Why Climate-Resilient Property Insurance Is a Must for Clients

As we face an era marked by intensifying weather patterns, wildfires, flooding, and hurricanes, climate resilience has become a vital part of property insurance. As insurance agents, it's imperative that we stay ahead of the curve, especially when it comes to climate resilience. The increasing frequency and severity of natural disasters have underscored the need for climate-resilient property insurance. But what does this mean for us, and how can we ensure our clients are adequately protected?

Understanding Climate-Resilient Property Insurance

Climate-resilient property insurance refers to policies designed to withstand and adapt to the challenges posed by climate change. These policies not only cover damages from extreme weather events but also incentivize and support measures that enhance a property's resilience to such events.

The National Association of Insurance Commissioners (NAIC) has recognized the pressing need for such strategies. In April 2024, they adopted the first-ever National Climate Resilience Strategy for Insurance, aiming to protect the property insurance market from natural disasters and close coverage gaps.

Our clients expect us to offer more than standard policies; they’re looking for guidance in safeguarding their investments against climate risks. By understanding these aspects, we empower our clients to make informed decisions that safeguard their assets. For example, clients with properties in coastal areas or wildfire-prone regions need policies that offer specialized coverages. Climate-resilient property insurance is a shift towards anticipating loss instead of merely reacting to it. As agents, we have a responsibility to stay updated on climate data, local zoning changes, and the availability of resilient insurance options.

The Importance of Climate Adaptation in Property Insurance

Climate adaptation involves adjusting practices, processes, and structures to minimize the adverse effects of climate change. In the context of property insurance, this means encouraging clients to implement measures that reduce their vulnerability to climate-related events.

A report by the Insurance Development Forum highlights the opportunities and limitations of insurance for climate adaptation. It emphasizes the need for long-term strategies, as traditional insurance products, which typically renew every 1-5 years, may not adequately address the prolonged nature of climate risks.

By promoting climate adaptation, we can help clients reduce potential damages, leading to fewer claims and more stable premiums. This proactive approach not only benefits policyholders but also strengthens the overall resilience of communities.

How to Guide Clients Through Climate-Proofing Insurance Options

Staying Informed on Policy Developments

Regularly update yourself on the latest developments in climate science and insurance regulations. The NAIC's National Climate Resilience Strategy is a valuable resource that outlines plans to collect data, create resilience tools, and advocate for pre-disaster mitigation funding.

• Monitor Legislative Changes: Keep abreast of new laws and regulations that impact property insurance and climate resilience.
• Engage with Industry Bodies: Participate in forums and discussions led by organizations like the NAIC to stay updated on best practices.
• Advocate for Clients: Ensure that clients are aware of how regulatory changes affect their coverage and advise them accordingly.

Assessing Individual Client Risks

A client with a cabin in a wildfire-prone area has different needs than someone in a floodplain. We can start by assessing each client’s location-based risks and asking about any recent property updates or future plans that might affect their insurance needs. For instance, have they considered adding storm-resistant windows or implementing landscaping that can mitigate wildfire risk?

Educating Clients on Climate Resilience Coverage Options

Climate-proof insurance options range from extended replacement cost endorsements to living expense coverage during disaster evacuations. The more we know about these choices, the better we can help our clients tailor their policies. Clients might be familiar with standard property insurance but may not know they can add provisions for specific climate-related risks.

• Replacement Cost Endorsements: Covers the cost to rebuild or repair without factoring in depreciation.
• Additional Living Expenses: Provides funds for temporary housing if clients are forced to evacuate due to a natural disaster.
• Extended Deductibles: Some policies allow for variable deductibles based on the type of disaster, giving clients more flexibility.

The Future of Climate-Resilient Insurance

An Oliver Wyman report emphasizes that insurers have a unique position to benefit from increased climate resilience. However, the integration of adaptation and resilience into firm-wide strategy remains largely overlooked by most insurers and reinsurers.

As agents, we have the opportunity to lead the charge in this transformation. By embracing climate-resilient insurance policies and promoting climate adaptation, we can ensure that our clients are protected against the evolving risks of climate change. Together, we can build a more resilient and sustainable future for all.

About FastrackCE

Are you an insurance professional who needs to complete your insurance continuing education but doesn’t have the time? FastrackCE can help you get all your life and health and property and casualty continuing education credits done in one place and at your convenience. We offer online insurance continuing education courses in most states, covering a broad range of topics including most of the state-mandated courses such as ethics, flood, long-term care, and annuity training.