Wharton's Howard Kunreuther on Lessons from the Nepal Earthquake

The recent 7.8-magnitude earthquake that hit Nepal left a wide swath of devastation, and the death toll keeps rising. As the Nepalese cope with the tragedy, there are lessons for the U.S. and other countries to learn when it comes to disaster preparedness.

To discuss this topic, Knowledge at Wharton sat down with Howard Kunreuther, co-director of Wharton’s Risk Management and Decision Processes Center and professor of operations and information management.

In the interview, Kunreuther notes that Nepal is not alone when it comes to being taken off guard by such disasters. Even developed countries such as the U.S. have seen their fair share of events that have stressed the limits of their own preparedness, such as Hurricane Katrina in 2005. “What happened in Nepal is something that happens everywhere in the world. If something doesn’t happen for a long period of time, ‘it isn’t going to happen to me’ is basically how people feel,” he says.

Kunreuther also co-authored an opinion piece on this topic that appeared in the Philadelphia Inquirer.

An edited transcript of the conversation follows.

Knowledge at Wharton: First of all, tell me what lessons do you think the United States and other countries can learn from what happened in Nepal and how they can better prepare for disasters?

Howard Kunreuther: This is an unbelievably devastating earthquake for the country, and they are trying to recover.

But in the context of lessons for other countries, I think that what happened in Nepal is something that happens everywhere in the world. If something doesn’t happen for a long period of time, “it isn’t going to happen to me” is basically how people feel. Nepal had a very serious earthquake 80 years ago, and it did devastate the country, [but as time passed] people were a little bit more reluctant to think about the fact that an earthquake could actually occur in the future.

That is certainly true here in the United States as well. People do not make preparations for disasters until after they happen. The countries that have actually learned from earthquakes may do a bit better, Chile being one example of that.

Knowledge at Wharton: Can you tell me more about the extraordinary steps that Chile took in order to prepare for disasters?

“What happened in Nepal is something that happens everywhere in the world. If something doesn’t happen for a long period of time, ‘it isn’t going to happen to me’ is basically how people feel.”

Kunreuther: Chile is a country that has had a number of earthquakes, and we were very fortunate — my colleagues Mike Useem and Erwann Michel-Kerjan and myself — to have had access to a number of the top leaders in Chile including former president Pinera, to really look at essentially how they had recovered from the 2010 earthquake that was a very serious one. The reason that they were successful, with respect to recovering from that earthquake, is that they had two features that I think are very important.

One is that they had a past history of a number of earthquakes and had learned from them. As a result, they had taken steps including [the implementation of] well-enforced building codes. People [also were] purchasing earthquake insurance to protect themselves. Second, they had leadership [from] a new president who … actually was sworn in two weeks after the earthquake. His leadership actually was enormously important, and our book called Leadership Dispatches really highlights that point.

Knowledge at Wharton: So, how would you compare what happened in Chile to how the U.S. government handled Hurricane Katrina, for example?

Kunreuther: Hurricane Katrina was a real challenge. There were levees that were really poorly designed, and as a result there was an enormous amount of damage. There were real challenges in the recovery process. Not only were a number of people killed … but also it took quite a while [to recover] and [the country is] still in the process of actually restoring elements of the city because of that damage.

Knowledge at Wharton: Are there certain states, such as perhaps California, that actually do an extraordinary job of disaster preparedness?

Kunreuther: California does a remarkable job of preparedness for earthquakes because they’ve had a number of earthquakes and they’ve learned from those. As a result, there are a lot of measures in place that will reduce the damage. Although I will say that … only 10% of California residents have earthquake insurance. It’s going to be interesting [to see] what’s going to happen if we do have a severe earthquake [there]. From that vantage point, preparation on the part of the residents is relatively ineffective at the moment.

Knowledge at Wharton: When it comes to less developed nations, there’s always the struggle to prioritize funding for immediate needs versus funding for future disasters. So, what can a developing country do to make sure they’re prepared for disasters but at the same time they fund on-going needs of the country?

Kunreuther: Let’s talk about Nepal as an example of that since they went through this very horrendous earthquake. Nepal actually did take some steps in the sense that many of the newer buildings were built according to building codes that were enforced. And to my knowledge … most of them did not suffer a large amount of damage. As a result of that, I think the city — Katmandu and the area — was better prepared with the new construction.

The challenge with a country like Nepal, as we’ve all heard and read about, is that they have so many old buildings. A city like Bhaktapur, outside of Katmandu, which has historic treasures, was really badly damaged. And Katmandu itself was damaged. I should indicate that I’ve learned a great deal about Nepal because my daughter, Laura Kunreuther, is an anthropologist who has studied Nepal and obviously I’ve been there a few times for that reason. I’m tremendously impressed with the Nepalese and their ability to deal with the situation.

