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Joyce Coffee headshot

Who Owns the Physical Risks from Climate Change? (And What One Move Can Make It Less Risky?)

By Joyce Coffee

We hear a lot about how the anticipated rise in sea levels could trigger significant increases in hurricane-related financial losses. But who pays that cost? Who, for instance, is bearing the cumulate expense of the 16 U.S. weather events in 2017 estimated at over $306 billion, far exceeding the previous record of $214.8 billion in 2005? It’s not immediately clear. And the financial markets haven’t yet clarified who owns our risky future.

So, let’s first consider who comprises the potential financial risk holders, assuming the physical risk is coastal flooding:

  • Insurance/Reinsurance companies who transfer risk from property to market.

  • Homeowners handling the aftermath, from soggy basements to ripped-off roofs.

  • Developers, the decision-makers who place buildings in and out of harm’s way.

  • Utilities, the critical service providers who rely upon conduits of every sort to transport water, energy and vehicles with revenue generated through fees.

  • Cities and municipal governments: owners of property and caretakers of constituents and the last line of the government safety net and taxation.

  • National governments, the agents of emergency management and loans and grants through various government mechanisms.

  • Engineering and construction companies that design and build using vulnerability data.

  • Lenders who use the collateral of buildings to offer debt finance to property owners.

  • Investors: They place bets on the market, often without knowing who and what the actual investment is and does.

  • Taxpayers who, especially for federal taxes, pay for distant emergency relief and reconstruction through programs like the national flood improvement program.

Regarding the recent storms, where in the market are we seeing this risk ownership?  First, there are the householders and other property owners, insured or not, who are replacing their material goods after extreme events.  Second, insurance companies are transferring some risk away from the property owners into a large pool of insured from diverse geographies. Third, the federal government that pays out through national flood insurance and other programs of one sort of another. (Ultimately, of course, the risk is held by us property owners who pay insurance and taxes.)

But, let’s examine what each of these three players could do to decrease the risk to the marketplace sparked by climate change:


Can insurers better inform the market as investors as well as underwriters? As investors, the insurance industry continues to develop?
As specialists in risk

identification, risk prevention, risk mitigation and post event recovery, the industry employs Smart Risk Investment principles to, among other things, redefine “green finance” as “smart risk investing” and increase the volume of such investments. This should allow them to bring in all investable asset classes and overlay the risk management
and pricing knowledge to the asset side from the underwriting side of the insurance sector balance sheet.

Of course, as underwriters, insurers can decrease risk by sending a market signal, although the price of risk from those particular assets is higher than others.  Already, we see this happening somewhat.


Taxpayers play several roles. First, they can harness relatively new tools to make better decisions, especially about where they purchase property. For instance, residents of Florida and Virginia should check out the free https://floodiq.com/. Second, primarily as voters, they can decrease risk by influencing ele

ction outcomes and voicing concerns to local, county, special district, state and federal elected officials. Those concerns can range from land use changes in the zoning code to prevent more coastal development and requirements for resilient infrastructure to changes in the federal insurer-of-last-resort process to decrease reconstruction of properties that flood repeatedly.

National Government

Speaking of which, in the U.S., the National Flood Insurance Program needs reform, which may explain why it’s reauthorization was kicked down the road in September and remains outstanding.  An informatively whitepaper, Strengthening the National Flood Insurance Program, largely written by Georgetown Climate Center’s Jessica Grannis, addresses the key issues of adaptation equity and provides ways for taxpayers to avoid paying for the continual rebuilding of property in harm’s way.


The June 2017 guidelines by the G20 Financial Stability Board Task Force for Climate-related Financial Disclosures are a useful start. This series of recommendations sets out a voluntary, consistent disclosure framework for climate-related disclosures so that companies report on physical climate-change risks that affect business, operations, and financial conditions.  But, for us who are a bit more distant from the G20’s big business, what shall we do?

One suggestion is that every decision-maker– from homeowners to mortgage bankers like Fannie Mae – integrate “stress-testing” into their decision-making and, for instance, ask what the impact would be of a one percent event on their portfolio.  The insurance industry as underwriters, in an effort precipitated by Hurricane Andrew in the early 1990s, initiated such a process, which they call the one-in-100-year stress test. Arguably, it contributed to the continued strength of that market sector even after significant hazard -event years such as 2017 (when Hurricanes Maria, Harvey, Irma and Maria, fires and related mudslides created demand from policyholders for insurance payouts).

What might this one practice deliver? Could it include these outcomes? A reduction in the construction of new risky buildings in flood prone areas; improved returns (at systems-level) of allocated capital since less money would be wrapped up in risky business; acceleration of collaboration across sectors to decrease the one percent event causing harm; reduced vulnerability of communities and a signal that it was a good investment to focus on resilience technologies, innovations, products and services.

What do you think?

Joyce Coffee is Founder and President of Chicago-based Climate Resilience Consulting.

Photo: iStock

Joyce Coffee headshot

Joyce Coffee, LEED AP, is founder and President of Climate Resilience Consulting. She is an accomplished organizational strategist and visionary leader with over 25 years of domestic and international experience in the corporate, government and non-profit sectors implementing resilience and sustainability strategies, management systems, performance measurement, partnerships, benchmarking and reporting.

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