A recent report suggested the city of Boston could find itself distinctly damper by the end of the century, as sea levels rise and flood the low-lying areas. This prediction has city and state officials eyeing the potential for swapping out public streets for canals and protecting some of the oldest buildings in the nation.
Boston joins municipalities around the world in proactively addressing the facing severe future risks they face.
“Hurricane Sandy was a game changer for the Northeast,” wrote the authors of the report, which was published by Urban Land Institute. “Many metropolitan areas, including Boston, have since been revising their preparedness measures for extreme weather events. Several state agencies and municipalities, including the cities of Boston and Cambridge, in addition to addressing emergency preparedness, are developing strategic plans and reviewing policies anticipating the impact of climate changes on urban infrastructure, businesses, and local populations.”
The group warned some Greater Boston areas could flood twice daily during high tide by the end of the century, and much more frequently during storms.
“Sea level rise implications for the Greater Boston region are significant, as a substantial percentage of these communities not only are bound by water but were also built on former marshlands which are susceptible to instability when saturated with water,” said the institute.
It’s a risk management conversation where the insurance industry could offer significant expertise and data. Insurers have amassed years of historical data on disaster losses, assessments of property rebuilding costs and the economic impact of disasters, which can provide a roadmap for municipalities.
“It’s an absolute necessity that municipalities engage the insurance industry when they’re planning projects,” commented Alex Kaplan, senior client manager of Swiss Re’s Global Partnerships program. The industry can assist city planners “maintain insurability and affordability for the long-term.”
According to William F. Becker, national leader for Aon Risk Solutions’ public sector practice, brokers are “working on these issues all the time.” Cities and states apply the lessons they have learned from Hurricanes Katrina and Sandy to their crisis management and disaster preparedness plans.
Municipalities face myriad risks – property, casualty, fiduciary, and more – but a comprehensive risk management and crisis management program must provide the way to rebound and recover quickly from any type of event.
“Most entities continually tweak their risk management strategy,” Becker told Advisen. “After there’s a disaster, public risk managers tend to become more aware and tighten up their programs.”
For any city or state along the ocean, the flooding risk is a clear concern. Following Sandy, major cities are now looking to insure their properties, in some cases, for the first time in history.
“If you’re in a low-lying area, this is definitely one of your big issues,” said Becker. “It’s impossible for it not to be, if you’re in a high-risk CAT area.”
And, with a soft insurance market, it may be the best chance municipalities have to procure insurance with broader terms and lower prices. Even risks with large losses from Sandy have seen decreases in premium.
“The market is soft and prices are going down. It’s a buyer’s market and capacity is up,” said Becker.
The ULI’s report on Boston’s chances acknowledges the value of insurance in preparing for disaster and responding quickly after one occurs.
“Acknowledging extreme weather event costs and taking steps to minimize those costs has another benefit: it helps maintain the availability and affordability of private insurance,” noted the authors. “A strong insurance market can significantly finance the costs of reconstruction following a catastrophic event and enable individuals and businesses to rebound more quickly. Today, only about 50 percent of the damages in the U.S. caused by extreme weather events are privately insured. Developing innovative insurance models and products that increase the percentage of insured damages relative to uninsured damages would be an economic benefit to taxpayers, as well as a business opportunity for the private insurance sector. Boosting our resiliency to today’s extreme weather events is an urgent priority. Investing concurrently in forward-looking measures that over time will reduce the climate-altering carbon emissions contributing to extreme weather is essential to our long-term physical and economic well-being.”
According to Swiss Re’s Kaplan, insurers can be invaluable in not only insuring against risks as a piece of the puzzle, but also by discouraging “overdependence on the federal government.”
“An overwhelming amount of municipalities and states are banking on the federal government covering those losses. Knowing that FEMA and the federal government are standing behind them may be a disincentive” for municipalities, he commented. Swiss Re’s Global Partnerships was formed with the goal of helping identify, assess, and manage “the exposure, not only today, but in the future” faced by governments around the world to reduce costs for taxpayers.
Having the “financial certainty and political certainty” that funds will be available quickly following a disaster is a must, said Kaplan. A federal bill providing Sandy recovery funds took four months to reach the president’s desk for a signature, he noted, adding, “Liquidity is the difference between the private sector and the government.”
Kaplan added that insurers can help municipalities understand the “extraneous” costs of disasters, given the lessons insurers have learned on a global scale from responding to earthquakes, floods, severe storms and more.
“It’s not just the cost of the building that went down,” he said. “What is the long-term impact of decreased economic activity?”
Some cities and states are more effective than others at planning head, according to Kaplan. Level of preparations generally correlates to the level of risk faced.
“There’s an out of sight, out of mind mentality,” he said.
Cities clearly want the help of the industry – the ULI report noted, ” Urban resiliency is clearly an imperative of the insurance industry as it reduces losses, promotes the maintenance of insurability, and presents opportunities for innovative risk transfer and insurance solutions to help manage climate risk. By building public/private partnerships, city leadership, and the insurance sector have the power to lead in building urban resiliency and protect the people and property within. Efforts to build climate resilience in cities have historically been led by public policy and planning approaches. However, the pace and scale of investment and behavior change required to ensure cities are prepared for future risks mean that the private sector has a crucial and catalytic role to play. Insurers, working with other partners, can use their strategic view of societal risk management to propel our thinking forward and focus us on what needs to be done to head off these risks.”
Erin is the managing editor of Advisen’s Front Page News. She has been covering property-casualty insurance since 2000. Previously, Erin served as editor-in-chief of The Standard, New England’s Insurance Weekly. Erin is based in Boston, Mass. Contact Erin at [email protected].
