Using risk management principles to protect vulnerable communities from climate-related disasters

By Melissa Murphy and Susan West
Senior Manager, Risk Management and Insurance
Vice President, Risk Management and Insurance
Nov 11, 2021
11 MIN. READ

Current research suggests that managing the increased threat from natural disasters effectively means paying more attention to populations in which demographics or socioeconomic characteristics create the potential for greater loss of human life and economic damage. Focusing on vulnerable community members such as children and the elderly—and people who have disabilities or are impoverished, displaced, marginalized, of low socioeconomic status, or located in high-risk areas—is critical, as our preparedness is only as strong as the protection we can provide to those who need it most.

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Vulnerability within the context of natural disasters is defined as “the characteristics of a person or group and their situation that influences their capacity to anticipate, cope with, resist, and recover from the impact of a natural hazard,” according to the 2005 report At Risk: Natural Hazards, People’s Vulnerability, and Disasters. 
Risk management professionals can reduce vulnerability by increasing current capacities and long-term capacity building. The ability to build sustainable capabilities will depend on a risk management response for the whole community that is inclusive, local, collaborative, adaptive, and environmentally focused. Data on natural disasters is informative, but deliberate and focused action is needed to manage this complex risk, with special attention paid to the vulnerable. 

Vulnerability in climate-related disaster risk

Vulnerability is determined by physical, social, economic, and environmental factors or processes that increase the susceptibility of a population to the effects of a natural disaster. For the sake of simplicity, vulnerability can be understood to have distinct categories that are intersectional and always changing. For example, an individual who is financially stable may not be considered vulnerable due to their having necessary protection from natural disasters, but if this individual lives alone and/or has disabilities, they are less able to cope. Financial capacity alone does not determine the individual’s ability to be protected from a natural disaster. Disaster risk management assessments should recognize that such definitions can be fluid. But despite this fluidity, it’s useful to categorize vulnerability, as doing so helps risk management professionals identify those most susceptible while raising valuable discussions.  Two categories commonly used are variations of (1) individual and group characteristics, and (2) situational context. 

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Individual and group characteristics

Individuals and groups with inadequate access to resources can have a reduced capacity for survival in disaster scenarios. The lack of capacity for these individuals is not solely based on demographics or a particular social group but is also influenced by the availability of assistance from social organizations. Some common examples include socioeconomic status, age, displacement/immigration, and disabilities. The extent to which these characteristics create vulnerabilities should include an analysis of which social resource programs are available and how they mitigate such vulnerabilities to prevent lumping all vulnerable groups into a one-size-fits-all approach.

The effects of socioeconomic status were seen during Hurricane Katrina and in its aftermath as the poor were affected to a greater degree than their wealthier counterparts. The reasons for this are complex but include people’s inability to afford homes built to withstand extreme weather events, lower ability to travel outside of areas affected by disaster, and a lower financial capacity to recover. The Data Center reported: “Hurricane Katrina and the levee failures resulted in the deaths of at least 986 Louisiana residents. The major causes of death included: drowning (40%), injury and trauma (25%), and heart conditions (11%). Nearly half of all victims were over the age of 74.” It’s clear that the elderly, and therefore some of the most vulnerable residents, suffered greatly in this catastrophic event. Following Hurricane Harvey in Texas, the Washington Post reported that data from FEMA showed that only 18% of households in the eight counties most affected by the hurricane had flood insurance.

As noted, vulnerabilities are also a concern regarding individuals with limited physical capabilities or access to transportation when hurricane evacuation warnings have been issued. Those who have limited access to information such as phones or media outlets, have hearing issues, or face language barriers may be at higher risk due to communication failures. These issues may be alleviated by local social infrastructure or aid organizations, but a thorough disaster risk assessment should evaluate the extent of these resources and tailor disaster planning accordingly.

Situational context

Situational context can include geographical references such as physical locations or infrastructure. Geographic locations can create unequal vulnerability to climate-related catastrophes. This includes the location of towns, cities, and rural communities and the infrastructure located within them.

