Towards a Holistic Approach to Disaster Response

Disasters happen all the time. Since early mankind natural disasters like bush fires, heavy rainfall, flooding, volcanic eruptions and earthquakes have threatened mankind’s very existence. Of a more recent date, mostly since the Industrial Revolution, mankind has also been threatened through disasters related to the negative effects of technological developments. Explosions of industrial installations, industrial fires, marine oil pollution and even nuclear accidents, have also had devastating effects. Of even more recent origin is a third type of disaster that is equally manmade, terrorism. The main difference between technological disasters on the one hand, and terrorism on the other, is that in case of technological disasters, classic legal remedies (such as imposing strict liability or mandating the purchase of liability insurance) could be employed to reduce disaster risk, whereas this is obviously more difficult in the case of terrorism An important paradigm shift has occurred in the sense that (potential) victims and the public at large no longer accept Oliver Wendell Holmes’s adage “The loss lays where it falls”, meaning that victims just have to accept the bad luck of being hit by disaster. Also as a result of mass media, disasters trigger a lot of attention from politicians and a corresponding need to provide some form of disaster response. The question that arises from an economic perspective, is whether the disaster response (for example providing full compensation to victims of a disaster) is always economically efficient and desirable. That question is all the more pressing since there is not only an increasing tendency of politicians to provide generous compensation to victims after a disaster; there is equally overwhelming evidence that the damage resulting from disasters is increasing. In that respect it is striking that whereas the insured losses resulting from man-made disasters remained constant from 1970-2007, the losses resulting from natural catastrophes increased substantially (Kunreuther 2008, 5)