NCDP Perspectives

This post was originally published on May 30, 2018, in Fortune.

The 2018 hurricane season is upon us, and it looks like we are in for a very bad year. This is right on the heels of 2017, which was the most expensive hurricane season on record, requiring multiple emergency supplemental appropriations from Congress. In the future, we need to accept the fact that the degree to which we rely on the federal government to underwrite our preparedness and response is no longer viable. We need a more sustainable approach to managing 21st-century disasters.

The economic stress of disasters is now regularly measured in billions—and even sometimes in trillions of dollars—and has measurable impacts on GDP. Since 1980, the United States has experienced 230 separate billion-dollar weather events, totaling more than $1.5 trillion in costs. And that is just the weather and climate-related disasters.

To understand the scale of these financial pressures on federal programs, one only needs to look at the National Flood Insurance Program (NFIP), which is the program that subsidizes flood insurance to make it affordable to live in certain areas of the country. The NFIP was recently saved from insolvency by canceling $16 billion in debt as part of the 2017 hurricane relief funding. However, as of early 2018, it still remained $20.5 billion in debt.

Some argue that the increased cost of disasters is the result of climate change. Others argue that this is the result of unchecked development in vulnerable areas, and that some of this is incentivized by programs like the NFIP. Data journalists have demonstrated that the increase in wealth and property values is driving much of this cost. In a sense these are all true. There is no single cause or simple solution to the skyrocketing costs of disasters.

It is tempting to blame FEMA or Congress for these trends. FEMA is the flag bearer of the federal government when billion-dollar disasters occur, and Congress authorizes and funds the efforts. But they don’t own the whole problem. Municipalities zone areas for development, banks finance development, insurers offset risk, and individuals make decisions on whether or not to prepare.

The private sector has levers to influence community development to be more disaster-resilient. Banks can ask more questions on vulnerability and mitigation before financing major development projects, and the insurance sector can provide more incentives for proactive measures to reduce disaster risk. Employers can work to prepare their employees and contribute to community resilience-building programs, and individuals can make better use of the information available to prepare themselves and their families.

FEMA knows this. Its strategic plan talks about creating a culture of preparedness at all levels and includes incentivizing investments to reduce risk and close the insurance gap. They have also transferred more than a billion dollars in risk to private reinsurance markets. And, while this is promoted as saving the taxpayer money, the unspoken impact is that this transitions the responsibility for the readiness of the whole community to the whole community, and not just the federal government.

The notion of a disaster deductible for states that receive disaster relief funds was also explored by the Obama administration. The idea was to apply a deductible to federal disaster relief funds, but allowing states to credit their own funds spent to prepare for disasters against this deductible. This would have effectively created an incentive for states to self-fund their disaster readiness and rely less on federal grants to prepare.

The disaster responses of 2017 nearly broke our national emergency management systems. As this next hurricane season begins, we cannot continue to rely on federal coffers to finance our complacency. The federal government is still necessary to guide a national strategy, and to provide resources where there is no viable alternative. But in the face of more billion-dollar disasters, leveraging the resources and influences that all sectors have on our society is the only sustainable way forward.