Session No. 33

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**Course Title: Coastal Hazards Management**

**Session Title: State Policy I**

**Author: Anna K. Schwab, University of North Carolina at Chapel Hill**

**Time: 50 minutes**

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**Objectives:**

1.  Present an overview of the role of the states in coastal hazards
    management.

2.  Discuss the role of the states in promoting development in the
    coastal zone, and state initiatives to limit public expenditures for
    infrastructure within coastal hazard areas.

3.  Discuss the effectiveness of state land use planning mandates for
    the management of coastal hazards.

4.  Review state building codes in the context of coastal hazards.

5.  Review state insurance laws in the context of coastal hazards.

**Scope:**

Sessions 33 and 34 introduce students to the various methods by which
the states manage coastal resources and carry out emergency management
functions. Session 33 begins by giving a broad overview of the role of
the states in coastal hazards management generally, including the
divergence between federal and state policy in the management of hazards
through land use regulation. Objective 33.2 then discusses the
contributions that states play, either directly or inadvertently, to
promoting development \-- primarily through the provision of public
infrastructure \-- in hazardous coastal areas. Objective 33.2 then
introduces students to state initiatives to limit public expenditures in
coastal hazard areas. Objective 33.3 provides a quick overview of
state-mandated land use planning, with a discussion of the effectiveness
of such mandates for hazard management efforts of local governments in
the coastal zone. Objective 33.4 continues the discussion of state level
management activities, with a brief introduction to the topic of
building codes. Objective 33.5 provides information on regulation of the
insurance industry by states that are subject to repeated coastal
hazards.

Session 34 continues the discussion of state management activities by
introducing the students to the various state coastal management
programs under the Coastal Zone Management Act. Session 34 also provides
information on state emergency management activities in the coastal
zone, including the preparation of hazard mitigation plans under the
Disaster Mitigation Act of 2000.

**Readings:**

*Student and Instructor Readings for Sessions 33 and 34:*

Beatley, Timothy, et al. 2002. *An Introduction to Coastal Zone
Management*. Washington, D.C.: Island Press, pp. 94-95; Chapter 6.

Burby, Raymond J., ed. 1998. *Cooperating With Nature: Confronting
Natural Hazards With Land-Use Planning for Sustainable Communities*.
Washington, D.C.: Joseph Henry Press, pp. 69-75.

Godschalk, David R., Timothy Beatley, Philip Berke, David J. Brower and
Edward J. Kaiser. 1999. *Natural Hazard Mitigation: Recasting Disaster
Policy and Planning*. Washington, D.C.: Island Press, Chapter 3:
"Florida After Hurricane Andrew."

Platt, Rutherford, et al. 1992. *Coastal Erosion: Has Retreat Sounded?*
Boulder, CO: Institute of Behavioral Science, University of Colorado,
Chapter 3, "State Response to Erosion Hazard" and Chapter 4, "The States
Compared: Some Cross-Cutting Issues."

*Additional Student and Instructor Readings:*

United States General Accounting Office. 1992. *Coastal Barriers:
Development Occurring Despite Prohibitions Against Federal Assistance;
Report to the Committee on Environment and Public Works*, U.S. Senate.
Washington, D.C.: GAO.

**General Requirements:**

The material for Session 33 is to be presented as lecture, supported by
PowerPoint slides. Class discussion is to be encouraged. Handout 33.1
"Case Study: NC Highway 12" may be copied and distributed to the
students before class to serve as a discussion prompt during Objective
33.2. Handout 33.1 can be found in Appendix A to this Session.

**PowerPoint Slides:**

**PowerPoint 33.1** The Tenth Amendment to the U.S. Constitution

**PowerPoint 33.2** NC Highway 12 Following Hurricane Isabel

**PowerPoint 33.3** Inlet Created by Hurricane Isabel

**PowerPoint 33.4** Inlet Created by Hurricane Isabel

**PowerPoint 33.5** NC DOT Highway 12 Alternatives

**Handouts:**

**Handout 33.1** Case Study: NC Highway 12

**Objective 33.1 Present an overview of the role of the states in
coastal hazards management.**

**Requirements**:

The content should be presented as lecture, supported by PowerPoint
slide. Class discussion is to be encouraged.

