Financing Natural Catastrophe Exposure: Issues and Options for Improving Risk Transfer Markets [August 15, 2013]   [open pdf - 520KB]

"The federal government has an established institutional framework for disaster preparedness, reduction, prevention, and response--mainly disaster assistance. However, concerns have been expressed about the nation's increasing exposure and vulnerability to natural hazards. The rising cost of financing recovery and reconstruction following natural disasters, reports of the nation's increasing vulnerability to coastal hazards, questions concerning the capacity of state and local governments and private insurers to deal with the rising costs, and disagreements concerning the appropriate role of the federal government in dealing with these costs have all become major topics of congressional debate. The financial consequences of catastrophic natural disasters, such as Hurricanes Katrina (2005) and Sandy (2012), are largely a result of increasing population growth and the rising concentration of property assets in vulnerable disaster-prone areas. According to the National Oceanic and Atmospheric Administration (NOAA), Hurricane Katrina caused more than $80 billion in economic losses (both insured and uninsured) to private property and infrastructure and, more recently, Hurricane Sandy caused more than $65 billion in economic losses. New York and New Jersey--two of the nation's most populous states--were especially affected by Hurricane Sandy-induced storm surge and coastal flooding. Sandy also triggered a sustained and heightened policy interest in the potential effects of climate change and population growth on the National Flood Insurance Program (NFIP), the feasibility of innovative public-private sector catastrophe risk management and financing initiatives, and consideration of cost-effective and practical adaptation strategies to make society more financially resilient."

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CRS Report for Congress, R43182
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