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Disaster Mitigation in the Insurance Industry: Improving Mitigation Programs Through Cost/Benefit Analysis.

Presented at the Natural Hazards Workshop, Boulder, Colorado, July 16, 2002, by IBHS Project Engineer, Katie Lessard, EI, CDT.

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The Institute for Business & Home Safety is an initiative of the insurance industry to reduce deaths, injuries, property damage, economic losses and human suffering caused by natural disasters.

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IBHS represents insurance and reinsurance companies that write insurance in the United States. We assist the insurance industry in developing educational tools and engineering research that can be used by the insurance industry and the public to support natural disaster mitigation.

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Some of you may wonder why the insurance industry is concerned with Natural Disaster mitigation? Up until the recent events of 9/11, natural disasters such as the Northridge Earthquake and Hurricane Andrew were the highest insurance claims known to the industry.

In recent years, a natural disaster has not hit a major metropolitan area. The last earthquake greater than an M8.0 was the 1906 San Francisco Earthquake and the last Category 4 or 5 hurricane was in 1926 in Miami.

Not only that, but as the baby boomer population begins to retire, more and more people are migrating to coastal states where the threat of natural disasters such as hurricanes and earthquakes are the greatest. Also, the people that relocate to these states bring with them high retirement incomes, which ultimately means high dollar homes and results in more damages and claims if not protected properly.

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Therefore, the insurance industry believes that by providing guidance on how to reduce natural disaster vulnerability, it will increase the predictability of losses.

The ability to predict losses and increase public awareness will ultimately reduce the number of insurance claims after a natural disaster.

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IBHS has developed several programs for the insurance industry that promote natural disaster mitigation including continuous support for statewide model building code adoption and our “Fortified” program.

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IBHS has been active in support of model building code adoption in several ways.

We actively participate in the development of both the NFPA model building codes and the International model building codes.

Once a state has decided to adopt one of the model building codes, IBHS attends building code hearings to ensure that codes are being adopted without technical amendments with regards to natural disasters.

IBHS has also developed a building code manual to educate the insurance trade industry on the building code adoption process and also the importance of building code adoption without technical amendments.

And finally, IBHS is also holding workshops on the new Florida Building Code for our insurance members that write insurance in Florida to educate our members on any changes in the building code.

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Also, under the Building Code section of the IBHS website, you can find maps of the United States that indicate the most recent model building codes adopted by each state for both residential and commercial construction. And the best feature about this section of our website is that if you click on a specific state, you can also find the most up to date code adoption information for that particular state, such as any amendments to the model code or any recent code adoption activities.

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Another major effort by IBHS is our Fortified for Safer Living program.

This program is “code +”, or in other words, it goes a step beyond the local building code requirements for residential construction.

The Fortified homes are inspected by trained professionals and the owner of the Fortified home receives a certificate that the home is Fortified against natural disasters.

This program initiated in Florida with 5 homes and varying costs. Fortified criteria in these homes included increased building envelope protection, a continuous load path, and additional roofing requirements.

The Fortified program has recently expanded into North Carolina as we just broke ground for the first ever Fortified Habitat for Humanity home.

As new Fortified criteria are developed, Fortified homes will be constructed in other areas of the country as well.

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Here are some examples of the Fortified homes completed in the state of FL. As you can see, these homes range in value and can be built very affordably if necessary. As a visual example of Fortified criteria, the home in the lower left hand corner was built on a floodplain in Ruskin, FL. The realities of life are that people desire living on water, and hence, in flood plains. So, rather than restricting this home from being built in a floodplain, we realize this desire and instead design the home to be supported on a pier foundation system elevated above the floodplain.

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All of these programs are obviously in support of disaster mitigation, but the real question is, how much?

In order to answer that question and also to use our resources where they are needed most, IBHS has begun using HAZUS to quantify the benefits of some of these programs.

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HAZUS is publicly available software developed by FEMA and NIBS in 1997. HAZUS calculates estimated losses for a scenario disaster event. Currently HAZUS is only capable of calculating earthquake losses, however wind and flood modules are being developed and will be ready for use in the near future.

