Saturday, January 14, 2012

Understanding and preparing for the worst

This weeks Economist has a couple of outstanding articles on the current state of natural disasters - - The rising cost of catastrophes: How to limit the damage that natural disasters do and Counting the cost of calamities.  The summary paints the picture - - "Death rates from natural disasters are falling; and fears that they have become more common are misplaced.  But their economic cost is rising relentlessly."

Key points in the two articles include the following:
  • The October 2011 Bangkok ("Venice of Asia") floods cost $40 billion, the most expensive disaster in the country's history.  J.P. Morgan estimates that it set back global industrial  production by 2.5%.
  • Munich Re has estimated that disaster economic costs were $378 billion last year - - up from the previous 2005 high of $262 billion (in constant 2011 dollars).
  • The world has succeeded in making natural disasters less deadly, through better early-warning systems for tsunamis, better public information about evacuation plans, tougher building codes in quake-prone areas and encouragement for homeowners to adopt simple precautions such as installing tornado proof rooms in their homes.
  • Even if natural disasters may be no more common and no more likely to kill people than before, there is no doubt that their economic cost is rising.  One key fact - - a growing share of the world's population and economic activity is being concentrated in disaster-prone places: on tropical coasts and river deltas, near forests and along earthquakes fault lines.
  • Throughout the west and southwest, encroaching suburbia has put pressure on forest managers to suppress fires as quickly as possible.  Yet repeated fire suppression allows forests to accumulate more fuel which can lead to more intense and devastating fires later on.
  • The U.S. coastal regions may be a microcosm of where the world is headed - - $10 trillion in insured assets alone the coast from Maine to the Florida panhandle.  In terms of population growth - - Florida had a population of 2.8 million in 1950 - - 2011 was 19 million.  Two facts regarding where we like to work and live - - around water and trees.
  • By 2070, seven of the ten greatest urban concentrations of economic assets that are exposed to coastal flooding will be in the developing world - - none was in 2005.
  • Between 2000 and 2050 - - the city populations exposed to tropical cyclones or earthquakes will more than double, rising from 11% to 16% of the world's population.
  • Roughly 20% of the humanitarian aid is now spent responding to disasters, whereas only 0.7% is spent on preventative measures taken to mitigate their possible consequences, according to the World Bank.
This is a great observation the article makes - -

"Making cities more resilient involves starker trade-offs in the developing world.  On the other hand, urbanization strips cities of their natural defenses against disaster and exposes more people to loss of life and property when an earthquake or cyclone hits.  On the other hand, urbanization makes poor people richer.  The density and infrastructure of cities makes people more productive and more able to afford the measures needed to keep them safe.  So mitigation measures should not discourage people from crowding into vulnerable cities but rather establish incentives for cities and their inhabitants to protect themselves better."

The authors of the two articles offer three points of advice regarding limiting the damage that natural disasters do - -
  1. Get your priorities right.  At present, too large a slice of disaster budgets goes to rescue and repair after a tragedy, and not enough on beefing up defences beforehand.  Any shelter is useless if it has fallen into disrepair.
  2. Government should be fiercer when private individuals and firms, left to pursue their own self-interest, put all of society at risk.  If you want to destroy coastal marshlands and live by the sea - - the government should not be subsidizing you.
  3. Governments must eliminate the perverse incentives their policies produce.  We cannot, for the sake of lower premiums, underprice the risk of living in and around dangerous places.
Several good books on the quantitative side of disasters - -

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