The following PowerPoint slide is to be shown during this Objective:

**PowerPoint 33.1** The Tenth Amendment to the U.S. Constitution

**Remarks:**

### The Tenth Amendment

> **\[PowerPoint 33.1 The Tenth Amendment to the U.S. Constitution\]**

As we learned earlier in Session 12, the Tenth Amendment to the US
Constitution states:

The powers not delegated to the United States by the Constitution, nor
prohibited by it to the States, are reserved to the States respectively,
or to the people.

-   Under the American federalist system, **state governments retain
    important powers** to address problems individually through their
    own legislation unless prohibited by the Constitution or by federal
    law.

    -   Even where Congress has partially addressed a topic, there
        remains much **scope for concurrent state legislation**, as long
        as it does not directly contradict or undermine federal
        policies. The federal law preempts state laws only where
        Congress expresses an intent to occupy an entire topic of
        legislation (Platt).

        -   Coastal hazards management is not such a topic, and states
            have instituted a broad array of programs, regulations and
            policies regarding hazards management in their respective
            coastal zones.

# [Divergent Federal and State Policy]{.underline}

-   Largely due to this freedom for states to create their own policies,
    there is often much inconsistency among policies promulgated by
    state and federal governments.

-   Which provisions take precedence has been an important issue in
    court decisions about environmental policies of all types. When
    conflicts exist between regulatory statutes, the federal statute
    generally prevails under the interstate commerce clause of the US
    Constitution.

-   However, where federal programs rely on incentives and inducements,
    there is the potential for divergent state policies to undermine
    federal initiatives.

    -   For instance, although the federal Coastal Barrier Resources Act
        (CBRA) constrains use of federal funds for growth-inducing
        infrastructure on coastal barrier islands, states remain free to
        cover the shortfall with state funds (Burby, p. 81). We will
        discuss this issue in further detail later in this session.

**[State Management of Coastal Area Development]{.underline}**

-   **Federal initiatives** such as the National Flood Insurance Act,
    the Coastal Zone Management Act, the federal Clean Water Act, the
    Disaster Mitigation Act of 2000 and other national programs
    **provide incentive or directive for states** to engage in a wide
    variety of regulatory and management activities that implicate
    natural hazards mitigation in coastal areas.

-   Outside of these federal initiatives, **states have devised their
    own approaches** to management of development in coastal areas.

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-   Some states **intervene directly** in private property development
    and land use decisions by imposing regulations on certain
    environmentally sensitive or hazardous areas such as wetlands,
    floodplains or ocean erodible areas.

-   Other states have established **planning mandates** that force or
    encourage local governments to conform to state policy, or provide
    guidance with regards to hazard measures.

-   Still other states have **recused themselves** from involvement of
    development decisions in hazard areas, leaving market forces to
    regulate land uses.

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-   State management of natural hazards **varies widely** from state to
    state and region to region. Many of these differences in approach to
    hazards management can be explained by the **differences** in
    political climate and **experience with natural hazards.**

    -   **Policy makers** in states like **Florida** \-- where
        hurricanes occur frequently and cause widespread and very
        visible damage -- have accepted that natural hazards are
        inevitable events in their state, and have been willing to
        **expend state resources** and political capital to mitigate
        against hurricane impacts.

    -   Other states have been lulled into a **state of complacency**
        and have not intervened in the private development market.

        -   This is perhaps an appropriate response where natural
            hazards are few and far between and public expenditures for
            hazards management are unwarranted.

        -   However, some of these states may also be home to very
            strong building and development lobbies, which can often
            exert enough political pressure to counter efforts to
            regulate coastal development.

**Objective 33.2 Discuss the role of the states in promoting development
in the coastal zone, and state initiatives to limit public expenditures
for infrastructure within coastal hazard areas.**

**Requirements**:

The content should be presented as lecture, supported by PowerPoint
slides. Class discussion is to be encouraged. Handout 33.1 "Case Study:
NC Highway 12" may be copied and distributed to the students before
class to serve as a discussion prompt during Objective 33.2. Handout
33.1 can be found in Appendix A to this Session.

