Disaster policies and the social capital concept
Strong relationships within communities may decrease claims
Social capital isn’t “an expression that I hear coming naturally from the [insurance] industry,” says Paul Kovacs, executive director of the Institute for Catastrophic Loss Reduction in Toronto. Actuaries, underwriters and adjusters often prefer discussing easily quantifiable data: the age of a house, whether or not it has a sump pump, and the likelihood of another tornado hitting the town.
But social capital—essentially the relationships built between community members—affects insurance by increasing a community’s ability to recover from a disaster, and it can be measured.
“First of all, social capital can feel pretty ambiguous and pretty vague,” acknowledges Daniel Aldrich, a professor of political science, public policy and urban affairs and co-director of the security and resilience graduate program at Northeastern University in Boston. “So we always try to find measures of it that are appropriate contextually, linguistically, historically.” In North America, “I would probably ask people how often they go to church, how many last names they can mention, their familiarity with local parks or local outdoor activities…”
Bonds from social capital lose some their value, however, when community relationships are siloed. “…The more diverse the community is, the more fragmented the social capital within the community,” says Andrew Fox, a civil engineering lecturer at the University of Plymouth in the UK. To avoid such fragmentation and maximize their neighbourhood’s resilience, parishioners, Little League families and humane society volunteers need to interact with each other, not just their own groups.
In 2011, Fox studied resilience in three towns on the River Teign estuary in Devon, all of which were at risk of floods. Yet Teignmouth, the town with the history of the most flooding, “turned out to be the community with the least interest in flood risk as a hazard,” due at least in part to its social fragmentation. Teignmouth’s population was nearly evenly split between residents and business owners, and the two groups didn’t frequently interact. For example, the town’s flood risk committee —which wasn’t officially supported by the town council—didn’t include any members of the trade association.
When the UK’s Environment Agency offered to build a flood defense wall in Teignmouth, residents couldn’t agree on whether or not they should accept the offer. The agency wasn’t seeking financial contributions but needed to ensure the town would approve a planning permit for the wall. At Teignmouth’s lukewarm response, the agency simply approached Shaldon, the town across the river, which Fox also studied.
Shaldon had a much smaller divide between businesses and homeowners, and quickly organized a council-sponsored flood risk working party to negotiate with the agency. “Ultimately, the message that came back to the local environment agency was, ‘Yeah, we’re happy to have a flood defense if you’re going to spend money on us,’” Fox says. So the wall went up and Shaldon became more resilient to floods even though, unlike Teignmouth, few residents had experienced flooding.
Good relationships between community members, whether they’re developed at a flood risk committee meeting or while coaching T-ball, can also act as informal insurance.
After Hurricane Katrina, for example, many New Orleans daycares closed. But “if I had a neighbor or a family member or someone that I trust,” Aldrich says, “[if] I’d invested in this informal insurance, I might ask them to watch my child between let’s say, 9:00 and 5:00, when I go to my work.”
That kind of coverage can also save formal insurance companies money.
“The idea is that if you are in a community with very strong resilience, if you are particularly affected [by a disaster], other people in your community can come and help you,” says Sarah Pullen, a graduate student in Carleton University’s Master’s of Infrastructure Protection and International Security program in Ottawa. “And the community as a whole doesn’t suffer as greatly because everybody is kind of looking out for each other. If a big tree falls on your house, for example, people in your community come and help you get it off your house.”
So governments and insurers may send smaller ground crews to help with clean up, or simply see smaller claims amounts because that tree was lifted up sooner and less structural damage was done.
Kovacs doesn’t see insurers rating on social capital directly but homeowners in highly connected neighbourhoods may pay lower premiums nonetheless. “In its way, the insurance industry is definitely rewarding those communities that have a regular record of just asking for less financial help from others… [Insurers] will definitely say it’s because they had this clearly identifiable, quantifiable measure of performance over an extended period of time, and so they have earned lower prices due to how they’re behaving.”
