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SAN DIEGO--The Insurance Institute for Property Loss Reduction is developing financial incentives for communities that take disaster mitigation planning to new levels.

In doing so, the institute joins a small but growing list of organizations and employer alliances working to minimize losses from natural disasters-including business interruption losses-by advocating broad mitigation efforts for entire communities (BI, Feb. 17). Proponents of the movement point out that some of the disaster-preparedness efforts taken by individual businesses or homeowners could be compromised if the surrounding community does not take similar measures.

The Boston-based institute wants to make disaster preparedness part of the general public's value system by arranging 30 incentives for communities that meet certain preparedness criteria, said Harvey G. Ryland, the institute's president.

"That is where we are really going in the long term," he said. "Institutionalizing it as a public value means encouraging people to say, 'I will not live or work in a building that does not protect me from the type of disasters that can happen in my community.' "

Mr. Ryland made his comments during a panel discussion he moderated at the Alliance of American Insurers' annual meeting in San Diego last week.

While property loss prevention steps taken by individual businesses or homeowners are valuable and should be encouraged, taking strictly an individual approach is not always sufficient to reduce business disruption after a disaster, panelists said. If the entire community suffers a loss of its transportation lifeline, utilities or emergency services, then companies also suffer from a loss of suppliers, materials, customers and distribution channels, they said.

"Harden your facilities, harden your process," said Joanne N. Nigg, co-director of the Disaster Research Center at the University of Delaware in Newark. "Make sure you are in good shape. But unfortunately there is no relationship between level of individual preparedness and business closure or disruption-disruption not being physical damage but interruption of business operations."

Ms. Nigg's comments are backed by an ongoing survey project conducted by the Disaster Research Center. In 1995, researchers polled 1,400 small and large businesses in the Los Angeles area after the Northridge earthquake and then conducted follow up interviews.

The survey found that 48% of the businesses sustained damage to their structure or contents. Losses ranged from $100 to $15 million. Nearly 60% of the businesses with damage had to close, and the median period was four days.

There were several reasons for the business shutdowns. For example, 44% said that key employees or managers were dealing with damage to their homes. About 55% cited the inability of workers to reach their operations. Almost 60% said loss of electricity was a factor, while 50% cited loss of telecommunications.

Therefore, there is a pressing need to create disaster-resistant communities, something that individual business owners alone cannot accomplish, the panelists said.

The time is right for such community-wide planning, according to Donald E. Geis, director of community planning programs for the International City/County Management Assn. in Washington. In general, residents are now demanding that local governments provide them with better living environments, including safer and healthier neighborhoods, he said.

Mr. Geis' organization is working to provide local government managers with the education and contacts they need to make disaster mitigation a part of the drive for improved municipalities. Unfortunately, he said, more is known about building codes and methods of making individual buildings safe than is known about tying together the preparedness efforts of entire neighborhoods.

"We talk about safe buildings a great deal, but you cannot have a safe building if you don't have a safe community to put it in," he said.

However, organizations are at work on the problem.

The Federal Emergency Management Agency has developed a "national mitigation strategy" aimed at creating disaster-safe communities. The plan calls for ensuring that builders, local governments and other key players are aware of available measures to reduce risks and disaster costs, said Richard W. Krimm, executive associate director for mitigation for FEMA in Washington.

The effort received $2 million this year from Congress. But FEMA is seeking another $50 million in 1998 to help encourage the development of model communities, Mr. Krimm said.

Although those funds are merely seed money, the need for broader disaster mitigation is vital, Mr. Krimm said. He cited the example of a major soft drink bottling company that shut down for several weeks in 1994 when flooding damaged a public water treatment facility in Macon, Ga. The bottling operation depended on the water facility, and it could not reopen until FEMA delivered funds needed for repairs.

In contrast, a major beer distributor located in Northridge, Calif., spent $30 million for earthquake mitigation before the 1994 disaster struck there. That effort is an example of how awareness of risk reduction measures can spare businesses and communities from damage and sustained business interruption.

"They didn't have any losses," Mr. Krimm said. "But they figured out, had they not done this work to make their plant seismic-resistant, they would have lost over $300 million."

To obtain a similarly successful result, the Insurance Institute for Property Loss Reduction has already started work on its "total immersion natural disaster mitigation program," Mr. Ryland said.

Among other measures, it is encouraging communities to adopt strong building codes, obtain minimal fire suppression ratings and conduct natural hazard risk assessments as well as risk assessment training for public officials and business leaders.

The institute is developing the list of incentives that can be made available for showcase communities. The potential incentives include property insurance discounts, bank loans with lower-than-usual costs to finance mitigation measures, construction product discounts and local tax waivers for disaster preparedness improvements to property.

So far, the institute has met individually with eight insurers and several banks that have agreed to cooperate.

"Our intention is that if it costs $1,000 more for natural disaster mitigation, we want to give them $1,100 in incentives," Mr. Ryland said.

This year's conference marked the Alliance's 75th anniversary. Next year's conference will be held April 26-28 in San Antonio. For more information, call the Alliance headquarters in Schaumburg, Ill., 847-330-8538.