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  • Economic Effectiveness of Implementing a Statewide

    Building Code: The Case of Florida

    Kevin Simmons

    Austin College

    Jeffrey Czajkowski Wharton School Risk Center

    University of Pennsylvania

    James M. Done

    National Center for Atmospheric

    Research, Boulder CO

    May 2016

    Working Paper # 2016-01

    _____________________________________________________________________

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    Economic Effectiveness of Implementing a Statewide Building Code: The Case of Florida

    Kevin M. Simmons, Ph.D.

    Austin College

    ksimmons@austincollege.edu

    Jeffrey Czajkowski, Ph.D.

    Wharton Risk Management and Decision Processes Center

    University of Pennsylvania

    jczaj@wharton.upenn.edu

    James M. Done, Ph.D.

    National Center for Atmospheric Research, Boulder CO

    done@ucar.edu

    May 1, 2017

    Abstract

    Hurricane Andrew revealed inadequate construction practices were

    utilized in Florida for decades. In response, Florida adopted a new

    statewide code the 2001 Florida Building Code (FBC) which became

    one of the strictest in the nation. We use ten years of insured loss data

    to show that the FBC reduced windstorm losses by up to 72%, then use

    our results to conduct a benefit-cost analysis (BCA). The FBC passes

    the BCA by a margin of 5 dollars in reduced loss to 1 dollar of added

    cost, with a payback period of approximately 10 years.

    The authors would like to acknowledge the assistance of the Insurance Services Office, the Florida

    Department of Emergency Management and Florida International University for data and research support.

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    I. Introduction

    Despite the recognition that strong building codes are a key risk reduction strategy in reducing

    total property damage due to natural disaster occurrence as well as making communities more

    resilient (Mills et al., 2005; Kunreuther and Useem, 2010; McHale and Leurig, 2012; Vaughn and

    Turner, 2014, NIBS 2015; Rochman 2015; Jain, 2009), in the United States there is not a single

    national building code for all states to follow. Rather, building code adoption and enforcement is

    left to individual state discretion. Consequently, across the country there is a spectrum of building

    code implementation (both commercial and residential) where on one end there are states

    implementing a mandatory statewide code, on the other end building codes are left up to local

    jurisdictions, and a mix in-between.i

    Moreover, even for those states that do have a statewide code in place there is much

    variation in the overall effectiveness of its implementation. The Insurance Institute for Business

    and Home Safety (IBHS) ranks the residential building codes adopted in 18 states along the

    Atlantic and Gulf Coasts most vulnerable to hurricane damages on a scale of 0 (worst) to 100 (best)

    with the ranking accounting for each states code strength and enforcement, building official

    certification and training, and contractor licensing. For the 14 states having some notion of a

    mandatory residential statewide code in place, scores ranged from 28 (Mississippi) to 95

    (Virginia), with 43 percent of the 14 mandatory states scoring below 80. (IBHS, 2015). Given the

    increasing attention natural disasters receive, this is surprising as public sector involvement can be

    an important element toward reducing disaster losses in a cost effective manner. (Kunreuther,

    2006)

    Florida is highly vulnerable to hurricane damages approximately $1.8 trillion of

    residential property exposure (Hamid et al., 2011) as well as the oft-referenced gold standard of

  • 3

    a strong statewide building code IBHS score of 94 in 2015 (2nd) and 95 in 2012 (1st) (IBHS,

    2015). Although the extensive property exposure at risk to hurricanes relative to other states has

    been continual for Florida since the early part of the 20th century, a strong and uniform building

    code standard has not. Hurricane Andrew, which made landfall in South Florida as a category 5

    hurricane in 1992, destroyed more than 25,000 homes and damaged 100,000 others, causing $26

    billion in total damage (inflation adjusted), making it the costliest catastrophic event in history at

    that time (Fronstin and Holtmann, 1994). Eleven insurance companies became insolvent as a

    result.

    After Hurricane Andrew it became clear that construction practices in place during the

    1980s had not been sufficient to withstand such a powerful wind storm (Sparks et al., 1994). Post-

    storm inspections detected inferior construction practices which had thus unnecessarily magnified

    the extensive damage (Fronstin and Holtmann, 1994; Keith and Rose, 1994). In the aftermath of

    Hurricane Andrew, Florida began enacting statewide building code change that wrested away

    building code adoption control from individual localities. The first communities to strengthen

    their building code were the counties of Broward, Dade and Monroe, all of which already adhered

    to the stronger South Florida Building Code (SFBC). Standards for the SFBC were upgraded in

    1994 with an emphasis on improving the integrity of the building envelope including impact

    protection for exterior windows and doors. Beyond the counties in the SFBC, some communities

    began adopting stronger local codes as well. In 1996, the Florida Building Code Commission

    began a study to make recommendations on a statewide basis in consultation with wind engineers.

    The Florida Legislature, in 1998, authorized the recommended changes statewide, creating the

    2001 Florida Building Code. The FBC is based on the national model codes developed by the

    International Code Council (ICC) and is among the strictest in the nation heavily emphasizing

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    wind engineering standards and other additions for Floridas specific needs including for hurricane

    protection (Dixon, 2009).

    In this study, we first quantify the reduction of residential property wind damages due to

    the implementation of the FBC utilizing realized insurance policy, claim, and loss data across the

    entire state of Florida spanning the years 2001 to 2010. We utilize a Regression Discontinuity

    (RD) model using a treatment of Post FBC construction and a rating variable of structure age.

    Following from our claim-based empirical loss estimations we then further assess the economic

    effectiveness of the FBC through a benefit-cost analysis (BCA), a relatively underserved yet

    important research component in wholly assessing building code augmentations. Especially as

    enhanced building codes increase new construction costs moving forward, both pieces of

    information are critical in not only highlighting the value of a statewide building code but also in

    generating political and consumer support for its implementation (Kunreuther, 2006, Vaughan and

    Turner, 2014, NIBS 2015).

    The article proceeds as follows, Section 2 is a discussion of existing assessments of