Insuring new infrastructure projects against severe weather losses

Editor’s note: Ben Harper, head of corporate sustainability, Zurich North America, recently testified at “Building Smarter: The Benefits of Investing in Resilience and Mitigation,” a hearing before the U.S. House of Representatives Committee on Transportation and Infrastructure Subcommittee on Economic Development, Public Buildings and Emergency Management. Harper’s testimony focused on the importance of physical resilience from natural hazards and addressed the interconnected nature of risk. Here is a distillation of his remarks.

Climate change is, perhaps, the most complex risk facing society today. It is intergenerational, it is international, and it is interdependent.

Our aim at Zurich Insurance is to leverage the insurance industry’s role as a primary risk signaler for society to help raise awareness of the increasing frequency and intensity of natural hazard events, and ultimately to incentivize the behaviors and best practices that will be required to both mitigate the worst impacts and adapt to changing weather patterns.

We do this to help protect individuals, businesses and communities, and because it’s the right thing to do.

Furthermore, from an industry perspective, we do this because the impact of extreme weather events is escalating, and without enhancing resiliency and mitigation measures, many assets may simply become uninsurable.

Investing in mitigation measures, including resilient infrastructure, nature-based solutions, and low carbon technologies, is required if society continues to operate with the continuity and resiliency expected.

It is encouraging that these changes require minimal investment in comparison to the benefits received.

A 2019 analysis of the benefits of building resiliency into infrastructure systems in developing countries suggests that the extra cost of building resilience into these systems is only 3% of overall investment needs.

However, when considering both the capital costs and operating costs of the asset, in most cases the total lifecycle cost will be lower in a hardened, resilient structure.

In our own post-event studies, conducted after significant flood, drought and wildfire events, our analysis shows that every $1 spent on resiliency upfront results in $5 savings post-disaster.

Interconnected risk is a fundamental concept in risk management and is directly applicable when managing physical risks.

For example, if we provide business interruption insurance for a casino operating on the Mississippi coast, which is built with hardened, resilient components, we need to also consider the supporting infrastructure that can have a direct impact to that insured. In this example, the value of the resilient building is limited if this casino is fully capable of operating after a major weather event, but the roadways leading to the facility are damaged and impassable.

This is just one example of why it is fundamental to consider the supporting infrastructure when building a complete, resilient environment.

The American Society of Civil Engineers (ASCE) recently published its 2021 Report Card for America’s Infrastructure that gave U.S infrastructure an overall grade of C-, which sadly is an improvement from the previous score of D+.

Simply put, we are at a crossroads with regards to aging structures. Combined with the significant increase in severe weather events, we can no longer afford to deploy temporary fixes.

And without proper resiliency standards as an integral part of all vertical and horizontal construction, we will be in the same situation we are today, facing increased perils without proper preparedness — and all at a significant cost.

Ben Harper is the head of corporate sustainability for Zurich North America. Contact him at ben.harper@zurichna.com.

Related:

• U.S. weather activity in February will exceed $10B in losses, Aon reports
• Texas crisis exploits national protection gap, possible tech failures