Decision making about risk depends on context

September 7, 2015

From Jessica Weinkle 

Last week, Bryan Norcross, a well-known television meteorologist for the American cable network, The Weather Channel, criticized the Florida Governor for declaring a state of emergency too early,

I asked Governor Rick Scott if “state of emergency” wasn’t inflammatory in a live interview on The Weather Channel last Friday. He gave a boilerplate answer, “we want everyone to be prepared”. Of course we do, but it’s the wrong answer.

Mr. Norcross then argued that the bad call derived from bad information,

Scientifically speaking, the [National Hurricane Center] had no business making 96- or 120-hour forecasts for Tropical Storm Erika last week. The state of meteorological science isn’t sufficiently advanced to make a deterministic extended forecast given the conflicting signals the models and common sense were sending.

The post set off a wave of debate among tropical meteorologist on a specialized listserve intended for heated academic battles. Is it the NHC’s fault for the governor’s eagerness? When is information good enough for consideration in decision-making by the public or government authority?

Decisions about risk cannot be divorced from the social, economic and political context in which they are made. Mr. Scott’s decision for a state of emergency likely had less to do with the scientific tropical cyclone forecast then it did with political concern for the context of decision making.

For instance, in the background of TS Erika was the 10-year anniversary of the Hurricane Katrina landfall in Louisiana. Remembering the evacuation/human rights nightmare that was Katrina presented large political stakes for the governor.

Information does not have inherent value. It takes perspective and objectives for information to imply a course of action.

Perhaps nowhere do we see this so vividly as in finance and risk decision making.

The US Federal Reserve’s long-winded posturing over interest rates comes immediately to mind. The importance and meaning of employment data and world affairs evolves depending on who is considering the information, when they consider it and what decision they wish the Fed to make about its rates.

It is not unusual for governments to control the view of risk imposed upon a public or made available to the market. In the US, a common public policy tool for buffering perceptions of risk is a residual market. But, such actions may lead to great controversy as technical approaches and democratic (little ‘d’) approaches to decision making fight for power over characterizations of risk.

In a recent article that provides a public policy evaluation of Florida’s Citizens Property Insurance Corporation, I discuss the controversy over hurricane insurance coverage stemming from technocratic and democratic approaches to characterizing risk. The article gives particular attention to the social and political context for decision making about science in the creation and use of hurricane catastrophe models for ratemaking. That paper is found here. Abstract is below.

A Public Policy Evaluation of Florida’s Citizens Property Insurance Corporation

Journal of Insurance Regulation

This article presents a public policy evaluation of Florida’s residual insurance market for catastrophic hurricane risk, Citizens Property Insurance Corporation (Citizens), in respect to its legislative mandate to provide “affordable property insurance.” Following in the academic tradition of the policy sciences, this work draws from multiple disciplines such as sociology, political science, climate science and actuarial science, and the technological and social contexts for decision-making about insurance rates to better understand outcomes of the Citizens public policy. Citizens has difficulty meeting its mandate due to four main factors: 1) the use of Citizens as a means to deflect market judgments of risk when they threaten the state’s economy; 2) the practical difficulty of an actuarially sound residual market; 3) the politicization of the hurricane risk; and 4) the conflict between Florida’s economic and property insurance public policies. The struggle between political interests for control over the characterization of hurricane risk that Florida insures against reflects a lack of consensus on desired outcomes of a residual market. In order to reconcile the conflict between insurer economic sustainability and insurance affordability a public dialogue needs to develop for guiding policymaking for Florida’s future economy.

Jessica Weinkle. Assistant Professor, University of North Carolina Wilmington

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