Economics of Community Disaster Resilience: An IBHS Perspective

IBHS has identified the following five concepts as central to the economics of community disaster resilience: (1) the importance of “going green and building strong”; (2) residential and commercial building performance; (3) emergency preparation and response as a shared responsibility; (4) building codes as a threshold, but not end goal; and (5) the need for a variety of public and private sectors incentives.


The Insurance Institute for Business & Home Safety (IBHS) is a 501(c)(3) organization, wholly supported by the property (re)insurance industry. IBHS conducts objective, scientific research to identify and promote effective actions that strengthen homes, businesses, and communities against natural disasters and other causes of loss. IBHS does this by identifying and advocating improved property design, construction, strengthening, maintenance, repair, and preparation practices.

The centerpiece of our research program is the IBHS Research Center in Chester County, South Carolina. It is the only laboratory of its kind in the world. Using a 105-fan array and other specialized equipment, IBHS engineers can recreate a variety of highly realistic wind, rain, fire and hail events. The ability to mimic Mother Nature in a controlled, repeatable way allows IBHS to demonstrate the effectiveness, affordability and financial value of stronger building codes and better-built structures; identify effective solutions to building vulnerabilities; strengthen the relationship between theoretical and real building performance; and validate/improve current scientific bases for designing and installing building products and systems. Our goal is to translate the results of this research into better public policy and market-based approaches to mitigation, in order to provide the most cost-effective protection possible across America. Achieving this goal will transform the built environment as well as significantly improve social and economic preparation for and response to extreme events—moving our nation toward true resilience.

Key IBHS Resilience Concepts

1. Both “going green” and “building strong” are important.

Increasingly, the related concepts of adaptation, mitigation, and resilience are being promoted as a proactive means of preparing for and responding to extreme events at the local, regional, and national levels, including the potential effects of climate change. While IBHS strongly supports this goal, the reality is that communities across the U.S. are not prepared for the severe weather and other extreme events that confront them today. Each year, natural disasters cause widespread damage, destroy communities, and leave states with mountains of debris that will eventually end up in landfills. The American Institute of Architects estimates that 25 percent to 40 percent of solid waste results from construction/reconstruction debris, much of it from structures that are destroyed by severe weather or other disasters.

Recognizing that sustainable, or “green,” building practices are intended to provide meaningful environmental benefits, these practices must not inadvertently compromise a business’s resistance to natural hazards, such as high winds, earthquakes, floods, or wildfires. According to research conducted by FM Global, benefits gained from green construction and energy efficiency can be negated by a single fire event. This is due in part to the carbon dioxide and other greenhouse gases generated when combustible material burns, as well as the carbon associated with the disposal of burned materials. High volume water streams used to extinguish fires also create run-off that may be contaminated by debris or toxic chemicals. Another area of concern relates to so-called “green” roofs (roof gardens that may contain shade trees, ornamental plants, grass, and vegetable gardens). From an environmental perspective, green roofs may improve air quality and reduce energy consumption, but they also can become fuel for a wildfire or projectiles during a hurricane or tornado. Additionally, the weight that green elements add to a roof may be further increased following torrential rains or due to water flows from fire-fighting operations, leading to full or partial collapse of the roof and the subsequent failures of load bearing walls and the floors below.

In fact, green building and disaster resistant construction can and should work in tandem to reduce greenhouse gas emissions, reduce air and water pollution, and improve the carbon footprint of individual businesses and their communities. For example:

  • Building owners working toward LEED certification should make sure their design includes elements in each category that improve disaster resistance.
  • Whether or not owners are seeking LEED certification, they should follow environmentally focused site selection criteria (e.g., LEED, IGCC, or another appropriate standard) to help reduce adverse environmental impacts and mitigate against flood and hurricane damage.
  • It is important to understand how various green design features, such as a roof or solar panels, will perform in the face of the natural hazards in a particular region.
  • It is also important to design and install green features in a hazard-appropriate manner—e.g., proper bracing and the attachment of light-weight insulation, such as foam sheathing, in parts of the building that may face wildfire risk or have to withstand high winds.
  • The process of inspecting for energy efficiency improvements offers the opportunity to identify disaster resistance gaps as well. For example, sealing energy leaks that are found through an inspection can help make a building both more air tight (hence more energy efficient) and more water tight (thus eliminating or reducing water intrusion). Similarly, it is easy and cost-effective to choose new windows and doors that are both energy efficient and disaster resistant.

