Warren Buffet’s letter to shareholders in 2001 was focused on being prepared; the Noah Rule. Whilst the idea was related to other things, it is the essence of the latest report from the Cambridge Centre for Risk Studies (CCRS) : What can we do today to lessen the impact of a changing climate now and in the future?
色多多视频has been collaborating with CCRS for over a decade but in recent years the area of focus has been on disaster recovery and disaster resilience. The themes combine reformative disaster recovery “Build Back Better”, with loss avoidance and climate adaptation “Build Better Before”, which align with the ethos of AXA XL.
CCRS provides academic rigor to three working assumptions:
- Climate change is adversely impacting the frequency and severity of most natural catastrophe events. That includes more higher intensity US hurricanes, the reinsurance industry’s largest exposure.
- Higher insurance penetration leads to faster and better outcomes for families and businesses following disaster. The previous CCRS report “Optimising Disaster Recovery” found that each percentage point increase in insurance penetration (non-life premiums divided by a country’s GDP) is associated with a reduction in recovery time of almost 12 months.
- Money spent now to protect families and businesses helps avoid, mitigate and prepare for disaster tomorrow.
The latest CCRS report explores the shifting nature of U.S. hurricanes in a changing climate whilst also validating the impact of pre-disaster investment, through spending on infrastructure, in addition to progressive and enforced building codes and legislative returns.
Impact of the US Federal Emergency Management Agency (FEMA)
Since setting up a hazard and mitigation programme in 1989, FEMA has spent more than $13 billion to help communities implement long-term adaptation projects aimed at reducing acute physical climate disaster losses and protecting life and property from damage.
Approximately 76% of total adaptation grant funding has been allocated to hurricane, storm, and flood related disaster preparedness. CCRS found that for every additional $1 spent by FEMA between 2000 and 2022, there was an average $16 reduction in damages for subsequent events, adjusted for inflation. The analysis of FEMA’s hazard and mitigation programmes for projects at county level showed that measures to boost community resilience and adapt houses, infrastructure and other properties can make a significant difference in reducing hurricane damages, notably in poorer and more rural counties that are particularly vulnerable.
Building codes
The report also found that stricter building codes implemented in Florida after Hurricane Andrew in 1992, and further refined over time, have significantly improved structural resilience to storms.
Florida first mandated contractors to adhere to one of four building codes in 1974. But the lack of uniformity in those codes and their adoption meant that when Hurricane Andrew hit in 1992, damage was uneven but widespread across the state.
That led to the merger of the codes in 1996 to form the International Code Council, which Florida State legislature adopted as the basis of its own code, the Florida Building Code in 2002.
According to a study conducted by the National Association of Home Builders (NAHB) exploring the impact of Hurricane Irma on buildings when it hit Florida in 2017, some 95% of structures that satisfied the most up-to-date building codes at the time, homes constructed between 2008 -2017, suffered no damage.
In the wake of Hurricane Ian, FEMA’s mitigation assessment team carried out a study to assess the efficacy of mitigation efforts like property compliance with the most up to date building codes. The research found that newer houses typically had smaller average total claims than their older counterparts.
Houses built before 1980 had average total claims three-and-a-half times larger than houses built after 2010, the study showed.
Hurricane Milton and the 2024 Hurricane Season
2024 was forecast to be an active season and although the frequency of named storms has been slightly less than expected, it has been eventful with tragic consequences and with above average storm frequency and accumulated cyclone energy (ACE).
At the date of publication, there have been 18 named storms of which 11 were hurricanes, four were major hurricanes (Cat 3 – 5) and five hurricanes made landfall. In addition, the earliest Cat 5 hurricane on record occurred, hitting Texas in early July before reducing to a Cat 1 event.
In late September and early October, the U.S. suffered the devastating consequences of Hurricanes Helene and Milton. Hurricane Helene was a catastrophic economic loss, but it resulted in a more manageable insurance loss, highlighting once again the protection gap present even in the biggest insurance market.
Hurricane Milton will likely be one of the top 10 natural catastrophe losses of all time, with insured losses estimated anywhere from $20bn up to $50bn+.
Hurricane Milton’s track was different, but it had similarities to Hurricane Ian in 2022 and Hurricane Charley in 2004, with some of the same counties impacted across all three hurricanes.
Hurricanes Ian and Charley both had winds of 150mph at landfall. The CCRS team looked at the impact of the near 20-year gap between Charley and Ian and concluded that the investment by FEMA in risk mitigation programmes for Florida counties, changes in building codes and a tightening of legislative protections were all demonstrably effective.
Build better before
The (re)insurance industry has decades of experience of supporting communities to rebuild after catastrophic weather events.
As the climate changes, we will see more frequent and more severe weather events. And that means it is in everyone’s interests to find ways to adapt the built environment to better withstand catastrophic weather and continue to keep people and their property protected.
We also continue to see cities and communities building in areas that are designated as high risk (either now or in the future) due to climate change. Over the longer term, more consideration needs to be given to these areas. In some parts of Florida, for example, it may be necessary to consider a managed retreat as the impact of severe weather is exacerbated by climate change.
In the meantime, however, it seems clear that adaptation in strengthening buildings, reinforced by strong building codes and protection to major infrastructure, will be vital in keeping high risk areas, and society at large, insurable and as safe as possible from the effects of severe weather events.
Going beyond ‘build back better’ to ‘build better before.’