The following PowerPoint slides are to be shown during this Objective:

**PowerPoint 33.2** NC Highway 12 Following Hurricane Isabel

**PowerPoint 33.3** Inlet Created by Hurricane Isabel

**PowerPoint 33.4** Inlet Created by Hurricane Isabel

**PowerPoint 33.5** NC DOT Highway 12 Alternatives

**Remarks:**

[**State Investment for Capital Improvements** **in Coastal
Environments**]{.underline}

-   We learned in our earlier discussions of federal policy that there
    are **large investments** made by the **federal government** in
    coastal areas that promote **growth and development**, including tax
    benefits for coastal development, availability of flood insurance
    coverage, funds for beach nourishment, federal highway dollars to
    build and rebuild highways on barrier islands, federal funds for
    sewage treatment and drinking water infrastructure and other aids to
    the development of these areas.

-   These capital improvements often are made possible by the
    **aggressive efforts** of **congressional representatives** **from
    coastal states** and districts to secure funding for a variety of
    infrastructure and growth-inducing projects, from new highways, to
    flood control and beach renourishment.

    -   Often, these projects are supported by a specific member of
        Congress and his or her **local constituents**, but not
        necessarily by the federal agency in charge of implementing and
        administrating the politically mandated **"pork barrel"**
        project.

-   The **states** also play a big role in **providing infrastructure**
    directly to coastal areas, inciting further development. In addition
    to direct investment of state monies, states are also **involved in
    decisions** of where federal funds are spent.

#### Highways and Bridges

-   Government decisions to build new roads or bridges or expand the
    capacity of existing highway systems can make areas more attractive
    for development because they are more accessible to potential
    consumers of developed property. This is particularly true in
    outlying coastal areas that are remote and inaccessible.

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-   In the special case of islands, bridges and highway systems can
    greatly enhance accessibility (Deyle).

-   State Departments of Transportation (DOT) often make huge
    expenditures for roadways to coastal areas. A case in point is the
    North Carolina DOT maintenance of NC Highway 12.

#### Sewerage and Water Supply Infrastructure

-   State laws and regulations promulgated in accordance with
    requirements of the federal Clean Water Act largely dictate the
    extent of wastewater treatment required in coastal areas. When water
    quality standards require advanced wastewater treatment technology
    that is only affordable through large, centralized facilities,
    access to publicly funded sewer systems and centralized facilities
    with available treatment capacity can be a major determinant of
    where development can occur.

-   State and federal law and regulations also dictate minimum water
    supply quality standards. Where abundant supplies of potable ground
    water are easily accessible, these standards may not pose
    significant constraints to development.

    -   In other areas, however, where ground water resources are
        limited \-- such as coastal areas and islands with shallow
        aquifers or potential for saltwater intrusion \-- development
        may be more constrained by regulations in place at the state
        level.

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    -   In many states water resource development is regulated by state
        or regional agencies rather than local governments:

    -   This is true in arid states, as well as in many eastern states
        that have abundant water resources, including the coastal states
        of Delaware, Florida, Georgia, Maryland, Massachusetts, New
        Jersey, New York, North Carolina, and South Carolina, and Great
        Lakes States of Pennsylvania, Wisconsin, Illinois, Indiana and
        Minnesota.

    -   Only where developers must rely on a municipal water supply
        system will local governments have the leverage to influence the
        location of development through its water supply infrastructure
        policies.

    -   In addition, some states have laws that oblige local governments
        to provide proper infrastructure to developed properties within
        their jurisdiction (Deyle).

        -   In Florida, for example, state law stipulates that local
            land development regulations must ensure that public
            facilities and services are available when needed for
            development (Deyle).

**[State Initiatives to Limit State Expenditures for Infrastructure
Within Coastal Hazard Zones]{.underline}**

-   In Session 29, we learned that the federal Coastal Barrier Resources
    Act (**CBRA**) **prohibits federal spending** for infrastructure on
    undeveloped barrier islands in the CBRA system. We also learned that
    CBRA does not limit expenditures from other sources, including state
    governments.

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-   Several coastal states have taken initiatives to limit state
    expenditures for infrastructure within coastal hazard zones.

-   Among the states that use variants of this general approach are
    Florida, Delaware, Massachusetts, Maryland and South Carolina
    (Burby).

-   **Florida** **limits expenditure** of state funds and federal grants
    on coastal barriers to:

    -   areas that can accommodate growth

    -   areas where there is need and desire for economic development,
        or

    -   areas where potential danger to human life and property from
        natural hazards is minimum (Deyle)

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-   Florida further limits the expenditure of funds that may **subsidize
    growth or post-disaster redevelopment** in hazardous coastal barrier
    areas, and limits state financing of bridges to coastal barrier
    islands that have no existing bridges (Deyle).

