The housing markets in developed countries are increasingly at risk from extreme weather events, leading to challenges in insurance availability and affordability. A new report from the Geneva Association highlights the urgent need for changes in property valuations and mortgage practices. It also calls for government-backed insurance pools to encourage homeowners to make their properties more resilient.
Maryam Golnaraghi, the report’s lead author and director of climate change and environment at the Geneva Association, noted that insured losses have consistently exceeded $100 billion annually since 2020, with projections indicating that this figure could rise to over $200 billion by 2025. Interestingly, more than half of these losses stem from localized events like floods and wildfires, rather than major disasters such as hurricanes.
The report points out that socio-economic factors are contributing to rising property risks. More people are living in high-risk areas, building codes are often insufficient, infrastructure is aging, and natural barriers that once protected properties are being destroyed. Insurers are responding by raising prices based on risk, which is making insurance less affordable for many homeowners.
In the U.S. and Canada, about 10% of homes are at severe risk of flooding, which can make insurance either unaffordable or unavailable. In Australia, 15% of properties face similar challenges, where insurance costs can consume a significant portion of annual income.
To address these issues, the Geneva Association’s report suggests several structural changes. For example, when mortgages are approved, lenders could require borrowers to regularly monitor their insurance coverage. This would help gather important data and inform future preventative measures. The report also encourages the use of digital tools that help homeowners assess and improve their properties’ resilience to extreme weather.
One successful initiative mentioned is Australia’s government-funded Resilient Building Council, which launched a free self-assessment app for bushfire preparedness. By early 2024, over 6,500 households had used the app and invested a total of AUS$44 million in upgrades, receiving lower mortgage rates and insurance discounts in return.
The report emphasizes the need for better access to property risk data. It urges governments to implement laws that require homeowners to be informed about risks associated with their properties. Additionally, it calls for more risk-based land zoning to discourage building in high-risk areas, suggesting that buyouts may be necessary for properties in unsuitable locations.
Despite some progress in building resilient homes, the report advocates for more incentives to increase market demand for these structures. It also highlights the importance of restoring natural barriers to mitigate natural disasters, citing the Netherlands’ Room for the River program as a successful example.
The report concludes with a call for government-backed insurance pools to focus on resilience, as many existing pools do not adequately address this issue. Golnaraghi raised concerns that these pools often allow people to remain in high-risk areas, which undermines risk reduction efforts.
As discussions around these recommendations continue, the Geneva Association’s report aims to spark a conversation on how to better protect homeowners and reduce property risks globally.