initial expectations. Unfortunately, many other coastal states, including Alabama, Mississippi, New York, and Texas, either don’t have statewide building codes at all or their codes are insufficiently comprehensive or poorly enforced. Even in Florida, which has a strong building code, the Panhandle is exempt from the state’s strict wind-borne-debris standard. In addition, the coastal-state record on land-use policy is mixed. Florida’s Coastal High Hazard Committee recently released findings on lands available for redevelopment to assess the best means for managing growth. Some other states�including Delaware, Massachusetts, Rhode Island, and Virginia�have limited land use. Such policies should be expanded. Unfortunately, only five Atlantic/Gulf Coast states currently require consideration of natural disasters in local planning and zoning decisions. CREATE BETTER INCENTIVES On the federal level, Congress could create income tax credits similar to those that encourage people to adopt energy-efficient practices in their homes and offices. These credits would reward protective measures that go far beyond building codes, such as installing hurricane-resistant garage doors and shutters. Congress also should amend the Stafford Act to increase grants available to state and local governments under existing Federal Emergency Management Agency mitigation programs. States should be allowed to use pre-disaster funds to train building inspectors, and post-disaster grant programs should specifically encourage states to adopt and enforce statewide building codes. At the state level, in addition to improved land-use plans and building codes, policy-makers should end government controls on insurance rates and products that distort the private market. Such controls are ostensibly designed to benefit consumers. In truth, they encourage risky coastal development, placing millions of lives and billions of dollars’ worth of property directly in the storm path. Insurers must be able to charge rates that accurately reflect the risks faced by their policyholders. Such risk-based pricing permits and motivates insurers to remain in a market, attracts new capital and competition, and creates more options for consumers while informing them of the real risks they face. Recently, a group of leading climatologists�including Max Mayfield, director of the National Hurricane Center�called for a comprehensive re-evaluation of how catastrophic risk is managed. The scientists stated that “rapidly escalating hurricane damage in recent decades owes much to government policies that serve to subsidize risk.” They concluded that “state regulation of insurance is captive to political pressures that hold down premiums in risky coastal areas at the expense of higher premiums in less risky places.” This market distortion is not limited to state policy. The scientists noted that the federal flood-insurance program also undercharges property owners and thus “also serve[s] to promote risky behavior in the long run.” Congress should address this issue as part of its ongoing efforts to reform the National Flood Insurance Program. DON’T REWRITE CONTRACTS The aftermath of Katrina has seen an unprecedented wave of lawsuits against the insurance industry. At the heart of these cases is the question of whether an insurance contract can be rewritten after a natural disaster. In the case of homeowners insurance, both the scope and wording of these contracts generally are pre-approved by state regulators. Insurers must pay claims for losses within the scope of an individual policy contract for which the policyholder paid premiums. If insurers are forced to pay claims for losses beyond the scope of individual contracts, then those contracts have no legal meaning. If they can be rewritten after the fact by trial lawyers or others, all business contracts are in danger of such rewriting. This would have profoundly negative ramifications for our society. Finding more effective ways to prepare for natural disasters will not be easy. Improving loss prevention, implementing risk-based pricing, and reforming recovery resources such as the National Flood Insurance Program are a good start. Ultimately, we must create communities that can weather even the most intense storms, and we must build private and public institutions that can effectively handle a storm’s aftermath. The challenge confronting us is to put aside our differences and work in good faith to answer the difficult questions. That is what the nation did after 9/11, and that is what we must do now. Marc Racicot, a former governor of Montana, is president of the American Insurance Association, which represents property and casualty insurers.

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