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Insurers, bond rating companies, and local governments as proponents of natural fortifications in vulnerable communities


By Mitchell A. Chester, Esq.


As Naomi Klein points out in her excellent work, This Changes Everything, some insurance industry giants have been very vocal about climate risks, but have not done much to promote proactive climate policies to assist local communities.


Our maturing century of an evolving new environmental reality demands a more proactive community involvement by casualty and property companies and re-insurers, which assess and thrive on hazard exposures. Should they fail to take a more active public stance to deal with rising seas, significant opportunities to insure will soon be lost to the industry, insurance consumers will suffer, and society will fall further behind in needed adaptation and mitigation measures. The end result of such neglect may hasten the day when “retreat” strategies are utilized with more urgency than would be necessary if we had started to connect seemingly unrelated tools.


A curious opportunity thus presents itself. How can the risk industry use natural systems to prepare our towns and cities to maintain public and private economic resources, jobs, and infrastructure? Can a link be made between nature based coastal defense systems and insurance boardrooms? How can large insurers promote utilization of coastal forests, beach and dune restorations, fortified berms, wetlands, coral reefs, mangroves, oyster formations, and reforestation efforts to shore up their premium providing markets?


What stakeholders can be recruited to forge a financial nexus that will empower a partnership between political leaders and insurers to facilitate the public good? In the multiverse of climate change psychology, we can start thinking differently.


Let’s connect some major players.


Insurers depend on the need of local communities to have financial security so that underwriters can continue to provide their varied products. When those markets are challenged by climatic events such as progressive sea level rise, underwriters need to extend their current horizons beyond their usual annual financial risk analysis and partner with communities in natural and urban eco-system fortification strategies. The stakes are very high; the need for new economic strategies to prepare is urgent. According to, in the United States, “by 2050 between $66 billion worth of existing coastal property will likely be below sea level nationwide.” That’s just the beginning, and probably a conservative estimate at that. Mid-century is not that far away.


The goal is to extend the insurability of the very same risk-vulnerable communities that create yearly premium revenues for insurers. A successful enterprise-level public initiative joining insurance-oriented public-private partnerships with other financial stakeholders is a key opportunity. For example, bond rating companies which team up with insurance industry stakeholders to support nature-based protection solutions can forge an intelligent strategy to help local and regional governments answer tough questions about readiness for some climate events.


This formula would be a positive for both the insurers (by promoting the opportunity to retain insureds as customers for as long as possible in communities threatened by encroaching waters) and political leaders (who need solid bond ratings for public infrastructure). An important by-product of this type of teamwork would be a more durable coastline that protects the “built environment.”


There are historical examples of the insurance industry acting beyond current modes of insurer operations. According to Dr. Evan Mills, Staff Scientist for the Lawrence Berkley National Laboratory, insurers were a motivating force in the creation of early fire departments and acted as advocates for building codes. Now there are new opportunities. Dr. Mills adds, “While the primary focus in recent years has been on financially managing risks, physical risk management is receiving renewed attention and could play a large role in helping to preserve the insurability of coastal and other high risk areas.”


How can we move insurers beyond improving building codes and into nature-based risk reduction? Insurers can structure their proactivity to support construction of natural coastal defense systems through these strategies:


  • Education of vulnerable insurance consumers about how adapting to climate events using nature-based defense strategies is a good place to start to create public support for the innovative solutions that can be employed by public officials. Grassroots endorsements of such programs, combined with public advocacy for the use of natural systems to protect regions, is a way to spark political will currently lacking in many public officials. According to the Insurance Information Institute, in September 2014, there were already examples of insurance industry advocacy for revised building codes. For example, in some parts of Southeastern Florida, new structure standards are being proposed and implemented in reaction to scientifically peer-reviewed studies about sea level rise. Beyond such efforts, promoting the use and construction of natural coastal defenses should be added to the list of insurer tools to reduce risk and to promote mitigation.


  • Large insurers can agree to insure multi-million dollar (or more) coastal developments with certain criteria as pre-conditions. For example, large projects on estuaries, inlets, and other coastal areas can be required to construct substantial wetland protection zones to help safeguard the insured’s investments and the risks assumed by the carriers. In locations where wetlands and other coastal defenses cannot be built or properly restored (and meaningful set backs are not physically possible), insurers can decline to accept the mounting risks that will be associated with such construction, while at the same time inducing potential insureds with financial incentives if they move their projects to more sustainable locations. Such incentives can be a major factor in motivating strategic, climate-smart placement of new hotels, office buildings, other commercial properties, and private residences in areas which are less susceptible to sea level rise and more affordable to insure when losses occur. The lesson is clear: Natural systems for coastal areas equals reduced risk. This approach takes insurers beyond the important but limited “green building” approach, such as LEED Certification, to what can be called a “green footprint” policy, which advocates environmental responsibility beyond the walls of built structures and into their surrounding neighborhoods.


  • Insurers can partner with municipal bond rating agencies to induce responsible governmental and insurance consumer action in promoting natural system defenses in coastal areas. This relationship can help identify needed infrastructure improvements at the “micro” level. “Local government credit quality,” which is measured by the health of municipal bond ratings when viewed from the perspective of climate threats, is already being watched by powerful entities such as Standard & Poor’s, Moody’s Investor Service, and Fitch Ratings. If local governments are not proactively able on their own to handle climate risks such as swelling oceans, they will ultimately receive lower credit ratings. Ignoring this naturally symbiotic fiscal relationship will produce a cycle of lower willingness to insure in areas that are suffering from lower bond scores. However, by enthusiastically working with municipal rating agencies to prevent credit downgrades, property and casualty and re-insurers can help consumers and local governments act stronger with regard to the risks they face. Intelligently slowing advancing waters can also fortify bond ratings so local governments can entice continued investments for public infrastructure needs.


  • Insurers can direct their investment dollars toward sea level rise adaptation projects in exchange for user fees. Public-private partnerships are great at such relationships. Just as Dragados USA invested in the expansion of Interstate 595 in Southeastern Florida in return for user fees on express lanes, insurers can infuse dollars into construction of natural defense systems in exchange for receiving neighborhood impact fees paid by local beneficiaries such as businesses, municipal governments, and homeowners.


Government has limited financial resources. The same is true for private sector stakeholders. Each is interdependent with the other in the fight to fortify, for as long as possible, threatened coastal areas. They have an emerging role to play in supporting natural systems to reduce the risk in advance of storm surge, progressive sea level rise, saltwater intrusion, and tidal flooding. As the science of sea level rise advances, so too must our collective economic psychology to bring new players to the adaptation and mitigation fight.


 This post re-published with permission from,  Sept. 28, 2015.

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