Straw, Sticks or Bricks:Empirical Test of the Three Little Pigs

Kevin M. Simmons, Ph.D.

Three Little Pigs

Does Hazard Mitigation Matter?

Florida Building Codes

Hail Damage Study

Benefit/Cost of Enhanced Construction

Florida Building Codes

• Hurricane Andrew (August 1992)

– Ten years prior to the storm saw large increase in construction in Florida

– The storm exposed several issues*• Construction standards

• Technological unintended consequences

• 1996 Florida enacted new building codes

*Fronstin, Paul and Holtman, Alphonse G., (1994), “The Determinants of Residential Property Damages from Hurricane Andrew,” Southern Economic Journal, 61, (2): 387-397.

Hurricane CharleyAugust 2004

• Natural Experiment

• Compare damage from homes built before/after new building codes

– Pre 1996

– Post 1996

Consultants: Kevin Simmons - Austin College and Daniel Sutter - University of Oklahoma

Claim Frequency

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Pre-1996 Post-1996

Claim Frequency

Data Provided by the Insurance Institute for Business and Home Safety

Claim Severity

$0

$5

$10

$15

$20

$25

$30

Pre-1996 Post-1996

Claim Severity

Data Provided by the Insurance Institute for Business and Home Safety

THE ROLE OF BUILDING CODES IN MINIMIZING HAIL PROPERTY DAMAGE

Jeffrey CzajkowskiWharton Risk Management Center

University of Pennsylvania

Kevin M. SimmonsAustin College

Czajkowski, Jeffrey and Simmons, Kevin M. (2014) “The Role of Building Codesin Minimizing Property Damage”, Land Economics, Vol 90, Number 3, pp. 482-508.

Hail Property Loss Damage in Missouri (2008-2010)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

$-

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

Number of claims

Losses

MO Total Incurred Losses and # of claims by type from 2008 to 2010

What can be done to reduce these hail losses?

One well-encouraged notion is to vigilantly and vigorously promote and support advanced building codes

Unfortunately, many states - such as Missouri - have no statewide building code in place, i.e., the codes are left up to individual municipalities in that state

Further, even if a statewide code did exist, not all jurisdictions equally enforce their codes once they have been adopted

Building Code Effectiveness Grading Schedule (BCEGS)

BCEGS U.S. Rating Distribution

More favorable average BCEGS rating –

19% of total 532 ZIP codes in MO with a loss

Less favorable average BCEGS rating – 40%

of total 532 ZIP codes in MO with a loss

Source: BUILDING CODE EFFECTIVENESS GRADING SCHEDULE (BCEGS®) - EXPLAINING THE CLASSIFICATIONS

Results

Better BCEGS ratings do in fact reduce hail damage

• More favorable BCEGS ratings are statistically significant estimators of reduced hail losses in comparison to less favorable and unclassified BCEGS

• Still, it is better in general to have some rating than no rating

Impact of other control variables on damages incurred:• The size of hail matters more than the frequency of being impacted by

hail in increased damages• Larger ZIP code population, policies (EHY) and claims experienced all

significantly increase damages per ZIP code as expected• Construction type and age of homes have limited significance on

explanation of damages

Is Mitigation Cost Effective?

• It’s one thing to say better construction reduces damage

• But do the benefits (reduced damage) justify the cost?

TORNADO DAMAGE MITIGATION: BENEFIT/COST ANALYSIS OF ENHANCED BUILDING CODES IN

OKLAHOMA

Gregory KoppUniversity of Western Ontario

Paul KovacsInstitute for Catastrophic Loss Reduction

Intergovernmental Panel on Climate Change

Kevin M. SimmonsAustin College

Forthcoming in Weather, Climate and Society

Moore, OK

• After 3 violent tornadoes in 14 years, the city of Moore adopted stricter building codes in April 2014

• Wind load standard increased from 90 to 135 mph

New Requirements

• Narrower spacing of roof joists

• Hurricane straps for roof/wall connections

• Foundation to baseplate anchor bolts

New Requirements

• Wind rated garage doors

• Improved exterior sheathing

Added Cost

• Consulting engineers and the Moore Association of Home Builders estimate the changes add $1 per square foot to the cost of a new home.

Added Cost

• If every home in Oklahoma been built to the enhanced standards, the increase in cost would have been $3.3 billion

Damage Reduction

• Wind load standard is through EF-2 on the Enhanced Fujita scale.

• 70% of all damage occurs in tornadoes rated EF-3 and higher

• But the tornado rating is based on maximum wind and does not represent the wind field of the entire path

EF Scale Wind Speeds (mph)

0 65 – 85

1 86 – 110

2 111 – 135

3 136 – 165

4 166 – 200

5 > 200

Proportion of EF Ratings by Each Category

Proportion of Track Area

Maximum

Tornado

Intensity EF0 EF1 EF2 EF3 EF4 EF5

EF5 0.538 0.223 0.119 0.07 0.033 0.017

EF4 0.543 0.238 0.131 0.056 0.032

EF3 0.529 0.271 0.133 0.067

EF2 0.616 0.268 0.116

EF1 0.772 0.228

EF0 1

Ramsdell, J. V., and Rishel, J. P., (2007), Tornado climatology of the contiguous United States, Tech. Rep. NUREG/CR-4461, Nuclear Regulatory Commission, Washington, D. C.

Damage by Rating and Wind Speeds

EF Scale

Proportion of Total

Track Length, Lj

Proportion of Total

Damage, Sj

Proportion of Damage for

EF Scale level, Si

EF-5 0.00924 0.23 0.19

EF-4 0.0546 0.22 0.18

EF-3 0.172 0.24 0.17

EF-2 0.255 0.16 0.12

EF-1 0.364 0.13 0.29

EF-0 0.146 0.01 0.05

Damage Reduction

• While EF-0 through EF-2 tornadoes account for 30% of damage, EF-0 through EF-2 wind fields account for 46% of damage.

• The new building codes should reduce 65% of this damage or reduce overall tornado damage by 30%.

Damage Reduction

• Based on insured losses for Oklahoma over the last 25 years, the present value of 50 year losses for residential is estimated to be $36 billion.

• These codes should reduce those losses by almost $11 billion.

Benefit versus Cost

These estimates suggest a benefit cost ratio of 3.2 to 1

Our estimate compares to a generalized estimate of hazard mitigation by FEMA of 4 to 1

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

Reduced Loss - PV Mitigation Cost

Benefit / Cost of Enhanced Construction

Sensitivity Analysis

Variable Current Value Threshold Value

Percent reduced

damage

30% 10%

Additional Cost $1 per Sq. Ft. $3.20 per Sq. Ft.

PV Estimated Future

Residential Losses

$36 Billion $11 Billion

Residential Share of

Loss

65% 20%

Discount Rate 2.5% 9%

Benefit versus Cost

Policy appears to be reasonable for Oklahoma

To determine if it applies elsewhere requires:

-Tornado incidence

-Damage exposure

Thank You For Your

Attention