But … the general challenge the country has is on the leadership side. We’ll have to wait and see how the government is going to have to deal with these issues because … you do need leadership. That’s what Chile had.

It’s [also] harder for a developing country [to proactively prepare for disasters]. Haiti had enormous challenges after their earthquake. Nepal is in far better shape in that sense than Haiti, where over 100,000 people were killed. The death toll [in Nepal] is 5,000. That’s a large number but really pales compared to what happened in Haiti.

“The silver lining is that you can do things better after a catastrophe than you can before.”

So, I think we’ll have to wait and see whether the [Nepalese] government is going to be in a position to be able to take advantage of the situation. We do learn from catastrophes. The silver lining is that you can do things better after a catastrophe than you can before.

Let me give you one example in the United States just to highlight that. Before Hurricane Andrew that occurred in 1992, so a few years back now, one third of the buildings that were built did not satisfy building codes. They would have been saved had they met the codes. Florida was really not enforcing these codes. There was a wakeup call for Florida after Hurricane Andrew. Today they have the best building codes in the country, or one of the best. So, they learned from the disaster.

The hope is that developing countries can also learn. We’re all hoping that Nepal can come out of this with a better understanding of how they’re going to have to deal with disasters.

Knowledge at Wharton: In your opinion, what are some of the biggest mistakes that developing nations make when it comes to disaster preparedness?

Kunreuther: I wouldn’t even call them mistakes. I think it’s more in the context of constraints as you alluded.

They don’t have a lot of resources. So, it’s hard to all of a sudden say, we are going to build everything so sturdy that we’ll be prevented from having another disaster. The fact that new buildings in Nepal were built according to code is a testimony to the … country’s [initiative].

Haiti, for example, did not have any building codes at all. A lot of the destruction occurred because of that. So, it’s the lack of resources and the constraints that really are a challenge. I think that’s why in some sense you do need organizations like the World Bank to help out in situations like that.

From the vantage point of individuals, they have a very similar problem. There are so many other things on their mind that are immediate needs that it’s very, very hard for them to devote time and resources to try to even think [ahead of] what they could do in a disaster.

Knowledge at Wharton: What about for developed nations? What are some of their biggest mistakes?

“It’s the lack of resources and the constraints that really are a challenge. I think that’s why in some sense you do need organizations like the World Bank to help out in situations like that.”

Kunreuther: The feeling that somehow it isn’t going to happen to me and as a result I don’t have to worry about this. [Also,] the costs associated with actually taking steps now are too high for us to put the resources in. This is an issue that all of us have been thinking very, very closely and deeply about at the Wharton Risk Center. How do you begin to develop strategies that are long term in nature but that satisfy the short run needs?

I think there are ways to begin to think about that. Hopefully, the U.S. will try to adopt some of these — think about long-term loans for example, as a way of really spreading the upfront costs over a number of years. Think about affordability issues and how you’re going to deal with affordability in a way that will … essentially develop in areas but at the same time recognize that you have to be careful in terms of what you do.

You have to make sure that you take care of people who can’t afford a very high insurance premium if there’s a high premium that reflects risk. You have to help them out — but don’t do it with an insurance premium. Try to find other ways like means tested vouchers or some other mechanism that helps the low-income people.

Knowledge at Wharton: What regulatory changes do you recommend that the U.S. government should take to make these remedies?

Kunreuther: Making sure that buildings are well designed, that [codes] are well enforced. Land use regulations are important with respect to that. One regulation that we have been thinking a great deal about is related to insurance. There is a general feeling that you need to subsidize premiums to help the low-income people.

One of the things that could be done — and we feel is important — [is] let the insurance premium reflect the risk so that people know what they have to pay for to cover their risk. They also get rewarded if it turns out that they take steps to reduce the risk — they get a lower premium. So, the premiums reflecting risk becomes important. But then you have to figure out what you’re going to do with the low-income and the people who can’t afford it who need special treatment.

Knowledge at Wharton: That sounds logical. But what is impeding these changes on the regulatory side?

Kunreuther: What’s impeding it is that people are thinking purely about the short run in many of their decisions. We have a little expression that we’ve used, and since you’re asking this question I will use it here: NIMTOF behavior, which is true of probably all of us but certainly true of politicians. Any idea?

Knowledge at Wharton: Can you explain?

Kunreuther: Not In My Term Of Office. And so, thinking very short [term] makes it very, very hard to deal with some of these long-term issues unless you can figure out a way to get rewards in the short run. In the United States, we have a certain degree of polarization in terms of different views of how to deal with this and that makes it very hard to get anything passed. Hopefully that will change over the next couple of years, and we’ll just have to wait and see.