Most conversations about climate resilience in commercial real estate development happen when designing new structures to withstand future storms or when repairing or retrofitting existing ones after disaster strikes. Far less attention is paid to the in-between stage: the active construction site.
In an interview with The Epicenter, Joe Rozza of Ryan Companies explains what happens when a major storm hits mid-construction and why CRE leaders should give as much weight to their works in process as they do to projects on either end of the building spectrum.
An adaptation-minded property insurance system means safer, healthier, more resilient communities and economies that can both prepare for and recover from climate disasters in an affordable, sustainable, equitable way.
By Marissa Knodel, Independent Climate Adaptation Advocate/Scholar/Researcher
For generations, property insurance has been the invisible infrastructure supporting the American dream of homeownership. But as climate change makes disasters like hurricanes, wildfires, severe storms, and flooding more frequent and more destructive, cracks in that infrastructure are starting to form.
As host Doug Parsons explored on a recent podcast episode of America Adapts, where he interviewed ten experts on the fast-changing world of climate risk and insurance, property insurance needs to adopt an adaptation mindset to survive in the era of climate change.
The podcast guests had diverse backgrounds and domains of expertise—policy experts advancing insurance reform, senior executives from leading insurance companies, a Miami real estate agent, and innovators using big data and advanced technology to transform how risk is measured—but the consensus was the same: the insurance system, as it currently stands, is unable to account for and adapt to the risks of a changing climate.
This brewing crisis stems from three interconnected factors:
Increasing costs are not priced in: Insurance premiums are rapidly climbing—up 24% nationally from 2021 to 2024, adding an average of $648 to homeowners’ annual costs. But these price increases are based on outdated data that looks backward at past disasters rather than forward at accelerating climate risks. Even worse, if premiums were set to truly reflect today’s risks, most homeowners couldn't afford them. This creates a crisis on both sides: homeowners who need coverage they can’t afford, and insurers who can’t offer policies that make financial sense.
The insurance sector is not designed to be proactive: The current insurance industry is reactionary and not designed to invest in strategies that either reduce risk before a disaster or rebuild with resilience after one. And yet, according to new research from the U.S. Chamber of Commerce, Allstate, and the U.S. Chamber of Commerce Foundation, every dollar invested in disaster resilience today can save communities up to $33 in avoided economic costs.
Inequities are leaving specific communities vulnerable: Many vulnerable and underserved communities face disproportionate risks to a changing climate and often face barriers accessing sufficient resources to protect and recover from disasters. Conversations around discriminatory zoning laws, access to safe, affordable housing, and managed retreat need to be joined with conversations about a more inclusive disaster insurance system that leaves no person or community uninsurable.
An Insurance System Designed For Adaptation
An insurance system designed for adaptation would prioritize these five pillars:
1. Identify and Forecast Future Risks
Predictive risk analytics, such as those provided by Earth Analytics Group, use data from satellites, planes, drones, and proximal sensors to forecast physical risk and associated financial losses for an individual home or neighborhood. These analytics can inform risk reduction to lower the cost of insurance. Under California’s Sustainable Insurance Strategy, Mercury Insurance in California is selling additional policies in wildfire-threatened areas based on computer models that incorporate climate change and other risk parameters to help predict property damage and price claims. And in the reinsurance market, reinsurers like Munich Re are taking a science-backed approach to risk mitigation.
2. Address Historical Inequities With More People-Centered Policies
Housing inequities prevent physical risk reduction measures from being deployed at speed and scale, and property insurance increases can stymy efforts to build more resilient and affordable housing for vulnerable populations. One path forward, as presented in the podcast by Moira Birss of the Climate and Community Institute and in this paper, is to couple state-level public disaster insurance with comprehensive risk reduction programs to create a more direct relationship between risk reduction and insurance provision while more equitably pooling and spreading risks.
Support for the financial resilience of low-income households
Market regulations that address discriminatory practices and direct funds towards post-disaster recovery needs
Subsidies and community-based models for inclusive insurance
Discounts for products that meet the needs of underserved populations
3. Incentivize Investments and Policies at the Local, State, and Tribal Levels That Rebuild With Resilience
Local, state, and Tribal governments are responsible for the majority of infrastructure investments, but the benefits of resilient investments and risk mitigation efforts are not often captured when setting insurance rates. Moving forward, subnational governments can work with insurers, businesses, residents, and others to share costs and benefits to make financing resilience more actionable.
Los Angeles offers one emerging blueprint:
In June of this year, an independent commission of experts and community members issued a report with recommendations and action plans for Los Angeles to rebuild fire-affected areas and prepare for future climate disasters by building to fire-resistant and resilient standards.
The Resilient LA Delta Fund, an initiative of The Resiliency Company, aims to provide loans and grants to homeowners to rebuild properties to the highest IBHS Wildfire Prepared Home Plus standard. If successful, this model could become a blueprint for financial institutions to provide resilience products as part of a mortgage or insurance retrofit. Abigail Ross, CEO of The Resiliency Company, was one of the ten experts on the podcast. (The Epicenter is an initiative of The Resiliency Company).
4. Empower Insurance Customers to Make Informed Decisions
When insurance customers have access to transparent information about their insurance options and how plans are priced, they can make better, more affordable decisions to meet their specific needs. The California legislature just passed a law to create the nation’s first public catastrophe model for wildfires, which can help verify and provide transparency into how private insurers calculate rates.
Private sector innovations are also emerging: Premium Lock, as presented in the podcast by Dylan DiMarchi with Eventual, is a third-party service attached to a one-year insurance policy that gives property owners a measure of multi-year security by reimbursing the property owner if carriers raise premiums above a predicted level.
5. Develop Community-Focused Insurance Products and Strategies
The frequency and severity of disasters create an opportunity for insurers to innovate: developing new products and strategies designed for the era of climate change. Adaptation-designed insurance solutions are beginning to emerge: community-based catastrophe insurance, community-embedded insurance, and parametric microinsurance all represent new approaches that reduce the protection gap and expand coverage.
For more on the frontier of insurance innovation, check out this Epicenter article on parametric heat insurance and this Epicenter article on the need for insurance product innovation.
A Coordinated Approach To Resilience
As several experts articulated on the America Adapts podcast, designing for adaptation will require collaboration between private and public actors.
In the private sector, insurers can use predictive analytics to better predict, price, and make transparent future risk, diversify exposure, and invest in risk-reduction strategies, as discussed on the podcast by Stephanie Race of Earth Analytics Group.
In the public sector, federal and subnational governments can help provide accurate data and information that reduce risk and promote long-term adaptive planning. Governments at all levels can also incentivize municipal and state investments in adaptive and resilient infrastructure as well as nature-based solutions.
There are still many unanswered questions about how this public-private coordination happens and whether implementation can happen at the scale and speed necessary to meet the joint climate-insurability crises.
An adaptation-minded property insurance system means safer, healthier, more resilient communities and economies that can both prepare for and recover from climate disasters in an affordable, sustainable, equitable way.
No home or place should be uninsurable, and those who want insurance should be able to access and afford policies that can protect and adapt to the fluctuating future risks of a changing climate.
Have thoughts to share on this piece, or want to add your voice to the conversation? Reach out!
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