Panel Discussion in Climate Linked Economics: Navigating Climate Risks and Economic Shifts in Real Estate

The intersection of climate change and real estate presents complex challenges that demand more proactive adaptation and innovative solutions. This session will explore the multifaceted risks and opportunities linked to climate change impacts on real estate, insurance, and economic value, bringing together experts to present actionable strategies that enhance resilience while addressing ongoing gaps.

Key Topics:

• Climate adaptation modeling: Insights into how modifications in construction practices and materials can mitigate the risks posed by severe weather, with focus on hurricane wind. Accounting for structure characteristics including enhanced roof-to-wall connections, wall-to-Floor-to-Foundation Anchorage, improved shutters, and improved design code and enforcing of the code results show an average of 38% and 44% decrease in average annual losses from hurricane wind in the state of Florida and across the U.S Gulf and East coast.
  
  
• Underwriting Challenges: The financial strain on insurers caused by rising insured losses, exacerbated by natural disasters and inflation, leading to higher costs for homeowners. Insurers providing policies to homeowners suffered a $15.2 billion net underwriting loss in 2023, the worst since at least 2000 and more than double the previous year’s losses.
  
  
• Population Growth in High-Risk Areas: Analysis of how increased population in vulnerable regions, such as Florida, California and Texas, contributes to higher insured losses. These regions accounted for half of the country’s population growth in the 2010s, increasing the exposure to natural disasters.
  
  
• Regulatory Hurdles: Discussion on the regulatory environment in the US, including state requirements for pricing approvals, and the impact on the insurance market's stability and affordability. This includes the impact of government actions and subsidies on risk perception and investment decisions, leading to potential moral hazards. In states like California, the delays in getting pricing approvals have caused market instability. Also discussed is the need for forward-thinking in building design, suggesting that current construction practices may fall short of meeting the demands of a changing climate.
• Climate Change: Examination of how climate change is (and isn't) intensifying weather-related disasters, increasing the frequency and severity of storms, floods, and wildfires. While insurance experts often argue that climate change is making storms, floods, and wildfires more extreme, the facts are far more complex and nuanced than the media reports.
  
  
• Severe Convective Storms (SCS) Losses: Insight into how SCS losses in 2023 drove insurance and reinsurance market losses of $50 to $60 billion. Future active seasons could see even higher losses. The session will highlight market findings on the inadequacies of first-generation catastrophe risk models in capturing the true impacts of SCS.
  
  
• Economic Impact on Property Values: Exploration of how rising insurance costs and loss of coverage are driving down property values in high-risk areas, creating additional financial stress for property owners and investors. The affordability crisis has sparked a pullback by insurers from disaster-hit areas, exiting markets or driving up prices, which in turn impacts property values.
  
  
• Industry Response and Innovation: Presentation of new tools and techniques being developed to improve resiliency in the real estate sector, highlighting industry examples of successful adaptation strategies. Insurers are looking for ways to manage the escalating coverage demands while dealing with skyrocketing insured losses.
  
  
• Future Opportunities and Gaps: Identification of existing gaps and opportunities for further research and development to enhance the sector's resilience to extreme weather events, including building practices. The session will address the need for improved risk models and the development of sustainable insurance and reinsurance strategies to cope with increasing losses from severe convective storms and other natural disasters.

• European Perspective: Diagnosing the drivers of changing insured losses year-on-year is an important component of developing a sustainable insurance portfolio. The common assumption is that losses are increasing year-on-year. However, there are many factors that could drive that change in losses: economic versus insured losses, inflation, change in wealth over time, movement toward riskier locations as well as changes to the frequency and severity of Europe wind and flood events. This presentation will quantify each of the above factors to determine drivers of changes in losses over time.

Panelists:

• K. Mulder (Liberty Mutual Insurance): Insured Losses from European Natural Catastrophes: Is there a trend over time?
• Mahmoud Khater (CoreLogic, Inc): CoreLogic’s Climate Adaptation Modeling – Hurricane Wind
• Stephen B. Bennett (The Demex Group): Climate Shocks: Rising Insurance Costs and Real Estate Resilience
• Dr. Jacques Gordon (University of Wisconsin-Madison): Discussing the multifaceted climate risks facing real estate and necessity of integrating adaptation strategies

This panel will address the challenges that remain in real estate, fostering a dialogue on the collaboration needed to build resilience and ensure the long-term viability of properties in the face of escalating climate risks.