ULI: On Climate Change, Gov't and CRE Must Step Up

WASHINGTON, DC—With real estate and infrastructure now facing direct losses of $150 billion per year globally due to extreme weather, it's time for both the industry and governments to step up in adapting to climate change. That's the top-line conclusion of a newly published Urban Land Institute white paper on developing risk standards for natural disasters.

The insurance industry, which generally must cover those losses, has for a number of years taken a leadership role on climate change and the increased frequency of natural disasters, the white paper states. Accordingly, the industry has developed expertise in communicating the risks and has also introduced insurance products to address them.

“In a world shaped by climate change, however, maintaining the insurability of individual properties is not a given,” according to ULI. “Unless owners and societies take steps to reduce their exposure to the damages and losses associated with extreme weather, the overall affordability and availability of insurance will be affected.”

Further, the report, which draws upon data and analysis provided by Lloyd's of London, reaches the conclusion that accurately priced insurance alone is not enough to mitigate the effects of climate change on the built environment. Instead, it advocates that continued investment into resilience infrastructure and reforms in current development practices are also necessary.

Using case studies in the UK and Germany as well as the US and Canada, ULI's white paper highlights the steps the insurance sector has taken to adopt risk standards for climate change across the industry. These range from catastrophe models and scenario analysis to insurance products that incentivize risk-reducing building practices. 

Yet the report says that insurers' efforts alone aren't enough to confront the extensive property damage wrought by climate change. Although the insurance industry has taken steps to encourage risk reduction and advocate for better climate policies, such as offering incentives and creating national and international advocacy organizations, ultimately it's governments and the real estate industry that determine development practices, infrastructure investments, building standards and site selection. Accordingly, 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.

That's the case with the risk of floods, for example. The question of responsibility for bearing the costs of flood damage varies among the four countries highlighted in the paper. ULI's study concludes that the governments of the US, Canada and Germany can expect to incur substantial budget hits from flooding disaster recovery, although the government's role is less clear in the UK.   

“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,” says Patrick L. Phillips, ULI's global chief executive. “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.” The report can be downloaded from ULI's website by clicking here.