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HAZUS has the capability of calculating two types of losses – actual losses and relative losses. Those of you familiar with the HAZUS program, most likely have used HAZUS to calculate actual losses. Many of you may be unfamiliar with its ability to calculate relative losses. There are several differences between actual and relative losses, and since the earthquake module is fully developed, I will explain the differences in terms of that module:

Actual losses estimate losses for each building type independently. When you use HAZUS, you choose a specified study region and a scenario earthquake and you calculate losses for individual building (structural) types independently. You can add up the losses for individual building types to get total estimated losses.

On the other hand, relative losses estimate losses for one building type relative to another. A scenario is run using one building type, say steel structures, and then that same scenario is run using a different building type, say wood structures. The actual losses for each scenario is compared so that the losses for steel structures is expressed relative to wood structures.

Actual losses are expressed as a dollar value. Losses are calculated for individual building types, added up, and an estimated total loss is calculated in dollars.

Relative losses are comparing one loss with another, in other words, dividing one loss by another loss. This gives a percentage comparison to a baseline value equal to 1.0.

Actual losses will vary by the study region defined in HAZUS based on economic factors, demographic factors, soil conditions, etc. For example, if the same earthquake occurs in California and in Oregon, the losses will be different based on all of these factors.

Relative losses compare the losses of one building type relative to another and keep all other factors constant. Therefore it was discovered that the relative losses for any building type are only dependent on spectral acceleration and can be applied to any area where the same spectral acceleration is present. This is important because it means that if you know the approximate spectral acceleration at a site, the relative losses between two building types will be the same, regardless if the site is located in California, South Carolina, or any other area of the country.

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In case some of you are unfamiliar with the term spectral acceleration, it is defined as the response of a building to a ground motion. When the earth shakes, it produces a vibration force, and that force will cause buildings of various structure types to behave differently.

Spectral acceleration maps can be found in the International Code books and these maps are used to determine the design force on a building.

This ground motion/building type interaction in the building codes, known as spectral acceleration, represents a 2500-year probability and therefore buildings are designed for maximum probable forces. These are the kinds of forces we may not see in our lifetime, however they will eventually occur and need to be designed for.

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So why are we considering relative losses? Why is it so important?

Building codes are structured to reduce high level ground shaking – in other words, high levels of spectral acceleration, just as I mentioned before in the last slide. This prevents serious damage and limits the actual losses caused by the maximum probable event, which has a 2% probability of occurring in 50 years, or once every 2500 years. Meaning, when this type of event occurs, buildings designed to these levels should not collapse, but severe damage can, and most likely will occur.

In the meantime, many smaller, less significant earthquakes are occurring at more frequent rates, say every 10, 25, or 50 years. As long as the designer has met the required design loads, connection requirements, ductility requirements, and other requirements used to prevent damage from the 2500-year event, he or she is free to choose which structure type to use in the design. This choice is often made based on factors other than structure performance beyond the minimum requirements in the building code.

Often times, limited funding is available and the designer chooses a slightly less expensive design type, without considering the much higher damage losses after an earthquake event. Certain architectural features may work better with one structure type over another so the designer may choose that structure type to incorporate an architectural feature. Also, if a structure is being built in an area where primarily masonry structures exist, you can bet that the designer will design yet another masonry structure to fit in with the surrounding elements. And finally, some designers are more familiar with one structure type than another. Maybe the designer is more comfortable designing concrete structures and therefore, the structure will be a concrete structure.

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What I would like to point out is that sometimes we need to look beyond the requirements of a building code to reduce losses. In other words, by comparing the relative losses between building types, it will account for the things that building codes do not consider, which are the more frequently occurring, less than maximum events.

