What the Real Estate Industry Needs to Know about the Insurance Industry and Climate Change

This report from the Urban Land Institute analyzes the relationship of real estate, the insurance industry, and climate hazards, and explores how it might transform because of the effects of climate change.

The report discusses increasing global urbanization and the resulting increased risk to real estate from climate hazards and catastrophes, both of which are exacerbated by climate change. An excerpt from a case study of Arverne by the Sea during Hurricane Sandy exemplifies the positive benefits of resilient infrastructure in mitigating climate hazards.

The report describes the insurance industry’s current practice of using catastrophe models to assess probably economic losses for low-frequency, high-severity events. Given the long-life of most buildings, the report encourages incorporating climate change into these already highly-advanced models. It also suggests that the real estate industry become more adept at climate change scenario planning and drawing on techniques used by the insurance industry.

Additionally, the report describes the efforts of an organization called ClimateWise, which is a network of more than 40 insurance agencies that have committed to better understanding climate risks.

As a practical example, the report compares the flooding insurance policies of Canada, Germany, the United States, and the United Kingdom. While in the United States the federal government is responsible for flood insurance, it is primarily provided by the private sector in Germany. In Canada, few are covered by flood insurance and costs of recovery are covered by taxpayers after an event. In the UK flood insurance is bundled into standard policies, but the country is currently renegotiating insurance rules. The report concludes that all of these approaches will be negatively impacted by climate change and innovation is essential.

The final chapter describes adaptation strategies, such as incentives to property owners to mitigate risks and cross-national risk pooling that can be used to better prepare for climate change.

Publication Date: 2014

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