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.
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When the U.S. federal government shut down earlier this week, so did the National Flood Insurance Program (NFIP).
As of Tuesday night, the program, which provides nearly $1.3 trillion in flood insurance to 4.7 million policyholders, expired. During a government shutdown, the NFIP is still able to pay out claims for existing policies, but it cannot renew or issue new policies.
The implications are far-reaching. A lapsed NFIP could halt real estate transactions in locations where mortgages require flood insurance. By law, a lender can only issue a government-backed mortgage for a property in a “special flood hazard zone” if the house is covered by flood insurance—a policy that many private insurers won’t issue.
According to the National Association of Realtors, the NFIP supports over 500,000 homebuying transactions every year. The last time the NFIP expired for an extended period took place in 2010, when it was frozen for 30 days. The National Association of Realtors estimated that the 2010 expiration of the NFIP resulted in the delay or cancellation of 1,400 home sales every day.
This (hopefully) short-term political crisis, which is unfolding with two months to go in the Atlantic hurricane season, only adds to a larger, structural crisis in the insurance industry nationwide. In an article published yesterday in Moving Day, Susan Crawford noted that historically, fires and floods have not had a significant impact on the long-term value of real estate. Insurance was available and affordable, and the government would swoop in to provide support after a disaster struck.
But all of that is beginning to change. Insurers are leaving states like California, while the ones who remain are increasing the price of their premiums (scroll to the bottom of this newsletter to see our new Statistic of the Week section for more detail).
The transition from insurance being available and affordable to expensive and unpredictable is influencing real estate markets. According to Crawford, demand for homes in Los Angeles has “plunged,” in part due to rising insurance costs and increased unpredictability. Today, homes are sitting on the market for more than they have in at least a decade.
These related crises—the NFIP's vulnerability to political gridlock and private insurers' retreat from climate-exposed markets—underscore how insurance enables the entire machinery of U.S. homeownership to function. We're discovering that housing values were always contingent on an assumption of perpetual insurability. When that assumption breaks, so do the markets.
Earlier this week, we published takeaways from an interview with Roy Wright, CEO of the Insurance Institute for Business & Home Safety (IBHS). His perspective is that the only way out is through: insurance companies need to innovate.
In the face of frequent and destructive climate disasters, Wright believes that it will be product innovation, not risk reduction, that will define insurers’ long-term legacy. We’d love to hear what you think.
How Insurers Are Turning Risk Exposure into Resilience Advantage | Aon | An article from Aon argues that insurers must shift from a reactive, post-loss mindset to a proactive one. Investing in resilience is the key; it can enable insurers to reduce volatility, strengthen customer relationships, and capture new market opportunities.
What Happens When Disaster Hits an Unincorporated Community? | Grist | Almost one in three Americans lives in an unincorporated community. Without a municipal government to rely on, such enclaves depend on county and state officials whose responses may be delayed, seem invisible, or fall short of expectations. Look no further than Texas.
Insights Into Climate Adaptation in 2025 | Probable Futures | Our colleagues at Probable Futures produced a report on the state of climate adaptation. Two of their key findings: 1) There is no collective, clear definition for climate adaptation, even among those working on adaptation; and 2) Evaluating the success of climate adaptation strategies is necessary but inherently difficult.
Read more about resilient public infrastructure and government solutions on The Epicenter here.
Real Estate & Construction
The Next Generation of Wildfire Risk Models Must Account for the Built Environment | Headwaters Economics | Many wildfire modelers are actively working to incorporate built-environment factors into next-generation tools. But wildfire models do not yet fully capture how fire spreads and propagates through neighborhoods. Research by Headwater Economics analyzed the state of wildfire risk modeling to identify opportunities for improvement.
My House Burned in the L.A. Fires. What Happens Now? | The New Yorker | In a long-form piece in The New Yorker, Dana Goodyear, a staff writer, asks: Can these neighborhoods rebuild? Or has the state exhausted its ability to live with natural disasters?
Read more about resilient real estate on The Epicenter here.
Private Investment
America’s Flood Risk Draws a Global Crowd of Climate Startups | Climate Proof | A piece from Louie Woodall’s Climate Proof explores how international firms are scaling U.S. operations to meet growing demand from insurers, governments, and emergency managers as climate hazards intensify.
As Disasters Rise, T-Mobile Debuts New First Responder Tech | Government Technology | The communications company has rolled out a priority 5G slice specifically for responders, a 50% larger drone fleet, satellite texting, and additional deployables designed to keep first responders connected throughout emergencies.
Innovation is the Key to Climate Resilience for the Insurance Sector | By Francis Bouchard | 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 why the insurance industry needs to focus on product innovation.
Why Financing Holds the Key to America's Resilient Housing Future | By Abby Ross | Rebuilding or retrofitting a home to a disaster-resilient standard means paying a premium—up to a 10% premium on typical construction costs. That burden often falls on homeowners, which is why we need new financial products and innovations.
Rethinking Risk: Why Local Governments Can’t Shoulder Climate Burdens Alone | By Matt Posner | Approximately 80% of U.S. infrastructure is funded, built, and maintained by city councils, county boards, and state legislatures. Should local governments be expected to foot the entire bill for resilience as aging infrastructure, escalating climate risk, and other factors converge, leaving local communities less prepared to absorb their growing risk? This article explores alternatives, including an emerging blueprint.
The Statistic of the Week
30-40% cost increase
The average cost of a homeowner’s policy nationwide has risen by 30-40% over the last five years. Source: Undark
Have thoughts to share or want to add your voice to the conversation? Reach out!
The Epicenter helps decision makers understand climate risks and discover viable resilience solutions. The Epicenter is an affiliated publication of The Resiliency Company, a 501(c)3 nonprofit dedicated to inspiring and empowering humanity to adapt to the accelerating challenges of the next 100+ years.
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.