Here is a graph illustrating this. On the x-axis is spectral acceleration. On the y-axis is relative losses, where 1.0 is the baseline and values greater than 1.0 perform worse than the baseline structure type and values less than 1.0 perform better than the baseline structure type. For this example, the baseline structure type is a concrete moment frame structure, which is your basic column and beam concrete structure. This graph will compare the effect of replacing this baseline structure type with a commercial wood structure and a light frame steel structure.

The green line represents the baseline concrete moment frame structure. Now, when you replace that same structure with a commercial wood structure as shown by the brown line, losses are reduced by as much as 20% at low levels of spectral acceleration, in other words, the more frequently occurring, less intense earthquake events. Of course, as you move to the right on the x-axis to higher levels of spectral acceleration, or the levels we are designing for in the building codes you can see that the line tends to converge with the baseline, meaning that at the maximum event, the one we are designing for in the building codes, it does not matter which building type is used because all building types will experience the same severe damage at high levels of spectral acceleration.

Now lets see what happens if we replace the concrete moment frame structure with a steel light frame structure as shown by the blue line. In this case, relative losses are increased by as much as 50% at the lower spectral accelerations, the more frequently occurring, less intense events. That’s a significant difference in losses! And, as you can see, just as with the commercial wood structure, the relative losses begin to converge as the maximum event, the higher levels of spectral accelerations are reached.

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IBHS is using this information to support and improve existing programs and also to develop new programs.

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Relative losses can be used to quantify technical changes in model building codes. It can answer the question, “What would happen if we changed this code requirement?” For example, the wind module will have the capability of calculating losses due to wind borne debris protection. Homes can be compared both with and without windborne debris protection and this information can be used to support technical amendments that attempt to remove wind borne debris requirements from the building code.

Also, as new Fortified for safer living criteria is developed, relative losses can be compared to determine what criteria is vital and it can also help refine our existing criteria.

Additionally, IBHS is making use of INCAST, a data inventory tool developed to be used in sync with HAZUS to store information on our Fortified homes so that we can analyze the effect of building a Fortified home vs. a non-Fortified home.

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Here is what INCAST looks like. The first four menus are pre-disaster menus where information can be stored related to the Fortified homes site location and construction qualities. This information can be imported directly into HAZUS and scenario events can be run on these homes to estimate the impact under scenario events and the results can be compared to a home without Fortified criteria to emphasize the need for Fortified homes.

The next menu is a post-disaster menu where information can be stored regarding any actual disasters that take place on the home. Scenarios can be run using actual event information and Fortified criteria can be refined using this information.

Finally, there is also a menu where comments and photos, both before and after an event, can be stored to document the home’s performance after an event.

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New programs are also being developed as a result of using relative losses obtained in HAZUS.

Currently we are starting a Fortified…for Safer Business program for commercial structures that will compliment our current program for residential structures. As part of the criteria, we will only allow those structure types that perform well under all levels of ground shaking, or spectral acceleration, as discussed earlier.

Relative losses will also assist in prioritizing future retrofit activities. I’m sure many of you have been told that you need to retrofit a number of essential facilities such as hospitals, schools, fire and police stations, yet you don’t have enough money to retrofit all of them. Now, instead of having to choose between retrofitting schools, or retrofitting hospitals, you can set up the retrofit program to retrofit by structure type. Retrofit those structures that will have the most relative losses first for all essential facilities.

Also, many of you know that HAZUS breaks down total losses into structural losses, non-structural losses, contents losses, etc. If you look at the relative losses for the various structure types for each of these losses, you will find that while some structures may perform well non-structurally, others may not under the same event. The same is true for all other types of losses. So, when you are trying to spend your dollars wisely, there’s no sense in doing only structural retrofits when the most damage is coming from non-structural damage for some of the structures.

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In summary, using HAZUS to analyze the relative losses between structure types allows everyone to balance their resources better. I’ve already shown you how IBHS is using this type of analysis to refine and improve our existing programs, such as our Fortified…for Safer Living Program and model building code programs, as well as how we are using this analysis to develop new programs, such as the Fortified…for Safer Business program. All of you can apply these same concepts to your own programs and improve hazard mitigation in your own organizations as well.