Between January 22 and January 24, 2016, a potent and disruptive nor'easter impacted a large swath of the Mid-Atlantic and Northeast United States. With 2 – 3 feet of snow falling and prolonged blizzard conditions in many locations, businesses were shuttered and air and ground travel was paralyzed. Parts of coastal Delaware and New Jersey were inundated by the ocean, with record tide levels occurring in Lewes, Delaware and Cape May, New Jersey. The economic impact of the storm was estimated to be between USD 500 million and USD 3 billion.
Almost eight months after the storm led to a mess on the East Coast, Senators Cory Booker and Robert Menendez from New Jersey announced that the state would receive USD 8.3 million from FEMA to cover the cost of snow removal. Senator Menendez was quoted as saying, "This disaster funding will go a long way to help recover some of the costs accrued by local authorities as they promptly serviced roads in hard-hit communities."
From where I sit, as both a native and resident of the state of New Jersey, the USD 8.3 million is too little, too late. Hard hit areas of New Jersey have waited eight months, including most of hurricane season, to recover their expenditures. Imagine if Hurricane Hermine, which was forecast to devastate the same region, had lived up to its potential? The storm could have further strained municipal and county budgets. The amount of time that lapsed between the storm itself and the release of funding from the federal government demonstrates yet again that relying on the federal government to reimburse costs incurred during the wake of an extreme weather or seismic event is financially unsustainable. Governments at all levels must develop a strategy for addressing the financial implications of extreme events, using a blend of instruments, from reserve funds to insurance policies. Insurance, particularly parametric insurance, can play a key role in reducing the impact of unfunded or underfunded losses on government balance sheets. The more efficiently the governments address this protection gap, the more financially resilient communities will be and the more quickly they can recover.
Parametric insurance, which settles on the characteristics of the event, not the actual loss incurred by the insured, can be settled rapidly and provide liquidity to governments when it's needed the most – the days and weeks after an event. Haiti, Tonga, Vanuatu, Mexico and most recently, Belize, are just a few examples of countries that have parametric insurance policies in force, and have directly seen the benefits. Some states and counties within the US have utilized parametric insurance as a tool to protect themselves against hurricanes.
In an era of tightening budgets, the public sector needs to look beyond either the federal government or the humanitarian community to address shortfalls in the wake of a natural disaster. The insurance industry has the tools and products to address the protection gap. Together, we can make the world more resilient.
Category: Climate/natural disasters: Disaster risk, Floods/storms, Resilience
Location: Cape May, NJ, United States