Coastal Impacts, Adaptation, and Vulnerabilities - Climate ...

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Vulnerability and Impacts on Human Development 79to near shore real estate relative to the business as usual development patterns. Betterinformation of potential damages to coastal property, as well as figures on the costavoidance of alternative adaptation measures, will go a long way toward framing thenecessary dialogue on appropriate actions to address climate change in coastal regions.Private and Public InsuranceAnalyzing and understanding risks associated with climate change, particularly incoastal regions, can better inform the pricing, capital, and reserves that are critical tothe insurance industry’s core business strategies (Geneva Association, 2009). Climateimplications also can play an important role in shaping the industry’s investment decisions.Incorporating climate risk into the insurance industry’s rate setting and investmentdecisions could send a strong price signal to other major industrial sectors; forinstance, imposing risk-based premiums for property construction in coastal regionscould both provide incentives for the adoption of flood-resilient measures and discouragesdevelopment in vulnerable areas. Climate change-related response strategies thatdo not include insurance solutions or discourage true risk-based pricing of insurancemechanisms have the potential to exacerbate societal exposure to climate change impactsin coastal regions.With regard to weather or climate-related risk in the U.S., the two principal categoriesof insurance in play are federal disaster relief programs such as the National FloodInsurance Program (NFIP) and traditional private insurance (Nichols & Bruch, 2008).Private insurance is largely categorized by the ex-ante financing structure by which premiumsare collected and managed in a pool in advance of predicted events in amountssufficient to pay for losses at the time of their occurrence. The U.S. International TradeCommission (2008: pg. 1) has described the purpose and value of private insurance asfollows:Property and Casualty (P&C) insurers manage risk by assessing the likelihood andcost of losses, pricing premiums sufficiently to cover all or part of predicted losses, andrisk pooling. P&C insurers also provide economic incentives, in the form of lower premiums,to encourage policyholders to reduce their exposure to loss.The insurance and reinsurance industry have extensive experience in modeling, pricing,and managing risk, which can be important in developing a better understanding of andresponse to climate change risks faced by coastal communities (Nichols & Bruch, 2008).Insurance can aid coastal communities in becoming more resilient by protectingthem against risk from low-frequency, high-severity weather events (Swiss Re, 2010).Insurance reinforces risk-prevention measures by incentivizing investments in activitieswith net economic benefits and freeing up resources for other capital intensive investments.Insurance also can support the construction of climate adaptation infrastructurewith engineering covers and surety bonds as well as the widespread adaptation to thephysical risks resulting from climate change by supporting the deployment of buildingcode requirements and new technologies (Swiss Re, 2010). In these ways, private insurancecan play a valuable role in both the mitigation of and adaptation to climate-relatedrisk affecting coastal regions (Zurich Financial Services, 2009).
80 Coastal Impacts, Adaptation, and VulnerabilitiesClimate change has affected at least one core insurance industry assumption, whichis that understanding the past enables insurers to predict what will occur in the future.Although historically the past has served as a fairly reliable indicator of future eventswhen calculating the risks associated with insurance coverage in coastal and other regions,climate change has introduced new and uncertain risks into these calculations(Nichols & Bruch, 2008).Over the last two decades, weather-related losses for the industry steadily increased(Geneva Association, 2009); for instance, 2005 set a record for insured weather-relatedlosses of approximately $100 billion, largely attributable to Hurricanes Katrina, Rita, andWilma. In 2010, weather-related losses totaled $130 billion, $37 billion of which was insured(Munich Re, 2011). These damages make 2010 one of the six most loss-intensiveyears for insurers over the last thirty years.According to NOAA’s National Climatic Data Center, the economic damage costsassociated with weather and climate disasters for 2011 totals approximately $55 billion.One major disaster that hit coastal areas particularly hard was Tropical Storm Lee. ThatSeptember 2011 storm inflicted wind and flood damage in both the U.S. Southeast andNortheast, with total losses exceeding $1.0 billion. Another 2011 disaster, HurricaneIrene, made landfall over coastal North Carolina in August of 2011 and moved northwardalong the Mid-Atlantic Coast through North Carolina, Virginia, Maryland, NewJersey, New York, Connecticut, Rhode Island, Massachusetts, and Vermont and causedtorrential rainfall and flooding across the Northeast. The cost of the damages from HurricaneIrene exceeded $7.3 billion.Where private insurance is not available to cover the full range of losses inflicted byextreme weather events in coastal regions, which is particularly the case when floodingis involved, government insurance programs like the National Flood Insurance Program(NFIP) often are called upon to make up the difference. The sheer magnitude of thelosses associated with Tropical Storm Lee and Hurricane Irene have had a significant,negative impact on the fiscal strength of the NFIP (Berkowitz, 2011). Congress continuesto work on a long-term reauthorization of the NFIP, which could provide significant reforms,including rate differentials for second homes, the phasing out of subsidized rates,and measures to incentivize policyholders to move out of floodplains.Private insurance companies have in some cases responded with financial strategiesto reduce risk in coastal areas, including by raising premiums, increasing deductibles,and sometimes limiting or discontinuing coverage (Nichols & Bruch, 2008). Other insurershave begun adapting their business models to account for the potential impacts ofclimate change by creating and delivering new products and services to customers andby working to identify and fill market and coverage gaps. The challenges facing the insuranceindustry include a need for convergence between sustainability and disaster resilience,greater engagement by insurers in adaptation to unavoidable climate changes,and clarification of the role that regulators will play in moving the market (Mills, 2009).Public Insurance. The largest government or public insurance programs includingthe NFIP, Florida Citizens Insurance, and Federal Emergency Management Agencyprograms are largely based upon ex-post financing structures planning to pay for lossafter the occurrence of an extreme weather event. As such, these kinds of financing programsoften place the risk and ultimate cost of loss with parties who have no control
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National Climate Assessment Regiona
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© 2012 The National Oceanic and At
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Coastal Impacts, Adaptation,and Vul
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Chapter 3Lead Author: Carlton H. He
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ContentsKey TermsAcronymsCommunicat
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4.4 Human Health Impacts and Implic
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Key TermsxixExposure 3 - The nature
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AcronymsxxiNAO - North Atlantic Osc
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Executive Summaryxxvffffffffffffffo
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Executive Summaryxxviiweakened by v
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Executive SummaryxxixAdaptation and
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Introduction and Context 3irrigatio
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Introduction and Context 9coastal w
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Physical Climate Forces 11fffffffff
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Physical Climate Forces 13Figure 2-
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Physical Climate Forces 15Sea-level
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Physical Climate Forces 17maintain
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Physical Climate Forces 19These low
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Physical Climate Forces 21Figure 2-
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Physical Climate Forces 23that surv
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Physical Climate Forces 25Table 2-2
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Physical Climate Forces 27Most of t
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ReferencesAbuodha, P. & Woodroffe,
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Coastal Impacts, Adaptation, and Vu
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