The insurance community can also help foster the interdependence that leads to lower premiums by thinking “about their own relationships they have, especially with vulnerable populations, not solely in terms of financial transaction, but rather in terms of relationship building, right?” Aldrich says. “How do you create trust? How do you make people believe that if there is a disaster, then the community will get from the insurance company its fair shake?”
The Co-operators, for example, co-sponsors the National Wildfire Community Preparedness Day, which encourages towns and neighbourhoods to work together and become “fire smart.” Groups can apply for up to $500 to buy tools, clear brush, raise awareness or do anything else that can help prevent wildfires.
Spokesperson Leonard Sharman acknowledges $500 isn’t a lot of cash. But “a lot of this… is not dependent on money but is dependent on effort. So if we can help with that and keep people hydrated and things like that as they do the tough work, we’re happy to pitch in in any way that can make the projects happen, really.”
Plus, after a hard afternoon of clearing brush from around the community centre, Sharman points out, residents may “see their own home in a different light” and decide to tackle the fallen trees around the porch the next weekend.
The insurer hasn’t yet seen a decline in claims from participating communities but it is aware of the Fire Smart certification program “and maybe sometime down the line, that sort of certification or those sorts of community efforts could find their way into pricing.”
Verifying common sense
For more specific resilience projects like the flood damage wall in Devon, Fox suggests insurers and other stakeholders get to know a community before trying to implement changes. The Environment Agency thought Shaldon accepted their offer because they had approached that town with a community liaison officer, which hadn’t been part of their team when they approached Teignmouth. But Fox believes it has “a lot more to do with understanding the structure of the community than it is to do with whether your approach is right or wrong.”
An agency or insurer’s first step in encouraging resilience, he says, is to build connections between different community groups. “You have to create that sort of pre-engagement study to understand the community. Yeah, it’s pretty common sense, isn’t it? That’s what research does—it just verifies what’s common sense, really.”
After establishing a diverse working group, he suggests finding a facilitator who understands the community, such as the municipal government. “Once you’ve got that structure established, then you can start working with the community to get the messages about… better flood risk insurance, better coverage, or understanding the risks and premium issues…”
Social capital also has downsides, including governments’ potentially reduced sense of responsibility. “You’ve got to be careful that we don’t couch this in such a way that the government can turn around or anybody can turn around and say, ‘They’ll be fine. We’ll just leave them to their own devices. They’re strong. They’ll figure it out,’” says Brenda Murphy, a society, culture and environment professor at the Wilfrid Laurier University campus in Brantford, Ont. “We also want to advocate for as much resourcing and as much support, especially for the rural communities, as possible.”
In addition, if residents trust their neighbours to help out after an emergency, they may be less likely to buy any sort of insurance. Aldrich found that after Hurricane Katrina, just one in four New Orleans homes had flood insurance.
“…Oftentimes, there’s a substitution effect, where people may not necessarily undertake mitigation measures because they know, for example, if their basement floods, they have friends who can come by to plug the drywall, use bleach on the sides and rebuild, or because they know there’s a place nearby, Mom’s house, or Grandpa’s house, or [an] aunt’s or uncle’s house [where] they can stay while the house gets repaired.”
New Orleans’ low insurance penetration may also be because many houses have been in the same families for generations. Now mortgage-free, owners are no longer required to buy coverage. In Japan, on the other hand, “both renters and owners there are forced by law to have earthquake and fire insurance,” Aldrich says. “So there, because of the legal system, there’s less connection between choices about insurance and outcomes of social capital.”
Then there’s the phenomenon of friends motivating friends to buy—or cancel— policies, coupled with the common idea that “people are less likely to invest in mitigation after a disaster, because everyone says, ‘It happened to me once, it’s not going to happen a second time…’” So if Johnny paid off his mortgage a few years after Katrina, he could decide to cancel his coverage because he doesn’t think he’ll be around for another disaster on that scale. And when his neighbor Jimmy clears his mortgage a little while later, he might be tempted to follow suit.
But on the flip side, someone buying flood coverage for the first time could inspire her friends and neighbours to do so as well.
After all, friends don’t let friends live in uninsured homes.