Economics of disaster recovery and earthquake insurance: Five essays on New Zealand

<p>The Canterbury earthquake sequence (2010-2011) was the most devastating catastrophe in New Zealand‘s modern history. Fortunately, in 2011 New Zealand had a high insurance penetration ratio, with more than 95% of residences being insured for these earthquakes. This dissertation sheds light on the functions of disaster insurance schemes and their role in economic recovery post-earthquakes. The first chapter describes the demand and supply for earthquake insurance and provides insights about different public-private partnership earthquake insurance schemes around the world. In the second chapter, we concentrate on three public earthquake insurance schemes in California, Japan, and New Zealand. The chapter examines what would have been the outcome had the system of insurance in Christchurch been different in the aftermath of the Canterbury earthquake sequence (CES). We focus on the California Earthquake Authority insurance program, and the Japanese Earthquake Reinsurance scheme. Overall, the aggregate cost of the earthquake to the New Zealand public insurer (the Earthquake Commission) was USD 6.2 billion. If a similar-sized disaster event had occurred in Japan and California, homeowners would have received only around USD 1.6 billion and USD 0.7 billion from the Japanese and Californian schemes, respectively. We further describe the spatial and distributive aspects of these scenarios and discuss some of the policy questions that emerge from this comparison. The third chapter measures the longer-term effect of the CES on the local economy, using night-time light intensity measured from space, and focus on the role of insurance payments for damaged residential property during the local recovery process. Uniquely for this event, more than 95% of residential housing units were covered by insurance and almost all incurred some damage. However, insurance payments were staggered over 5 years, enabling us to identify their local impact. We find that night-time luminosity can capture the process of recovery; and that insurance payments contributed significantly to the process of local economic recovery after the earthquake. Yet, delayed payments were less affective in assisting recovery and cash settlement of claims were more effective than insurance-managed repairs. After the Christchurch earthquakes, the government declared about 8000 houses as Red Zoned, prohibiting further developments in these properties, and offering the owners to buy them out. The government provided two options for owners: the first was full payment for both land and dwelling at the 2007 property evaluation, the second was payment for land, and the rest to be paid by the owner‘s insurance. Most people chose the second option. Using data from LINZ combined with data from Stats NZ, the fourth chapter empirically investigates what led people to choose this second option, and how peer effect influenced the homeowners‘ choices. Due to climate change, public disclosure of coastal hazard information through maps and property reports have been used more frequently by local government. This is expected to raise awareness about disaster risks in local community and help potential property owners to make informed locational decision. However, media outlets and business sector argue that public hazard disclosure will cause a negative effect on property value. Despite this opposition, some district councils in New Zealand have attempted to implement improved disclosure. Kapiti Coast district in the Wellington region serves as a case study for this research. In the fifth chapter, we utilize the residential property sale data and coastal hazard maps from the local district council. This study employs a difference-in-difference hedonic property price approach to examine the effect of hazard disclosure on coastal property values. We also apply spatial hedonic regression methods, controlling for coastal amenities, as our robustness check. Our findings suggest that hazard designation has a statistically and economically insignificant impact on property values. Overall, the risk perception about coastal hazards should be more emphasized in communities.</p>

Economics of disaster recovery and earthquake insurance: Five essays on New Zealand

