In the face of rising costs, what can the built environment do better in the face of climate change? What can be done to better encourage risk reduction and building resilience?
Do we need the insurance industry to reward people who design better? Do we need better legislation, better codes or something entirely new?
In the UK, research is underway to address what they believe are significant gaps in current knowledge.
At the beginning of last year, parts of the UK experienced rainfall three times greater than the historic average. An estimated 7,000 properties were flooded and 750,000 homes were left without power.
The Building Research Establishment (BRE) has announced a major three-year funding program to improve the resilience of buildings and infrastructure to the threats of flooding, wind damage and overheating associated with climate change.
“Our built environment is struggling to cope with a rapidly changing world, and there is an urgent need to strengthen its resistance to short-term shocks and long-term change – and to improve its ability to quickly recover from crises,” said Guy Hammersley, BRE Group board director, research & innovation.
Research and consultation has highlighted three major climatic impacts with associated gaps in existing knowledge – flooding, wind and overheating.
The research projects specific to these three elements are:
- Flood resilient homes – repair standards: Develop appropriate standards for flood resilient repairs and technical guidance to help contractors deliver cost-effective measures.
- Wind loading on buildings: With more than 90 per cent of building wind damage occurring at wind speeds below the basic design wind pressure, there is a serious performance gap that needs addressing.
- Tackling overheating in urban dwellings: This project will provide vital guidance and information based on hard scientific data, including a detailed review of the potential risk of flats to overheat.
In Nepal, meanwhile, the emphasis is on building codes, with insurers appealing for new ones after the catastrophic earthquake there earlier this year.
Non-life insurers, along with the Insurance Regulatory and Development Authority (Irda), are to make a representation before the National Disaster Management Authority (NDMA) to push local authorities into making it mandatory for builders, engineers and architects to adhere to earthquake-resistant building codes if the residents of such buildings wish to avail home or property insurance cover at the existing low premiums.
A report by Swiss Re, one of the world’s leading reinsurers, says Asia suffered home and property losses to the tune of $52 billion in 2014 due to natural catastrophes and man-made disasters. Of this, only 10 per cent was covered by insurance. Floods in India in September 2014 alone caused a loss of $4.4 billion.
“Insurers should refuse to extend property insurance cover to buildings if the code has not been followed and the property has not been made earthquake resistant,” said Ashok Kumar Roy, CEO of GIC Re. “The premium for non-earthquake-resistant buildings should be made 10 times the premium for earthquake-proof properties.”
On a global level, the National Climate Change Adaptation Research Facility (NCCARF) has released a report recently examining the economic and insured costs of natural disasters due to extreme weather and the role of public sector insurance mechanisms to encourage risk reduction and resilience building.
Residual market mechanisms (RMM) were examined across the US, Spain, France and New Zealand with both structures and hazard profiles varying greatly between countries. The expectation was to identify preferred approaches or elements that might profitably incentivize behavioural change but none of the schemes examined could be said to be successful, while some led to perverse outcomes.
Other key observations included the following:
- Transferring risk to the public purse does not reduce risk
- Governments can spread the cost of losses across time rather than space
- Governments can force home-owners in low risk areas to cross-subsidize the insurance premiums of those in high risk areas
The best insurers can do, the report says, is to provide incentives to reduce vulnerability by sending price signals on an annual basis reflecting the extant risk. Some insurance companies, it notes, already encourage climate change adaptation by underwriting green projects, undertaking research and generally engaging in policy debate on climate change issues.
One specific opportunity may be the relatively new financial instrument called Catastrophe (CAT) bonds that transfer insurance risks to the capital markets.
The methodology is easily transferable from both a location and a disaster perspective. So bush fires in Victoria can be modelled as easily as floods in Sydney; the subject of the hypothetical scenario in the report.
Here a flood CAT bond for residential buildings and contents in the Hawkesbury River basin was considered. The cost of transferring flood risk was estimated to be around 15 to 75 per cent higher than that of traditional reinsurance.
“Whether this difference is too much to pay for guaranteed security is a business decision for individual insurers and/or governments,” the report said.
The report concludes that the complexity of climate change means no easy answers.
“It should be clearly kept in mind that insurance is a mechanism that transfers disaster risk; it does not do away with the risk,” the report stated. “On the other hand, measures such as risk-informed land-use development and risk reduction infrastructure can dramatically reduce the risk in exposed areas and thus the need to transfer this risk.”
Different regions have different approaches, but what is clear is that there is global concern for building better resilience in the face of climate change.