2. Both residential and commercial building performance must be a central tenet of resilience.

Resilience is a holistic concept encompassing land use, agriculture, energy policy, infrastructure, evacuation plans, disaster communications, and a wide range of other imperatives. Without diminishing the importance of each element of this equation, it is important to underscore that stronger residential and commercial building performance is a key feature of resilient communities.

Housing is a basic necessity of life and the cornerstone of every community. Even after the recent housing and mortgage crisis, owning a home is still the American dream for many and a potential source of physical and financial security. In explaining her decision to strengthen her home to better withstand natural disasters (by building to resilience standards of the IBHS FORTIFIED Home™ designation), one Alabama homeowner noted “I am confident that our home will not only make it through the next storm, but that it will be here long after we are gone; we are leaving a legacy.”

Likewise, the level of resilience in the business sector is inextricably linked to a community’s economic vitality as it recovers from an extreme event. Business continuity planning and structural hardening are essential to protecting the job base and tax revenue. In many communities, small business is the dominant private sector employer. According to a report by the Council on Finance, Insurance and Real Estate (CFIRE) of the National Institute of Building Science (NIBS), small commercial buildings (defined as less than 50,000 square feet) comprise a significant portion of the nation’s commercial building stock, both by number and area (93.9 percent and 49.5 percent, respectively). Additionally, approximately 50 percent of the working population is employed by a small business, many of which are housed in small commercial buildings; such structures may not be highly engineered or have trained building safety experts on staff. Widely cited statistics indicate that at least one in four businesses that close for more than 24 hours because of a disaster never reopens, causing job losses and sapping a community’s economic vitality.

Testing of residential and commercial structures at the IBHS Research Center confirms that using the right construction materials and installing them correctly greatly reduces storm damage to buildings and associated disruption to the people and businesses that occupy them. Operationalizing these research results is critical to building resilience.

3. Emergency preparation and response is a shared responsibility.

Emergency preparation and response involves a range of proactive steps needed to protect people and property from physical and economic damage should disaster strike, as well as those to be taken directly following an extreme event. This is not solely within the purview of government emergency managers; rather, it is a shared responsibility among the people who live and work in every community. Not having a plan, or a having poorly prepared or misunderstood plan, could lead to disorganized preparation or confused response, with the possibility of mass injury or death.

While the specifics of emergency planning vary depending on the type and severity of the hazard, every home and business emergency plan should focus first on life safety, and include protections such as emergency contact numbers, shelter in place strategies including supplies, evacuation plans and routes, and plans for how to locate family members or employees after an event. Additionally, for storms and other natural hazards that allow for advanced notice, there are specific damage mitigation actions that should be taken five days, three days, one day, and immediately before, during, and after an event.

Public/private partnerships can play an important role in emergency planning and response. For example, local authorities can work with a variety of trusted private sector organizations—including chambers of commerce, individual employers, houses of worship, and non-profits—to reach out to their constituents to underscore the urgency of being prepared, heeding evacuation warnings, and how best to shelter in place. It is especially important to include vulnerable populations in these outreach efforts, and make sure that their needs are taken into account for community-wide planning. These same public/private partnerships can play an important role in speeding and facilitating recovery, particularly if they gain trust during an emergency.

4. Building codes are a starting point of community resilience.

Building codes are the minimum acceptable regulatory standard used to regulate design, construction, and maintenance of residential and commercial structures for the purpose of protecting the health, safety and general welfare of building users. Strong codes—and adequate enforcement—play a vital role in public safety and loss prevention, which can reduce the need for public disaster aid and increase a community’s resilience. Codes also establish predictable, consistent minimum standards that help assure the quality of construction materials, products and systems used in buildings.

Without minimizing the importance of building codes, it is important to recognize that they are consensus documents drafted through input from a wide range of parties, and subject to political pressure prior to adoption in most states. While they appropriately focus on life safety protection, it is both possible and practicable to use more resilient, hazard-specific design, materials, and installation in the construction and renovation of residential and commercial buildings—on a voluntary basis, beyond what is required by building codes. This is the predicate of the IBHS FORTIFIED program, which combines building science “best practices” with a third-party verification process designed to make sure that designated structures really are built to the science-based design and construction standards that underlie FORTIFIED. Homes built to these standards are expected to incur significantly less damage from natural disasters, protecting lives and livelihoods, reducing economic damage, and improving communities’ ability to withstand and recover quickly from disasters.