-   Florida also **links state agency capital expenditure** decisions on
    coastal barriers to **local plans** that have been approved by the
    state. State expenditures may be made for new or expanded
    infrastructure only if **consistent** with the coastal element of a
    local governments plan (Deyle).

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-   **Coastal communities** in Florida are also **required to include
    policies** in the coastal elements of their local plans that **limit
    public expenditures** that subsidize development in coastal high
    hazard areas.

    -   Communities are further required to establish policies to
        **direct population** concentrations **away from** known or
        predicted coastal **high hazard areas** (Deyle).

***For Class Discussion:***

Referring to Handout 33.1 as a starting point, divide the class into two
"camps": pro and con for state highway expenditures for repair and
maintenance to highways in high-hazard coastal areas. The Instructor may
wish to begin the discussion session by showing **PowerPoint 33.2
through PowerPoint 33.5** that illustrate the case study.

**PowerPoint 33.2** NC Highway 12 Following Hurricane Isabel

**PowerPoint 33.3** Inlet Created Near Hatteras, NC by Hurricane Isabel

**PowerPoint 33.4** Inlet Created by Hurricane Isabel

**PowerPoint 33.5** NC DOT Highway 12 Alternatives

Objective 33.3 Discuss the effectiveness of state land use planning
mandates for the management of coastal hazards

**Requirements**:

The content should be presented as lecture. Class discussion is to be
encouraged.

**Remarks:**

# [State Mandates for Planning and Land Use Management in Coastal Hazard Areas]{.underline}

-   For many years, planning advocates have touted the **value of using
    a land use approach**, predicated on comprehensive planning, to
    mitigate against the impacts of natural hazards.

    -   While this approach is **most effective** in areas where coastal
        land **remains undeveloped**, there is still merit in certain
        aspects of the planning approach for land that is already
        developed as well.

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-   Studies have shown that **state mandates** for **local land use
    planning** have helped local governments plan for and manage land
    subject to natural hazards.

    -   The efficacy of these mandates depends on:

        -   how well the states craft growth management legislation

        -   how amply programs are funded, and

        -   how dedicated state officials are to working with
            localities.

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    -   In local areas, success turns on the quality of plans prepared,
        and equally important, the commitment of local officials to
        state policy objectives (Burby).

.

-   State mandates for natural hazards planning result in plans in
    communities that otherwise would not do planning. Where there is no
    mandate, local plans vary widely, with some communities lagging far
    behind. (Berke)

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-   Little hazard mitigation is undertaken in communities in states
    without such mandates (Drabek).

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-   Other studies have shown that a **mix of coercive and facilitative
    tools** in designing governmental mandates for planning is most
    effective (May).

-   More than a **dozen states** have enacted mandates that require
    local governments to develop comprehensive land use plans.

    -   The states **specify policy goals and objectives**, but, to
        varying degrees, leave the specific details of the content and
        implementation of plans to local governments.

    -   The state programs vary in the extent to which they identify
        problems posed by development in hazardous areas to be
        considered in the local planning process (Burby).

    -   Florida, North Carolina, Washington and others have established
        planning mandates, with varying levels of incentives, to prod
        local governments into considering natural hazards as part of
        comprehensive planning (Burby).

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    -   However, while it is better to have a state comprehensive
        planning mandate than not, such **mandates do not guarantee
        local attention to hazards**.

        -   In general, there is substantial tolerance by states for
            variation among communities in their compliance with most of
            the hazard mitigation planning requirements. The research
            tends to show that state planning and hazard reduction
            mandates have **had marginal effect in shifting land use and
            development policy-making at the local level**.

        -   The influence of planning mandates varies considerably among
            the states due to differences in policy design and the
            strength of efforts by relevant state agencies to implement
            mandates. The most important factors in enhancing local
            attention to hazard issues are a strong commitment by state
            agencies to the mandate, backed by strong implementation
            efforts.

Objective 33.4 Review state building codes in the context of coastal
hazards.

**Requirements**:

The content should be presented as lecture. Class discussion is to be
encouraged.

**Remarks:**

# [What Are Building Codes?]{.underline}

-   The regulation of building construction in the United States is
    accomplished through building codes.

