The housing sectors in advanced economies face rising exposures and vulnerabilities to extreme weather and increasing insurance availability and affordability challenges. A new report calls for changes to property valuations and mortgages and also for government backed insurance pools that together incentivise homeowners to increase their resilience.
The recommendations in the Geneva Association’s Safeguarding Home Insurance report, if adopted, would likely transform the way insurers and brokers engage with the property insurance market.
“Since 2020, annual insured losses have consistently exceeded US$100 billion and are projected to surpass US$200 billion in 2025,” said Maryam Golnaraghi (pictured). Golnaraghi is the Association’s director of climate change and environment and the report’s lead author.
“These events can happen anywhere,” said Golnaraghi.
The increasing property exposures are also driven by socio economic factors. Golnaraghi said these include the increasing numbers of people living in high-risk areas, insufficient building codes, aging infrastructure and the destruction of natural buffers.
Insurers have focused heavily on risk-based pricing, she said, to reduce their property exposures and the result is “severe [insurance] affordability pressure.”
For example, in many US and Canadian states, 10% of the homes are exposed to severe flood risks which can translate into unaffordable or unavailable property coverage. Golnaraghi said in Australia, 15% of properties face severe affordability pressures where one month or more of annual income is needed to pay for property insurance.
The novel part of the Association’s report concerned what it called second tier recommendations.
These measures included calls for significant structural changes in property valuations and mortgage systems across the world.
Golnaraghi said when mortgages are approved, they could include “robust monitoring of borrowers annual insurance” as a condition. This would help improve data on property insurance challenges, she said, that might inform further preventative measures.
Her report also recommended wider use of digital tools to help homeowners assess and improve resilience to extreme weather.
The report referred to Australia’s government funded Resilient Building Council and its free bushfire self-assessment app launched in 2023. By early 2024, more than 6,500 households had used this app and spent a collective AUS$44 million on upgrades.
These homeowners, the report said, received lower mortgage rates and insurance discounts for their efforts.
Golnaraghi said more property risk data also needs to be accessible and widely available.
“Governments should implement mandatory disclosure laws to provide homeowners with critical risk information,” she said.
The report also called on governments to adopt more risk based land zoning to identify where it’s unsuitable to build and actively encourage the removal of properties from these areas through buyouts.
For example, in New Zealand following the 2010-2011 Christchurch earthquakes, 7,400 homes were zoned for buyouts. However, the report referred to the challenges around how the authorities were valuing both property and land.
Despite some progress in resilient home construction, the report said this needs to be further incentivised, said Golnaraghi, to increase market demand and adoption “at the local level” which she said was “crucial.”
The report detailed some promising initiatives. For example, a training centre in California to promote SABS building systems that are used to build homes that are hurricane, flood and fire resistant.
The report also said governments should use legislation to restore natural barriers to nat cats. For example, the Room for the River program in the Netherlands converted land once used for development into floodplains.
The recommendations also called for the use of government backed insurance pools. However, one major issue with many of the existing pools around the world, said Golnaraghi, is that they don’t focus enough on resilience.
“We looked at 14 pools, different pools around the world, [and] most of these pools do not bring focus to the importance of resilience,” said Golnaraghi. “In fact, most of them, because of solidarity based principles, allow people to live in high-risk zones.”
She said this goes against principles of risk reduction and enabling a viable market-based insurance.
“The issue is then, are we investing enough in resilience so that over time we pass on these properties back to the private insurance markets?” said Golnaraghi.
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