Under pressure, overdue: the portfolio approach and financing cities for resilience
With more extreme weather events, one trend has been rising insurance premiums for both
businesses and city residents. In some cases, these have risen to prohibitively high levels
while in others, insurers have withdrawn coverage completely. Higher premiums reflect the rising
price of protection from climate change risk, forcing everyone to respond whether they believe
in the urgency of climate change or not. For cities, individuals and businesses, the responses to
this trend could have very different consequences.
Two cases illustrate two very different pathways. First, in Broward County, Florida, recurring flooding
and spiking insurance costs pushed the County’s elected officials and professional staff to begin
co-designing a resilience strategy. The innovative planning approach that followed involved
multiple stakeholders and quantified economic impacts of solutions from the beginning of the
process. The cost of not doing anything was continued community losses in addition to financial
losses, and particularly the risk of much lower real estate values. External advisors were engaged
to calculate the cost of inaction versus the costs and the benefits of two adaptation solutions
involving better drainage and seawalls. In short, a Return-on-Investment (ROI) was calculated,
and local businesses even proposed a sales tax rise to fund the project.
In the second case, a listed company in Asia chose to reduce coverage for business reasons in
the face of rising insurance rates, risking climate-related losses. The company’s management
also decided that they could not absorb significant losses and may have to move the company
to a safer, lower risk – and therefore cheaper to insure area. Unlike in Broward County, there was
no structured and empowered convening of all stakeholders at the municipal level. For the city
where the company is currently located, inaction counts as a particularly powerful action. Given
the risks, the company could move out of the city, and other companies could perform a similar
calculation and take the same decision. The area could lose jobs and employment, a decline in
real estate values, and this could become a vicious cycle eventually resulting in a hollowing out
of the city. In short, even if there is “some” insurance, the impact is as if there was none and the
protection gap widens.
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