-   A building code is a **collection of laws, regulations, ordinances
    or other statutory requirements** adopted by a government
    legislative authority having to do with the **physical structure**
    of buildings.

-   The **purpose** of a building code is to establish the minimum
    acceptable requirements necessary for preserving the public health,
    safety and welfare as well as the protection of property in the
    built environment. These minimum requirements are based on natural
    scientific laws, on properties of materials, and on the inherent
    hazards of climate, geology, and use of a structure (Mileti).

-   The **primary application** of a building code is to **regulate new
    or proposed construction.**

    -   It has little application to existing buildings unless they are
        undergoing reconstruction, rehabilitation or alteration or if
        the occupancy category is being changed.

-   The term "building code" is frequently used to refer to **a set of
    codebooks** that are coordinated with each other to address specific
    technical applications. This set of codes generally consists of
    **four documents**:

    -   building code

    -   plumbing code

    -   mechanical code

    -   electrical code

-   The codes generally include **provisions** that deal with **various
    hazards** that can be addressed through **structural
    modifications**. Hazards that can be addressed in building codes
    include high winds, storm surge, flooding and wave action.

    -   Building codes usually contain **maps** indicating various
        **wind and seismic zone**s, in which different levels of design
        standards apply depending upon the hazard risk.

        -   In 2004 North Carolina implemented a wind-borne debris
            region that extends 1,500 feet from the Atlantic Ocean (NC
            Division of Emergency Management).

### State Building Codes

-   During the **1970s and earlier**, very **few states had state
    building codes**; codes were locally enacted.

-   Since then about **half of the states** have retracted this
    delegation of power to the local government and have enacted a
    **state code**.

    -   The state building code **preempts the local government's
        authority** to enact a local code with the same scope and
        application.

    -   The state legislatures have generally taken this action for two
        reasons:

        -   to provide equal protection to all citizens throughout the
            state and

        -   to develop statewide uniformity for commerce purposes
            (Mileti)

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-   **Status of Building Codes** in the coastal states:

    -   11 coastal states have a state-mandated code

    -   5 coastal states have no state-mandated codes:

        -   Delaware

        -   Hawaii

        -   Mississippi

        -   Pennsylvania

        -   Texas

    -   2 coastal states allow local amendments that are less stringent
        than the state code:

        -   Oregon

        -   Maryland

    -   It is not uncommon for **rural areas** especially to be
        **without construction standards**. (Beatley)

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    -   The **current trend** is for states to **increase the
        application** of their statewide building codes by replacing the
        laws that had limited applications. Additionally, state and
        local governments are relying less on their own custom-drafted
        building codes and are **adopting model building codes**,
        thereby diminishing complexity (Mileti).

### Building Code Enforcement

-   Even with a statewide code, the **administration and enforcement**
    of all building codes rests with the **local governments**, with
    varying degrees of state oversight.

-   The local government is responsible for creating the organizational
    structure for code enforcement process, designating the person or
    persons responsible for enforcement, and providing the necessary
    resources (Mileti).

-   States often provide training and qualification certification for
    local building inspectors.

### Effectiveness for Loss Reduction

-   Most commentators would agree that some form of building code is
    necessary to ensure a level of safety for coastal construction.
    However, there are significant reasons why building codes may **fall
    short of their loss reduction potential**. For example:

    -   building codes are for life safety and do **not** provide for
        property protections or **functionality after a disaster**

    -   many local jurisdictions do **not have a building official** or
        department

    -   many states allow local jurisdictions to **petition waivers**
        from the state-required building code

    -   state-mandated codes are often reserved only for **certain types
        of buildings** and not for most commercial or residential
        structures (Mileti)

### South Florida Building Code

-   South Florida has long had a reputation of having a strong coastal
    building code. However, **Hurricane Andrew** (1992) highlighted some
    **serious flaws** in current assumptions about building codes and
    construction standards, and raised serious questions about the
    extent to which even strong codes can be relied on to protect people
    and property (Godschalk).

-   Problems that were discovered in the South Florida Building Code
    following Hurricane Andrew included:

    -   Unlicensed contractors

    -   Serious understaffing of inspection offices

    -   Ineffective building inspection process

    -   Poorly trained building inspectors

    -   Inadequate design of structural elements and design wind
        standards

    -   Problems in standards for manufactured and mobile homes and
        window design

    -   Failure of building professions to assume responsibility for
        safe construction

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    -   Ironically, many **older structures fared better** than newer
        buildings in the winds of Andrew.

