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Weather events like Hurricane Ian have become flashpoints for discussions and the understanding of the effect of climate change. With the loss of life, loss of property and the necessity to rebuild, it is natural that we would filter the impact climate change has on our lives through the lens of our most severe weather experiences.
Seeing such events, though, solely through a disaster-oriented view obscures the deep understanding we can gain from these disasters. Where and how we build in regions that experience and/or are at risk of frequent extreme weather events — hurricanes, wildfire, flooding — need to be assessed through a lens for the long term, rather than solely through the eyes of Mother Nature’s latest climate provocation.
When we talk about climate change, we often ignore the fact that many of these apparently risky places to live and do business have been largely supported by the availability of insurance coverage. You can build a condo on the coast of Miami in large part because you can insure the building or business against the inherent risks of erecting a structure on or near a coastal flooding zone. This foundational understanding of our real estate markets supports the sale of scenic locations, even though the sites are subject to relatively high catastrophe risks. This won’t always be the case.
Florida residents know that buying property insurance in the state is becoming more difficult. Rates are increasing and the state-backed Citizens Property Insurance Corp., an insurer of last resort, just hit 1 million policies in August, its highest number of policies ever. Property owners in Northern California’s wine country are also familiar with insurance coverage challenges, with much of the region becoming uninsurable due to the frequency of wildfire.
The knee-jerk reaction when people see hurricanes unfold is to immediately, desperately ask what we can do about climate change. But trying to address climate change as a whole is an immeasurable task. What we need instead is a nuanced paradigm shift, one in which property owners and corporations conducting business inside of commercial locations consider not only their insurance coverage but also the full scope of potential exposures, past loss histories, product inventory, worst case scenarios and related concerns over the long term.
If you have been to or live in certain parts of Texas, you might notice that car dealerships keep their unsold car inventory under canopies. It’s hot in Texas, so you might think the purpose of the canopies is to keep cars cool, but it’s not. The cars are under them because car dealers realized hail was a frequent occurrence in Texas. Being the owners of the unsold inventory, car sales companies moved to install a solution that accounted for the occurrence of hail — a measure completely separate and apart from whatever insurance coverage the car dealership had to protect against potential losses.
Businesses of all kinds operate on a year-to-year basis; sales projections are annual; public companies have quarterly reports, all recapping performance over four different parts of a single year. The insurance industry itself is predicated on looking at the previous year’s events.
But year-to-year planning is not sufficient for our changing climate, particularly in areas that already come with endemic risks associated with their physical location. Businesses of all kinds should begin collecting, aggregating and analyzing available data to distill a more informed view of the risks their business or property are likely to face.
If a shipping business has a warehouse in Charleston, South Carolina, that has seen three major floods over the past five years, it might be time for its CEO to consider whether decisive action needs to be taken. Should it consider measures similar to those taken by Texas car dealerships and invest in a solution to reduce the impact of flooding? Or should the CEO instead consider abandoning the warehouse altogether?
Understanding how to observe trends over more substantial periods of time and factoring those trends into real estate and business operations is one of the greatest challenges CEOs, business owners and property owners face over the next decade. These are the questions we all must learn to ask ourselves in the wake of disasters like Hurricane Ian.
Erroin Martin is the chief revenue officer at Archipelago, a technology company focused on property risk data for large commercial property owners. He can be reached at firstname.lastname@example.org.