Francis Bouchard, Managing Director of Climate for Marsh McLennan, recently interviewed Roy Wright, CEO of the Insurance Institute for Business & Home Safety (IBHS), to discuss the future of insurance in the age of climate change and the importance of product innovation.
When disaster strikes, the question is not whether we will rebuild, but how. The problem is that it costs more to rebuild a home to disaster-resilient standards. We need new flexible and dedicated financing products that make it easier for homeowners to make critical resilience investments.
The majority of U.S. infrastructure is funded, built, and maintained by city councils, county boards, and state legislatures. But aging infrastructure, escalating climate risk, and other factors are converging to leave local communities less prepared to absorb their growing risk.
Historically, strong federal environmental regulations drove government action to manage water resources -- that’s changing as more communities experience flooding and see the benefits of nature-based solutions to mitigate those impacts.
Insurers play a key role in sending risk signals, sometimes in a form other than price. These risk experts need to lead by reframing the “insurance crisis” as the “insurability crisis,” and leveraging a time-tested safety standard approach to align a complex ecosystem of competing interests.
Municipal leaders have an opportunity to lead their communities to a resilient future and mitigate flood risk. A case study from Algonquin, IL highlights resiliency investments that have fundamentally transformed how flooding affects the community and have yielded significant cost savings.
At the recent Milken Global Conference, rebuilding LA was top of mind. Partnership, system-level engagement, and local leadership were key themes. And the insurance sector has a critical opportunity to reframe its role in disaster preparedness and society at large.
A smart transition of FEMA toward state and local disaster responsibility would encompass 1) reform to the Stafford Act to rebalance federal and state contributions, 2) a restructuring of state disaster relief funds, and 3) a shift toward regionalization of disaster response.
The muni bond market presents an opportunity to finance resiliency in a way that aligns policy-makers, community stakeholders, business interests, and investors. By strengthening local infrastructure to render assets less vulnerable to climate shocks, it can reduce disaster costs for communities.