<p>The Canterbury earthquake sequence (2010-2011) was the most devastating catastrophe in New Zealand‘s modern history. Fortunately, in 2011 New Zealand had a high insurance penetration ratio, with more than 95% of residences being insured for these earthquakes. This dissertation sheds light on the functions of disaster insurance schemes and their role in economic recovery post-earthquakes. The first chapter describes the demand and supply for earthquake insurance and provides insights about different public-private partnership earthquake insurance schemes around the world. In the second chapter, we concentrate on three public earthquake insurance schemes in California, Japan, and New Zealand. The chapter examines what would have been the outcome had the system of insurance in Christchurch been different in the aftermath of the Canterbury earthquake sequence (CES). We focus on the California Earthquake Authority insurance program, and the Japanese Earthquake Reinsurance scheme. Overall, the aggregate cost of the earthquake to the New Zealand public insurer (the Earthquake Commission) was USD 6.2 billion. If a similar-sized disaster event had occurred in Japan and California, homeowners would have received only around USD 1.6 billion and USD 0.7 billion from the Japanese and Californian schemes, respectively. We further describe the spatial and distributive aspects of these scenarios and discuss some of the policy questions that emerge from this comparison. The third chapter measures the longer-term effect of the CES on the local economy, using night-time light intensity measured from space, and focus on the role of insurance payments for damaged residential property during the local recovery process. Uniquely for this event, more than 95% of residential housing units were covered by insurance and almost all incurred some damage. However, insurance payments were staggered over 5 years, enabling us to identify their local impact. We find that night-time luminosity can capture the process of recovery; and that insurance payments contributed significantly to the process of local economic recovery after the earthquake. Yet, delayed payments were less affective in assisting recovery and cash settlement of claims were more effective than insurance-managed repairs. After the Christchurch earthquakes, the government declared about 8000 houses as Red Zoned, prohibiting further developments in these properties, and offering the owners to buy them out. The government provided two options for owners: the first was full payment for both land and dwelling at the 2007 property evaluation, the second was payment for land, and the rest to be paid by the owner‘s insurance. Most people chose the second option. Using data from LINZ combined with data from Stats NZ, the fourth chapter empirically investigates what led people to choose this second option, and how peer effect influenced the homeowners‘ choices. Due to climate change, public disclosure of coastal hazard information through maps and property reports have been used more frequently by local government. This is expected to raise awareness about disaster risks in local community and help potential property owners to make informed locational decision. However, media outlets and business sector argue that public hazard disclosure will cause a negative effect on property value. Despite this opposition, some district councils in New Zealand have attempted to implement improved disclosure. Kapiti Coast district in the Wellington region serves as a case study for this research. In the fifth chapter, we utilize the residential property sale data and coastal hazard maps from the local district council. This study employs a difference-in-difference hedonic property price approach to examine the effect of hazard disclosure on coastal property values. We also apply spatial hedonic regression methods, controlling for coastal amenities, as our robustness check. Our findings suggest that hazard designation has a statistically and economically insignificant impact on property values. Overall, the risk perception about coastal hazards should be more emphasized in communities.</p>

Decision making in the coastal zone under an uncertain future

Coastal flooding is rated as the second highest risk of civil emergency in the UK, and can cause damage to coastal and estuarine infrastructure, communities, ecosystems, and even loss of life. Hydrodynamic, numerical modelling tools are used to identify regions susceptible to coastal flooding under current and future climate conditions. Modelling procedures and data inputs can lead to a range of uncertainties that need to be quantified for the simulations to be meaningful. Reported public scepticism of coastal hazard forecasting and flood warning accuracy may be due in some part to the way that flood dynamics and uncertainties in the computer model simulations of flood hazard are communicated to the end-users. The briefing explores key uncertainties in flooding predictions, and how these can be better communicated to the public and stakeholders. Improved communication can help to increase awareness and encourage behaviour change to build trust in warnings and forecasts.

Application of the Coastal Hazard Wheel for Coastal Multi-Hazard Assessment and Management in the Guang-Dong-Hongkong-Macao Greater Bay Area

The coasts of Guangdong-Hong Kong-Macao Greater Bay Area (GBA) are facing threats and challenges from rising sea levels, frequent extreme events and human intervention. In this study, the Coastal Hazard Wheel (CHW) was used to classify the coasts of GBA, assess its hazard change from 2010 to 2020, identify hazards hotspots and explore available coastal management options. The results show that the coastal types of GBA in 2010 and 2020 are consistent, with delta/low estuary island and hard rock slope as the main types. GBA is vulnerable to ecosystem disruption, saltwater intrusion, gradual inundation and flooding hazards. Compared with 2010, the high risk proportion of each hazard in 2020 decreased significantly, but the high risk of flooding increased slightly. All kinds of hazards are interdependent and influenced by each other. The Pearl River Estuary, the east bank of Yamen Waterway, the west bank of Huangmao Sea and Dapeng Bay show very high hazard vulnerability, and the flooding risk is the highest. Soft measures such as coastal zoning, tsunami warning systems, wetland restoration and hazard simulation are most widely used in coastal management. CHW is applicable to GBA’s coastal hazard vulnerability assessment, which provides a case study for coastal risk assessment of GBA and has certain reference significance for hazard management and sustainable development for the Bay Area.

