Investing in climate resilience to mitigate global warming impacts

The increasing impacts of climate change, coupled with population growth in higher-risk areas, have led to a 250% increase in insured natural catastrophe losses in the last 30 years, according to research by Capgemini. Large wildfires in the U.S. have increased by 30% in the past 15 years and 20% in just the last five years alone. The elevated risk of natural catastrophes has led insurers to pull out of many regions entirely, or worse, face insolvency.

Hurricane Ian made landfall with hurricane status three times. First, in western Cuba with Category 3 wind speeds, then in Southwest Florida with windspeeds of 150 mph, just shy of Category 5 status, and finally near Georgetown, South Carolina as a Category 1 storm. In addition to the devastating wind speeds, Ian caused storm surges of more than 12 feet, left 25% of Floridians without power, and dumped over 21 inches of rain in Orlando. Ian is the third category 4 or 5 hurricane to impact Florida since 2017 and the sixth to hit Gulf Coast states in the past six years.

Hurricane Ian may prove to be one of the costliest storms in U.S. history. An early estimate by an industry trade group, Insurance Information Institute, projects Florida's private insured losses alone at over $60 billion. For perspective, the insured losses from natural disasters in 2021 were $130 billion globally. The total price tag will be considerably higher when factoring in uninsured losses, rebuilding infrastructure, and impacts to tourism and agriculture.

Despite Florida having the highest insurance rates in the nation, property insurers had anticipated a $1 billion pre-Ian loss in 2022. Six Florida property insurers have gone bankrupt since 2017, with four more in the process of liquidation, and another dozen on The Office of Insurance Regulation's watch list. This trend is placing even more of a burden on the state-run, taxpayer-subsidized Citizens Property Insurance Corp., which has grown to more than 1 million policies in the past year, making it the largest insurer in the state. If Citizens exhausts its $13.5 billion account for claims associated with Hurricane Ian, Floridians can expect to pay more under a state law that allows it to assess non-customers to pay out claims. This essentially amounts to a hurricane tax on state residents.

The federally backed National Flood Insurance Program (NFIP), administered by FEMA, is the nation's largest single-line insurance program, with over five million policyholders, mainly in Texas and Florida. FEMA recently updated its risk rating methodology by implementing a new pricing methodology called Risk Rating 2.0. The methodology leverages industry best practices and cutting-edge technology to enable FEMA to deliver rates that are actuarily sound, equitable, and better reflect a property's flood risk. This is a major departure from the relatively static approach, used since the 1970s, based on a property's elevation within a zone on a Flood Insurance Rate Map (FIRM).

The new methodology will reduce the premiums paid by lower-risk properties and can substantially increase premiums for higher-risk and often higher-value coastal properties, with premium increases capped at 18% annually. Policy discounts of up to 45% are available for communities that enhance floodplain management practices and participate in the Community Rating System to incentivize climate resilience. As natural catastrophes and insurance premiums continue to rise, the need for enhanced climate resilience is increasingly important to protect high-value assets, improve property values, and minimize damage when disasters occur.

In addition to rising property insurance claims, the cost impact of natural disasters driven by climate change will hit hospitals and the healthcare industry particularly hard. While FEMA and other government programs may provide funds to critical infrastructure and essential services, the application process has strict time limits and can be complex. That would leave insurance reimbursement as the only lifeline for the industry, and that price tag could soon exceed the financial resources currently available.

Flooding and wind damage from Hurricane Ian led to the evacuation of thousands of patients from nursing homes and hospitals across Florida. HCA Florida Fawcett Hospital in Port Charlotte was hit from below and above, with stormwater flooding their lower-level emergency room and strong winds ripping the fourth-floor roof from its ICU. Cases like this make it even more challenging for medical facilities to care for existing patients, as an influx of people might need more healthcare attention than usual. Unfortunately, instances like this won’t be any easier with climate change.

A comprehensive study of the flood risk to healthcare infrastructure on the United States Gulf and Atlantic Coasts was recently conducted. This first-of-its-kind research is a systematic assessment of how hurricanes and sea level rise affect the delivery of medical care. The study concluded that more than half of the hospitals in metro areas within 10 miles of the coast of New Orleans, Boston, Orlando, and New York City are at risk of increased climate-related flooding, even during weaker hurricanes. A Category 2 storm could cause an increase in 90% of hospital beds flooded in many of those same metro areas, causing millions of dollars in damage and an incalculable toll on human life. More broadly, the study concluded that these factors increase the odds of hospital flooding by 22% in these coastal areas.

However, investing in climate-resilient infrastructure could mitigate many of these impacts, and roadmaps for how to do it already exist. In a model for hospital readiness, the Southeast Louisiana Veterans Health Care Center is a prime example of the forward-thinking planning of medical facilities. Designed to remain operational for up to a week (even if municipal utilities are compromised) the building features on-site sewage treatment facilities, backup fuel supplies, and accommodations for nearly one thousand patients and hospital staff to shelter in place. All critical electrical equipment, mechanical equipment, and patient care areas were also built at least 20 feet above the 100-year floodplain for the area.

Change like this will take coordination on the individual, local, and regional levels. Several of the above metro areas that could face flooding in the future typically don’t deal with hurricanes, but by increasing the availability of information and proactively expanding resources for climate-resilient infrastructure improvements, it is both possible and necessary to prevent climate-related disasters.

Jason Krychiw

Jason is an ESG consultant at Conservice. He has extensive experience working with ESG frameworks like GRESB and CDP, facilitating initiatives such as materiality assessments, & supporting ESG policy development.

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