Urbanization has led to population density and other attributes that can result in climate-related disaster vulnerability. This has been noted recently regarding the extreme heat being experienced in states like California, where the term “heat island” has become common. According to the U.S. Environmental Protection Agency (EPA), heat islands are found in highly urbanized areas where roads, asphalt-paved areas, and building rooftops have been found to retain heat and increase local temperatures by up to 7°F. A lack of green spaces in these areas only heightens this effect.

Rural communities are also at an increased risk of susceptibility to natural disasters, due to a comparative lack of infrastructure. Because of their isolation, they also may not have the financial or material resources readily available to address extreme disaster situations. Obtaining funding, training, mutual aid agreements, equipment, technology, and disaster declarations can be more difficult for these communities due to low population and a smaller tax base. The agricultural industry, which serves as the bedrock of such communities while also being highly susceptible to climate change, has historically been allocated a lower percentage of funding compared to other sectors. In the period between 2003 and 2013, just 3.4% of the total humanitarian assistance spent for all disaster types was spent in the agricultural industry.

Finally, the most well-known examples of situational context contributing to resilience issues are the ones affecting coastal communities. The increasing frequency and intensity of storms, hurricanes, tropical cyclones, flooding, and rising sea levels creates vulnerability due to a lack of appropriate building codes, lack of financial capacity to make necessary infrastructure modifications, land degradation, lack of sufficient evacuation routes, insufficiently robust buildings, and the affordability of flood insurance. FEMA has recently updated its flood premiums in its new Risk Rating 2.0 pricing methodology, which has resulted in unexpected increases for many homeowners that may make the coverage too costly to afford.

Non-insurance solutions for reducing vulnerabilities 

Planning and preparation are keys to finding solutions to climate change-related vulnerabilities. Non-insurance measures that can be used to address vulnerable populations should be integrated into hazard and threat assessments and include input from those communities. This can be organized through disaster-specific risk management that is communicative and accountable.  

It is vital to integrate vulnerable communities into a risk management framework and include them in the conversation (e.g., Germany has guidelines for assessing individual vulnerability to heat waves, heavy rain, and flooding at the community level). Federal disaster funding from sources like FEMA should be allocated equally to communities with a higher rate of vulnerable populations, as research has demonstrated this is not always the case. After Hurricane Harvey in 2017, it was found that only 28% of small-business loans (SBA), per dollar of damage, were allocated to businesses in poorer communities that were less likely to qualify for such loans. In addition to receiving lower allocations of public assistance, poorer communities located outside of flood plains areas where flood insurance was not a remedy represented a disproportionate number of bankruptcies in the Houston area post-Harvey.

Adaptation planning in geographically vulnerable areas is a costly but effective long-term strategy. One recent example of a creative risk-reduction strategy was a solar microgrid implemented in an affordable housing unit in New Orleans. Due to the installation of this microgrid, the building’s residents were able to maintain power (as well as lower their electrical costs in general) following Hurricane Ida in 2021 despite close to half a million residents in the city’s metro area being left without electricity for nine days following the hurricane. Another ambitious project, this time created to combat rising sea levels, can be found in Amsterdam, Netherlands, where they have implemented a self-sustaining floating village for over 100 people.

 
It is vital to integrate vulnerable communities into a risk management framework and include them in the conversation.

The use of nature-based solutions (NBS) can take many forms and can make use of a creative and cross-disciplinary approach to managing climate risk both on land and in the sea. Nature-based solutions, when used properly, can promote biodiversity and reduce carbon emissions. Examples of NBS that can reduce the effects of climate-related weather outcomes in the long term include planting more trees, incorporating green infrastructure in urban areas, adopting agricultural practices such as crop rotation, and restoring coastal wetlands. NBS as a risk management tool for weather-related climate risk takes vulnerable populations into account as it considers “broad societal goals such as human well-being, including poverty alleviation and socioeconomic development.” However, these solutions must be vetted and need to be sensitive to the potential effects on biodiversity and indigenous populations.  

According to authors Dave Jones and Kerstin Pfliegner, “Catastrophic wildfires have been called the new normal in California and elsewhere, as global temperatures continue to rise. The 2017 and 2018 California wildfires took more than 135 lives, destroyed more than 32,000 structures, and resulted in more than $25 billion in insured losses. As such, risk management strategies have focused on the diversity of the ecosystem using open patches, pocket meadows, and shady strands of large fire-resistant trees. Australia, too, is highly susceptible to wildfires. Emergency Management Australia has implemented land-management strategies to lessen the amount of fuel present in forests, slow down the spread of fires, and improve access for firefighters to vulnerable areas. 

