An open letter to community leaders: Take your community’s insurability into your own hands

Climate change is here and it’s taking a catastrophic toll on communities exposed to high hazards and ones with low adaptive capacity. In 2023, damages from weather and climate disasters totaled $280 billion globally. Worse, only $108 billion, or 38% of total global economic losses, were insured — leaving those who fall in the protection gap with the financial burden of post-disaster recovery.

Many may think that because they aren’t in a state considered to be on the “frontlines” of climate change, they won’t be impacted by catastrophic weather or rising insurance costs. But the reality is much different. As we saw with Hurricane Helene, the insurance crisis brought on by climate change is also impacting states less well-known for climate disasters. 

But poor community insurability is a crisis in and of itself, even without a catastrophe. When communities can’t access affordable insurance, it can decrease home values, tank municipal bond ratings, and cripple the tax base — and this will only get worse if left unaddressed. The need for local leaders to take insurability into their own hands has never been greater.

Community leaders are in a unique position to drive local insurability.
The individual insurance purchasing model has historically made sense for many coverage lines. But it’s no longer the best option for catastrophe coverage. In today’s era of heightened climate risk, community investment that makes insurance more accessible and affordable can enhance resilience and provide additional opportunities to shape economic development. 

Local elected officials and government staff generally have the most say over land use (where people build), building codes (how people build), and infrastructure (which provides risk mitigating benefits) in the locales they serve. Accordingly, they are best positioned to take actions that incentivize resilient development and construction. As representatives of the collective needs of many, they have the power to manage community insurability in a manner that encourages stronger and safer climate-smart development that is more attractive to insurers and other drivers of community economic well-being.   

While the insurance industry provides coverage, they simply don’t have the same stake in a community’s resilience as its leaders do. Most insurance organizations are for-profit businesses; they underwrite where it’s profitable to do so, pulling back when losses become too large, too likely or too unpredictable. The federal government disaster relief programs also can’t serve as the entire solution. Ultimately, ensuring a community’s economic and physical resilience to weather-related risk must be the responsibility of its leaders. By emphasizing economic development planning that promotes investments into adaptation, physical resilience and smart risk transfer, leaders can shape local insurance markets, minimize the total cost of risk, and provide citizens with access to affordable insurance. 

The three levers of community resilience are within leaders’ control.
Community leaders looking to ensure local vitality must heed the three levers of community resilience that are within their control: building, modeling, and purchasing. 

Build with resilience in mind
It’s important to examine how new development, revitalization, and infrastructure projects will affect a locale’s ability to mitigate against potential disasters. By incentivizing resilient development and investing in projects that increase their community’s resilience to extreme weather, leaders can reduce losses and bend the cost of catastrophes down.

Invest in modeling and analytics tools
While investing in community resilience projects can help protect against future disasters, much of the value of these projects is lost if insurers don’t capture them. By financially quantifying the benefits of community resilience projects, leaders can more effectively demonstrate the value of those investments to insurers, regulators, bond investors and other economic development project investors. 

Many solution providers, consultancies, nonprofits, academic institutions, and government agencies are working hard to develop stronger analytic tools that support better planning decisions, as well as more comprehensive recognition of resilience investments by insurance markets. 

Consider group purchase of insurance
Group insurance allows municipalities to leverage the community’s collective buying power to lower costs, making it cheaper than individual plans. The enrollment experience would resemble the process employers use to provide employee benefits. While purchasing catastrophe insurance individually can result in unaffordable premiums and economic disparities, group insurance distributes the financial load amongst all community members and ensures everyone collectively benefits. These products can be designed as complementary to community development plans. For example, an infrastructure project that invests in storm water enhancements could be paired with a multi-year group offering that covers potential storm water backup claims. A strategy that leverages infrastructure investments in coordination with smart risk transfer protects the tax base while the community transitions to become more physically resilient.

As municipal leaders begin incorporating insurability planning into economic development planning, they can consider more sophisticated approaches to risk transfer and retention. This can include the creation of public-private finance initiatives that provide capital for group insurance purchase while covering uninsured risks. By actively engaging in shaping the risk financing system, programs can be designed for long-term sustainability based on each community’s unique needs.         

Managing community insurability is an essential part of ensuring economic sustainability.
A community’s insurability is like its infrastructure, in that it supports residents’ safety and well-being, contributes to higher productivity and growth, facilitates trade and connectivity, and promotes economic inclusion. The case for community leaders to make insurability planning a strategic priority for their economic development planning is supported by an economic study which found that every $1 spent on climate resilience and preparedness ultimately saves communities $13 in economic impact, damages, and cleanup costs. 

Communities are already paying for natural disasters, in more than one way. If municipal leaders want to ensure their communities’ economic stability as climate change impacts intensify, they must take the future into their own hands. Investing in insurability is a thoughtful, proactive way to achieve this objective — one that goes hand-in-hand with adaptation planning and smart development and brings tangible benefits to all stakeholders.