Living Beside the Rising Tide: Adapting to Sea Level Rise in Auckland, New Zealand

<p>The Earth's climate system is entering a period of dynamic change after millennia of relatively stable climate. Coastal communities will need to adapt to dynamically shifting coastal environments as the climate system changes and sea levels rise. This study adds to a growing literature that investigates coastal vulnerability, adaptation, and resilience to climate change. It investigates regional scale social and institutional barriers to adaptation to sea level rise; examines the exposure, sensitivity and adaptation options at two coastal settlements in the Auckland region – Mission Bay/Kohimarama and Kawakawa Bay; and it analyses coastal adaptation response options from a resilience perspective. Mission Bay/Kohimarama and Kawakawa Bay, Auckland will experience increasing coastal hazard risk as the numbers of people and property potentially affected by storm events increases as sea level rises. Findings from the present study suggest that existing settlements in the Auckland region may already be 'locked in' to a coastal adaptation approach focused on maintaining the current coastline through coastal stabilisation, an approach that will decrease community resilience and increase vulnerability in the long term, even if this is found to be a successful response in the short term. Retreat offers an alternative approach that is strongly aligned with reducing community vulnerability and increasing resilience; however, strong opposition from communities to any retreat approach is expected. Developing trusted climate science information, education around coastal hazard risk, and participatory community led decision-making are identified as central enablers for a retreat approach to be included as a viable coastal adaptation option for communities in the Auckland region.</p>

Living Beside the Rising Tide: Adapting to Sea Level Rise in Auckland, New Zealand

<p>The Earth's climate system is entering a period of dynamic change after millennia of relatively stable climate. Coastal communities will need to adapt to dynamically shifting coastal environments as the climate system changes and sea levels rise. This study adds to a growing literature that investigates coastal vulnerability, adaptation, and resilience to climate change. It investigates regional scale social and institutional barriers to adaptation to sea level rise; examines the exposure, sensitivity and adaptation options at two coastal settlements in the Auckland region – Mission Bay/Kohimarama and Kawakawa Bay; and it analyses coastal adaptation response options from a resilience perspective. Mission Bay/Kohimarama and Kawakawa Bay, Auckland will experience increasing coastal hazard risk as the numbers of people and property potentially affected by storm events increases as sea level rises. Findings from the present study suggest that existing settlements in the Auckland region may already be 'locked in' to a coastal adaptation approach focused on maintaining the current coastline through coastal stabilisation, an approach that will decrease community resilience and increase vulnerability in the long term, even if this is found to be a successful response in the short term. Retreat offers an alternative approach that is strongly aligned with reducing community vulnerability and increasing resilience; however, strong opposition from communities to any retreat approach is expected. Developing trusted climate science information, education around coastal hazard risk, and participatory community led decision-making are identified as central enablers for a retreat approach to be included as a viable coastal adaptation option for communities in the Auckland region.</p>

Intercomparison of Empirical Formulations of Maximum Wind Radius in Parametric Tropical Storm Modeling over Zhoushan Archipelago

The Holland (2010) parametric wind model has been extensively utilized in tropical cyclone and storm surge-related coastal hazard mitigation and management studies. The only remaining input parameter, the radius of maximum wind speed (Rm), is usually generated by previously proposed empirical relations which are, however, sensitivity to study areas in producing better performed numerical results. In order to acquire optimal Rm formulations over the region of Zhoushan Archipelago, East China Sea, 16 empirical relations were compiled into the Holland (2010) model to produce time series of the pressure, wind speed, and wind direction in comparison to observational records taken at three stations during the tropical cyclone events of Ampil and Rumbai. Their respective agreements were evaluated by error metrices including the root mean square error, correlation coefficient, mean bias error, and scatter index, whilst the overall performances of the 16 formulations were ranked according to a proposed comprehensive error. In the following order, the Rm formulations of Lu (2012), Zhou (2005), Kato (2018), and Jiang (2008) ranked the best for both events in terms of their minimum comprehensive errors; however, recommendations on the application of specific empirical formulations for the region of Zhoushan Archipelago are also provided herein from the perspective of conservation and accuracy.