Can Insurance Markets Jump-Start Resilience?

Broadly speaking, the world of insurance can be divided into two different sectors: private insurance companies and government-run programs. In the United States, the latter have long enticed policyholders to embrace resilience through a simple reward system: make risk-reducing upgrades to your building, and we’ll lower your insurance rates. This mechanism underlies much of the thinking about the power of insurance markets to drive resilience investments. Consider the National Flood Insurance Program (NFIP), America’s federal flood-insurance provider. Established in 1968, and today administered by the Federal Emergency Management Agency (FEMA), the NFIP partners with more than 80 private insurers to provide insurance to property owners if their communities agree to adopt ordinances that reduce the risk of flooding. For the NFIP, measures such as elevating the lowest floor above the base flood elevation qualify homeowners for reduced rates. Strategies like these can be hugely effective. As detailed in a 2015 report by the nonprofit Enterprise Community Partners, one multifamily building in Hoboken, New Jersey, installed floodwater vents and elevated the first floor to ground level. The $25,000 retrofit reduced the cost of flood insurance by 83%, with a return on investment of less than three years. (The owner originally paid $12,000 for $300,000 worth of coverage; after the retrofit, the premium dropped to $2,000 for $820,000 worth of coverage.)