Objective 33.5 Review state insurance laws in the context of coastal
hazards.

**Requirements**:

The content should be presented as lecture. Class discussion is to be
encouraged.

**Remarks:**

# [Insuring Against Natural Hazards]{.underline}

-   Insurance can **reduce the economic impact** of a natural hazard
    event by distributing the cost of the loss among wide-spread rate
    payers. Insurance can also serve as an inducement for property
    owners to employ structural hazard **mitigation measures** if
    **premiums are reduced** to reflect the additional protection
    provided to the property.

-   Insurance is now **available** for **some but not all natural
    disaster agents**. It varies from state to state and among carriers.
    Insurance coverage is nearly universally available for wildfires,
    winter storms, volcanoes, tornadoes, lighting and hail. These perils
    are covered under most standard property insurance contracts.
    Generally speaking, these events are **sufficiently random** and
    widespread to permit the private insurance mechanism to operate
    effectively. (Mileti)

    -   **Hurricane wind damage** is included as part of the basic wind
        coverage in most property insurance policies.

    -   **Flood damage** from hurricanes is not included but can be
        purchased separately under the National Flood Insurance Program
        (**NFIP**) (Mileti).

### 

### 

### Problems With Catastrophic Losses

-   The insurance industry is encountering **serious problems in
    providing insurance** for properties located in **areas subject to
    catastrophic losses**, particularly those exposed to hurricanes and
    earthquakes.

    -   The problems fundamentally arise from the fact that many
        insurers now realize they **do not have the resources to pay**
        for a so-called worst-case event in those high-risk areas
        (Mileti).

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-   The massive amount of property damage caused by **Hurricane Andrew**
    in 1992 precipitated a **major insurance crisis** in South Florida.

    -   More than \$15 billion in insurance claims was paid

    -   Numerous smaller insurance companies went out of business

    -   Many other insurance companies stopped writing policies for
        South Florida

    -   About 16,000 residents were left without homeowners' insurance
        following Andrew

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    -   Florida did have a state system in place, however, to cover
        insurance claims of failed companies, assuming, up to a certain
        amount, the liability of companies that failed (Godschalk).

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-   **Insurers** confronted by catastrophic loss situations have tried
    to deal with them by:

    -   diversifying their book of business to avoid over-concentration
        in a given state or region

    -   purchasing reinsurance to spread out the risk more broadly

    -   charging higher premiums in high-risk areas to cover
        catastrophic losses.

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    -   In Florida and California, two of the highest-risk areas,
        emergency regulations and other **laws have hampered insurers'
        pursuit of those solutions**.

        -   Some companies have concluded that the resulting risk of
            insolvency is unacceptable and have **attempted to
            withdraw** entirely from those states.

        -   Others have **stopped writing any new business** there until
            their excessive risk exposure can be reduced (Mileti).

### State Insurance Regulation

-   State insurance laws require that premiums not be **excessive,
    inadequate, or unfairly discriminatory**.

    -   Unlike government welfare plans, private insurance does **not
        deliberately transfer wealth** from one state to another or from
        one class of policyholders to another (Mileti).

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    -   Regulators are faced with a difficult challenge- that of
        assuring an adequate supply of "affordable" insurance coverage
        at a time when many insurers are seeking to decrease their
        disaster exposure and increase their prices for the catastrophic
        component of that risk. Resolution of this dilemma could have
        substantial implications for the economies of many
        disaster-prone areas and their residents (Mileti).

-   Regulation influences the supply of disaster insurance by
    **controlling:**

    -   entry to and exit from insurance markets

    -   capitalization

    -   investments

    -   diversification of risk

    -   prices

    -   products

    -   underwriting selection, and

    -   trade practices.

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-   **Stopping the withdrawal** of coverage by private insurance
    companies following Andrew became a **major public policy** focus.

    -   The state prohibited companies doing business in Florida from
        canceling more than 5% of their policies in a given time period.

    -   The state also created a mechanism to insure homeowners who were
        unable to find insurance elsewhere, and

    -   created a state reinsurance fund to cover future
        hurricane-related claims (Godschalk).

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-   In theory, the job of state regulators is to **protect the public
    from fraud and imprudent practices** that threaten insurance
    companies' solvency and to ensure fair market practices.

