The intensifying risks posed by climate change are prompting insurance companies to raise premiums for vulnerable assets. In a growing number of cases, coverage providers are refusing to provide or renew insurance for assets altogether. This is creating substantial problems for real estate owners and investors, as being unable to acquire insurance, or do so at a reasonable price, significantly reduces a property’s value, with serious consequences for the bottom lines of property companies and asset managers.
This blog explains how employing Climate Intelligence (CI) - asset-level intelligence for decision-making - allows real estate companies to gain a better understanding of the risks facing their portfolios and develop strategies to avoid being stranded with uninsurable assets.
For a detailed guide to understanding the climate hazards facing your real estate business, download our free ebook: Using Climate Intelligence to confidently adapt to climate risk in the real estate sector.
What is Climate Intelligence?
As climate change intensifies, assets all around the world are becoming increasingly exposed to extreme weather events such as flooding or heat waves. Climate Intelligence provides clear insights about how climate risk to your assets will change across multiple timeframes and scenarios.
CI enables real estate professionals to understand their climate-related risk, share this information with colleagues, executives, and suppliers, make informed decisions to build resilience, and abide by mandatory reporting requirements. Using CI, real estate decision-makers can confidently build climate adaptation and resilience into their property portfolio.
The rise of climate-aware insurers
Climate impacts are insurance impacts. When extreme weather hits, insurance policies typically cover repair and reconstruction costs, and revenue losses. Yet as climate change accelerates, insurance companies are looking to reduce their exposure and mitigate their risk by factoring climate-based risk calculations into insurance premiums and coverage. This process is called underwaterwriting.
For many property owners, real estate is a long-term investment. That creates a very real risk of owning or investing in a property that becomes prohibitively expensive to insure as the local climate becomes more volatile. Insurance coverage availability for at-risk properties is projected to decrease and premiums will rise. In fact, according to a UNEP Finance Initiative report, “some insurers are already signaling that climate change may make buildings uninsurable in the future.”
Protect against stranded, uninsurable assets
To avoid being stranded with uninsurable assets, real estate owners can use Climate Intelligence to prepare for a more certain future. CI, delivered through products like EarthScan™, provides businesses with a clear picture of risks facing every property in their portfolio – as well as right across the portfolio itself.
Property owners, investors, and managers can investigate multiple climate hazards (from heat stress to flooding), timescales, and scenarios to determine exactly where, and what their precise risks are. They can also use the same insight to invest in adaptive measures, such as using more durable materials, and hunt out opportunities, like the best place to buy or build a new asset. Equipped with these actionable insights, they can make decisions, informed by the latest climate science, to avoid near- and longer-term losses.
The best time to act was yesterday, the second-best time is now
There were 10 extreme weather events globally in 2021 that each caused at least $1.5 billion in damage. In 2021, 62% of the $343 billion worth of economic losses caused by climate change were uninsured. These numbers will only increase as our climate continues to become more volatile and more and more businesses and assets are affected.
The time to act is now. The first step for real estate professionals is to discover their assets’ exposure to climate hazards so that they can make informed decisions to build resilience.
For a deeper dive into the challenges facing the real estate industry through climate change, download our ebook: How can you protect your commercial real estate properties against climate risk?
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