In order to operationalize resilience, the U.S. Department of Homeland Security (DHS) created a new pilot program called Resilience STAR™ designed to encourage construction and retrofitting of homes to become more disaster-resistant. Resilience STAR is modeled after the successful ENERGY STAR® program, which recognizes superior energy efficiency in homes, commercial buildings, and a wide range of products. DHS chose the IBHS FORTIFIED program as the technical basis for a Gulf Coast Resilience STAR pilot project, which was conducted in 2014. The pilot built upon the strong, grassroots commitment to resilience that has been nurtured in Alabama and Mississippi coastal communities devastated by Hurricane Katrina. The goal of voluntary programs such as FORTIFIED and Resilience STAR is to create the same consumer-driven market demand for stronger building as has lifted automobile safety standards beyond regulatory requirements.

5. A variety of incentives are needed to encourage steps toward resilience.

Although there is general consensus among mitigation experts on steps needed to improve community resilience, a gap between identification and implementation of solutions remains. One way to close this gap is through development of public and private sector incentives to encourage mitigation at all levels. To date, there have been only sporadic federal, state, and local attempts (largely through grant programs) to reduce or offset the cost of individual mitigation measures. For example, the South Carolina Safe Home program provided grant money to individual homeowners to make their property more resistant to hurricane and high-wind damage (

While some of these programs have achieved specific goals, they are not coordinated, and have been too narrowly drawn to lead to widespread transformation and a nation of resilient communities. For this to occur, there must be a broad recognition at the federal level of the social, economic, and environmental imperatives of reducing our nation’s collective vulnerability and controlling the scale of loss from natural disasters. The goal should be to invest more, and more wisely, in pre-disaster mitigation in order to spend less in post-disaster recovery assistance (often in an unplanned, inefficient manner). Improving the hazard resistance of structures against known and commonly predicted events, rather than putting the same brittle buildings back in the same vulnerable places once again after catastrophe strikes, would be smarter spending of taxpayer dollars at all levels of government.

Many people look to the property insurance industry to provide mitigation incentives and incorrectly assume that these alone will motivate action and offset the costs of more resilient homes and businesses. There is indeed a role for insurance discounts—for example, both Alabama and Mississippi require insurers to file discounts for homes that are built to the IBHS FORTIFIED standard discussed above, through programs administered by the state departments of insurance. These requirements have proved workable because insurers have confidence in the technical standards and the verification process that underlie FORTIFIED, and they believe that the regulatory requirements have been administered fairly.

While there are other publicly available examples of insurer incentives provided to policyholders who have undertaken proven mitigation improvements, there also are legal and financial impediments to the concept of insurance incentives as a transformative agent. From a legal perspective, insurers are subject to antitrust laws that prohibit them from coordinating underwriting or pricing strategies. They also are subject to rate regulatory constraints and other regulatory requirements (such as mandatory residual market participation) which in many states undermine the principles of risk-based underwriting or pricing that is critical to incentivizing resilience. Additionally, the disaster-related component of most property insurance policies is relatively small, and consequently, the potential savings from applying resilience incentives are limited. Finally, when considering the concept of community resilience, it is important to understand that private insurers are concerned about the risk characteristics of specific homes or businesses, not those of the community as a whole, and thus not generally in a position to offer discounts to home or business owners simply for living/operating in “resilient communities.”

Despite these constraints, insurers will continue to play a leading role in encouraging and incentivizing resilience. But it is also imperative to broaden the range of stakeholders who incorporate resilience into their financial models. The October 28, 2014, unpublished exposure draft of NIBS’ “Multi-hazard Mitigation Council Approach to Resilience Incentives” calls for bringing together a wide range of business and financial interests, including banks, utilities, bond rating companies, and investments firms, noting that “the crux of this effort is to make resilience in the built and natural environment part of each stakeholder’s approach to asset management, and conducting business and community operations.” Achieving this goal is a key milestone in the transformation to community resilience.


The economics of community disaster resilience are compelling, at the individual, neighborhood, and community, state, and national levels. All of these pieces must be attended to, with compelling incentives for action by home and business owners, as well as public policymakers and other stakeholders in the built environment. Truly resilient communities will invest in the both pre- and post-event strategies discussed above (along with others). Such investments will pay tremendous dividends by significantly reducing the human, social, and financial costs related to extreme weather.
Submitted to the NIST-ASCE-ASME Economics of Community Disaster Resilience Workshop
April 30, 2015