    -   However, public policy is not forged in a political vacuum, and
        regulation increasingly has been **influenced by voters'
        perceptions** and preferences on how the cost of risk should be
        shared among different groups. In the process, insurers have
        largely lost both the freedom to charge premiums based strictly
        on a structure's loss potential (Mileti).

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    -   States have created a variety of political mechanisms to
        regulate insurance, including the **state-mandated pool**.

        -   A state-mandated pool serves as a market of last resort for
            property owners when coverage is not readily available from
            private insurers. Since the pools typically do not charge a
            premium high enough to cover the catastrophic loss potential
            of the properties involved, they subsidize the people living
            in high-hazard areas and impose the excess cost on people
            residing elsewhere.

        -   Moreover, these state pools do not eliminate the problem of
            catastrophic losses. Private insurers in those states remain
            liable, on a market share basis, for the net losses
            generated by the state pools. Thus, any increase in
            voluntary business carries with it an increase in the
            insurer's share of the adverse results of the pool. This
            creates a disincentive for existing insurers to remain in
            those states or for new companies to establish operations
            there (Mileti).

.

**APPENDIX A**

# Handout 33.1

##### Case Study: NC Highway 12

NC 12 is the "lifeline" for communities on the Outer Banks, serving as a
link between the villages, and to the mainland of North Carolina. Island
residents depend on the roadway for off-island community services, such
as hospitals, emergency response, waste collection, and schools. NC 12
is also the primary evacuation route for all permanent and temporary
residents on the island when severe weather is approaching.

In the past few years, several major storms have impacted Hatteras
Island, severely damaging NC 12. These storms include Hurricane Felix in
1995, Hurricanes Bertha and Fran in 1996, Hurricane Bonnie in 1998,
Hurricane Dennis in 1999, and several notable nor'easters, such as those
in May 1999 and May 2000. Hurricane Isabel in 2003 had a particularly
dramatic impact, opening a new inlet and creating a nearly 2,000-foot
wide gap in Hatteras Island, completely severing NC 12. In addition to
the storms, natural processes such as wave action and sea level rise
have also taken their toll. The combined impacts of these storms and
natural processes have seriously damaged the dune system, eroded the
shoreline, and eliminated vegetation that offered some protection to the
roadway. Now storms of much less severity threaten NC 12, and flooding
and degradation of the road have become a more frequent occurrence.

NC 12 must be continually repaired and maintained to prevent permanent
loss of access on Hatteras Island. NC DOT can make three types of
improvements on NC 12: emergency, interim, and long-term. Emergency
improvements are performed when a section of the roadway is destroyed or
damaged. Since the need for repairs on these occasions is immediate,
emergency improvements do not require preliminary environmental studies.
Interim improvements are typically "stop-gap" measures until long-term
improvements can be implemented. Interim improvements are expected to
keep the roadway open for 10 to 20 years and require short environmental
studies called Environmental Assessments (EA). These studies are
prepared to confirm that proposed interim improvements would not cause
significant impacts to the environment.

Long-term improvements are proposed projects that would protect the
roadway from severe storm events for a 50-year time frame. There is
usually a higher potential for environmental impacts on these types of
improvements and a range of alternatives is reviewed to develop the best
solution. These types of improvements usually require an Environmental
Impact Statement (EIS), which takes longer to complete than an EA.

It is the policy of the NC DOT to ensure accessibility to Hatteras
Island by repairing NC 12 as quickly as possible following a storm.
However, some environmentalist have criticized this policy, as both
detrimental to the shoreline along Cape Hatteras National Seashore and
as contrary to the natural evolution of a barrier island system. In
particular, the filling in of the inlet created by Hurricane Isabel has
been criticized for being excessively costly to both the State and the
federal governments, and for involving an emergency-based
decision-making process with little consideration given to
transportation alternatives that would have left the inlet open.

Supporters of the decision made by NC DOT and the US Army Corps of
Engineers to fill the inlet emphasize the hardship inflicted on Hatteras
residents, as well as the adverse impact to the tourism industry that
would occur if NC 12 were not repaired and access to the mainland
resumed as quickly as possible.

Excerpted in part from: North Carolina Division of Emergency Management.
2004. *State Hazard Mitigation Plan Capability Appendix*.

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