Disaster insuranceInsurance industry needs support to address effects of climate change on the built environment

A new white paper by the Urban Land Institute (ULI) finds that while the insurance industry is a leader in developing risk standards for natural disasters, the real estate sector and governments must also play an active role in climate change adaptation. Entitled What the Real Estate Industry Needs to Know about the Insurance Industry and Climate Change, the report draws upon data and analysis provided by Lloyd’s of London, to conclude that accurately priced insurance alone cannot mitigate the effects of climate change on the built environment. The report instead advocates that continued investment into resilience infrastructure and reforms in current development practices are also necessary.

A ULI release reports that according to the report, the increasing frequency of extreme weather brought on by climate change adversely affects real estate values and increases the probability of property damage occurring in urban areas. In the last ten years alone, direct losses in real estate and infrastructure as a result of natural disasters has tripled, reaching $150 billion per year. The paper highlights the steps the insurance industry has taken to adopt risk standards for climate change across the industry, from catastrophe models and scenario analysis to insurance products that incentivize risk-reducing building practices.

The report maintains, however, that the insurance industry’s efforts alone are not enough to confront the extensive property damage wrought by climate change. The insurance industry does take considerable steps to encourage risk reduction and advocate for better climate policies, such as offering incentives to reward practices that aim to reduce the risks of natural disasters and creating national and international advocacy organizations to address climate change issues. Governments and the real estate industry, however, have the final say in development practices, infrastructure investments, building standards, and site selection. Because of this, the paper concludes that a successful approach to climate change adaptation in the built environment would involve collaborative efforts from the insurance industry, government, and the real estate industry.

“It remains a concerning issue that much of the world’s most expensive and desirable real estate is built in locations that are vulnerable to the effects of climate change,” comments Patrick L. Phillips, Global Chief Executive of the Urban Land Institute. “We are hoping that our new white paper will lead to a broader debate on the issue of insuring and reinsuring real estate at risk of damage from extreme weather events.”