INSURANCE | 05.28.2025
Building more resilient homes: How to prepare for the increasing frequency of extreme weather events
Wildfires, extreme heat and cold waves, major floods, hurricanes, torrential rains, droughts… Extreme weather events have surged significantly in recent years, with homes being the assets impacted most. In 2020, we reached $100 billion in insured losses and everything indicates that this year will exceed $200 billion.
When choosing where to live, weather-related risks are rarely a priority for any of the parties involved. Homeowners typically select their location based on factors like price and quality of life, often overlooking weather risks or the availability of insurance. Meanwhile, local governments may be forced to build affordable housing in more exposed areas, as mortgage approval and property appraisal systems focus primarily on borrowers’ creditworthiness and market conditions.
This issue is highlighted by the Geneva Association in its report Safeguarding Home Insurance: Reducing exposure and vulnerability to extreme weather, which examines the impact of climate disasters on homes in Australia, Canada, the European Union, Japan, and the United States.
In this context, access to insurance becomes essential, especially since insurers and reinsurers are often the first to provide financial support after major climate disasters. However, the increase in such events has raised concerns about the availability of home insurance and whether it can be offered at an affordable price to homeowners, given the rising risk in some studied areas, such as the United States.
“In recent years, inadequate risk reduction and prevention measures have forced insurers to limit or withdraw coverage for certain threats in some U.S. regions,” said Maryam Golnaraghi, Director of Climate Change and Environment at the Geneva Association, during the report’s presentation.
So, what can be done to address this challenge? The Geneva Association recommends both structural reforms and scaling up existing initiatives.
One key structural reform is improving property valuation methods to include insured value (such as reconstruction costs) alongside risk assessments. Enhancing cross-sector collaboration, implementing risk-based pricing, and integrating climate risk strategies into lending criteria are also crucial to improving insurability in disaster-prone areas.
Another proposed reform is the establishment of government-backed insurance pools. In this article, we discussed the Spanish Environmental Risk Pool (PERM), created over 30 years ago by the insurance sector, designed to improve coverage capacity for environmental risks.
Among measures that need to be expanded, the report emphasizes reaching a consensus on what constitutes a threat and identifying local risk levels. “Collaboration among governments, insurers, and stakeholders can help pinpoint regions increasingly exposed to extreme temperatures, showcase successful resilience initiatives, and encourage the growth of private insurance,” the report highlights.
Developing risk prevention strategies for new construction, redesigning government disaster response, and investing in innovation will also be vital in the coming years.
The importance of public-private collaboration
Insurers and reinsurers are investing in research to understand risks, develop resilience measures, and innovate products and services, but they can’t tackle these challenges alone.
Public-private partnerships will remain essential. The Geneva Association calls for strengthening these partnerships to raise awareness and boost resilience, alongside establishing government-backed pools that support resilience efforts.
A notable example in Spain is the Insurance Compensation Consortium (CCS), which compensates extraordinary losses not covered by insurers, such as natural disasters. The October 2024 dana (isolated rainstorm depression) in the Region of Valencia is one of the most recent events covered by the consortium. Although not new (it was founded in 1941), the CCS today operates under the Ministry of Economy, Trade, and Business.
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