Migration to disaster-prone areas should also be discouraged while incentives for disaster-resilient construction by governments or the insurance industry should be encouraged. State and local governments should prioritize communities with low socioeconomic status. Upgrades to low-income housing such as improved drainage and initiatives to move individuals out of areas susceptible to disaster can be complex and costly in the short term but can save money and lives in the long term.  

Evolving insurance solutions

The United Nations is leading the charge on the positive impact that insurers and reinsurers can have on climate resiliency around the globe. Butch Bacani is the program leader of the UN Environmental Program’s Principles for Sustainable Insurance. Sustainable insurance is a strategic, forward-looking approach that supports long-term risk reduction initiated by the insurance market. In 2019, under Bacani’s leadership, the UN Environmental Program partnered with California, the first collaboration of its kind, to address climate-related sustainability using an insurance roadmap. California makes up the largest insurance market in the United States and has significant climate-change risk factors, including rising sea levels, wildfires, and extreme heat. The California Department of Insurance is driving this initiative in order to find sustainable solutions that reduce these risks and protect natural ecosystems. California’s alliance with the United Nations focuses on partnerships and innovation, challenging insurers and reinsurers, public policy leaders, environmental NGOs, researchers, and risk management experts to develop insurance solutions that address climate risk in a principled and sustainable manner.

California is not alone in this endeavor. The insurance industry and many public and private partnerships are working together to create innovative solutions that build upon traditional insurance schemes. Public insurance is of particular interest, as it focuses on risks that are hard to insure against but need to be covered for social reasons, such as the U.S. government’s National Flood Insurance Program (NFIP). Private insurance offers flexibility as it is less susceptible to political intervention and administrative barriers. Instead of straight indemnity policies, insurers can offer the capability to help vulnerable populations with simple payment triggers, meaning funds can be distributed almost immediately. Community-based catastrophic insurance (CBCI) has also been developed as a protection against coverage gaps. CBCI is purchased or facilitated by community entities and covers multiple properties, often as a complement to traditional insurance. Through a large purchase of CBCI backed by insurers and reinsurers, premium costs can be reduced, risk-reduction incentives can be offered to reduce premiums further, and the resiliency of communities can be improved.

Public-private collaboration must play a role

Climate change and the disasters that accompany it are formidable challenges that are not going away soon. Traditional risk management frameworks can be useful tools in organizing a response that is flexible, collaborative, and sustainable. Vulnerable populations must be considered on purely ethical grounds. Furthermore, the impacts of natural disasters are interconnected globally. What happens to local farmers in emerging countries is linked to economies and food security around the world. More research in this area is needed, and a commitment to addressing climate-related risks by potential partners is critical.

Risk management professionals can forge local, regional, or national partnerships through discussions with utility companies, hospital coalitions, emergency management experts, nonprofits, communication networks, and insurance companies. Community partners may be able to offer financial assistance and support to better protect the most vulnerable sectors of society. For those who cannot afford traditional means of avoiding climate-related disasters and their subsequent effects, solutions need to be sustainable and realistic. Intangible costs should be included in how disasters affect society and those who are the most impacted. Climate change and weather-related disasters can involve overwhelming risk, and for the good of societies worldwide, all hands must be on deck.

Meet the authors
  1. Melissa Murphy, Senior Manager, Risk Management and Insurance

    Melissa (PhD, MS, ARM, CPCU) is a Senior Manager, Risk Management and Insurance. She is a risk and insurance industry expert with over 20 years of experience serving as a risk and insurance consultant, former insurance broker, insurance program manager, and higher education risk manager.   View bio

  2. Susan West, Vice President, Risk Management and Insurance

    Susan (MBA, CRM, CIC) is a risk management and insurance expert with more than 30 years of experience assisting clients in insurance and risk-related matters, including disaster planning, business continuity, resiliency, and recovery from disasters. View bio