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PRESENTATIONS

Reducing Climate Change Risks and Costs

Cynthia McHale, Ceres
Tuesday, June 17 @ 9:30am

ABSTRACT

Both insured losses as well as total economic losses due to weather catastrophes have been trending upward over the past 30 years. Huge losses are being absorbed by our federal government, as well as by businesses (e.g. property losses and business interruption), individuals (e.g. damage to homes and job losses), state and local governments (e.g. public infrastructure losses) and by investors in all the above.

On average, since 1980 private sector insurers have paid for about half of annual losses in the U.S. from catastrophic weather events, with public funding and private parties paying out-of-pocket picking up the other 50 percent. But direct damages are only part of the devastation of natural catastrophes; natural catastrophes also have long-term indirect costs. For example, the long-term effects may include foregone revenue, disruptions in supply chains and price increases for certain consumer staples. Those indirect costs undermine both individuals and local economies.

In addition to high impact, natural catastrophe events, there is a wide variety of increasingly volatile weather activity, such as unseasonably high or low temperatures, periods of unusually high wind speed, intense precipitation, unusual snowfall patterns and even the amount of sunshine – all of which can significantly impact the balance sheets of local governments and businesses, even if these only constitute minor deviations from the mean. Weather variability is typically not insured, and with few safety nets in place already strained municipal budgets are further stressed.

In defining plans for strengthening resiliency to climate change, it is critical to anchor the development of those strategies in the best possible understanding of the magnitude of the risks facing localities—including their infrastructure and neighborhoods. Although to some extent it is impossible to quantify future risks, the insurance industry has developed probabilistic models that rely on analytical techniques and wide ranging data sets to provide quantitative guidance on these topics.

Once state and local planners have assessed future climate and weather variability risks, they will need to invest wisely in resiliency measures by examining a broad portfolio of options including both green and grey solutions. When making resiliency investments, local governments should also seek to combine climate adaptation measures with strategies that reduce GHG emissions (and vice versa.) These include, for example, promoting and enforcing stronger risk reduction policies and practices with regard to land-use planning, building codes and renewable energy/energy efficiency. Finally, local governments should promote adequate insurance coverage and will increasingly need to consider a range of weather and catastrophe insurance products to help reduce the costs and risks of climate change.

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Facing More Extreme Weather, Insurers and Cities Forge New Path Toward Climate Resiliency