Wildfire Insurance Innovation, FEMA Resilience Grants Scrapped, InsurTechs Accelerator, and More

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Wildfire Resilience Insurance Policy Debuts in California

A first-of-its-kind wildfire resilience insurance solution that accounts for efforts made to reduce fire threats was launched by conservation organization The Nature Conservancy (TNC) and risk solutions firm Willis last Wednesday.

The policy provides US$2.5mn of fire coverage to Tahoe Donner Association, a private homeowners association in Truckee, California. It was structured so the pricing would reflect wildfire risk mitigation work it has undertaken, including tree thinning, vegetation management, and the building of fire breaks. The policy covers 1,345 acres of Tahoe Donner land, and has a 39% lower premium and 89% lower deductible than one that does not account for wildfire mitigation efforts. Tahoe Donner, which includes over 6,400 private properties in the Sierra Nevada Mountain, has had an active Forest Health Management Program since 1992.

“By placing this innovative insurance product, we hope to inspire other insurance underwriters to account for the benefit of thinning and prescribed fire and increase the implementation of this type of work more broadly,” said Kristen Wilson, lead forest scientist at TNC in California.

The launch of the TNC-Willis solution comes at a time of high stress for the California insurance market. Even before the devastating Los Angeles wildfires earlier this year, hundreds of thousands of homeowners had seen their insurance non-renewed because of escalating fire risks. ABC News estimates 2% of California policyholders had non-renewed policies in 2023. 

An increasing burden of homeowners’ insurance has shifted from private carriers to the state’s FAIR Plan, a high-risk insurance pool that absorbed billions in losses on policies covering properties in the Pacific Palisades and other areas burned by the LA fires. In February, the state’s insurance commissioner authorized the FAIR Plan to collect US$1bn from private insurers to help fill a hole in its available capital. The move is likely to raise insurance prices throughout California and the US.

In Brief

UK bank Standard Chartered closed its first adaptation-labelled corporate finance deal, backing JinkoSolar’s trade of storm-resilient solar modules to high-risk regions like Florida, the UAE, and Saudi Arabia. The deal follows the blueprint set out by the bank’s Guide for Adaptation and Resilience Finance, released last year, which aims to scale investments that support climate-proofing efforts. StanChart says the transaction illustrates how adaptation can become an investable asset class, aligning with growing demand for climate-resilient infrastructure amid mounting losses from extreme weather — which came to some US$2trn globally over the past decade. (Standard Chartered)

A top official at insurance giant Allianz has said that global temperatures are “fast approaching” the limit beyond which insurers will be unable to cover extreme weather risks. Günther Thallinger, a member of Allianz’s Board of Management and former Chair of the Net Zero Asset Owner Alliance, wrote on LinkedIn that this poses a “systemic risk that threatens the very foundation of the financial sector”, because when “insurance is no longer available, other financial services become unavailable too.” Thallinger further called out climate adaptation as “false comfort”, claiming many climate risks can not be meaningfully adapted to: “There is limited adaptation to megafires, other than not building near forests. Whole cities built on flood plains cannot simply pick up and move uphill. And as temperatures continue to rise, adaptation itself becomes economically unviable,” he wrote. Thallinger argued that the only path forward is to prevent any further increase in global warming by decarbonizing the economy and accelerating efforts to net zero emissions. (LinkedIn)

The world’s first catastrophe (or ‘cat’) bond exchange-traded fund (ETF) launched last Tuesday, offering investors a new way to bet on extreme weather events like hurricanes. Cat bonds are debt instruments that insurance market participants — and sometimes governments — sell to hedge against natural disasters. Investors collect steady interest payments from the bonds, but can lose out if a catastrophe occurs and the resulting financial damages exceed a predetermined threshold. The Brookmont Catastrophic Bond ETF invests in cat bonds covering hurricanes, wildfires, storms and earthquakes, and aims to attract investors that want exposure to these risks in an easy-to-trade package. The ETF traded over 50,000 on its first day listed on the New York Stock Exchange. (Artemis)

Research from AI-powered data company ClimateAligned finds that Africa leads the world in adaptation finance, allocating 34.5% of its sustainable bond proceeds to resilience projects — more than any other region. This is largely because of the issuing activity of development banks, like the French Development Agency, which often embed resiliency criteria in their investment products. South America is the region directing the second-most amount of sustainable bond capital to resilience, at 24.2%. In Europe and North America, the percentages are 7.2% and 5.3%, respectively. (ClimateAligned)

FEMA Pulls Plug on Popular Adaptation Program

The Federal Emergency Management Agency (FEMA) is scrapping millions in grants for disaster preparedness and adaptation that help states, communities, and tribes prepare for extreme weather events and other shocks. 

In a Friday press release, the agency said US$882mn of funding authorized as part of the Building Resilient Infrastructure and Communities (BRIC) program would be “returned to the Treasury or reapportioned by Congress” next year, claiming the initiative was “wasteful and ineffective.” Funds for the program were earmarked under President Biden’s Inflation Reduction Act, and it is unclear whether FEMA can unilaterally cancel grants approved by the legislature.

BRIC has allocated US$5bn in grants since it began in 2020 under the first Trump administration. Funds go toward weather-proofing buildings, undergrounding power lines that could spark wildfires, protecting wastewater facilities from flooding, and more. BRIC takes on around 75% of the cost of climate-proofing projects, and up to 90% of those in disadvantaged communities. Selected projects have to prove to FEMA that they will be cost-effective while increasing resilience and reducing the risk of injuries, loss of life, and damage and destruction of property, among other things.

The program is so popular that last year the agency received US$5.6bn in funding requests for US$1bn in available grants from all 50 states, 35 Tribal Nations, five territories, and the District of Columbia.

Mitch Paine, a policy analyst at FEMA, wrote on LinkedIn that he was “disgusted, horrified, angry, and just ashamed to be working for an agency that puts aside the most valuable programs simply because of politics.” He added that the grant projects provide a 6x return on investment to states, tribes, local governments, and businesses in avoided losses.

In a January 24 executive order, President Trump authorized a wide-ranging review of FEMA that will explore whether the agency “can serve its functions … providing supplemental Federal assistance, to the States rather than supplanting State control of disaster relief”. In March, Homeland Security Secretary Kristi Noem, who oversees FEMA, said in a televised Cabinet meeting that she planned to “eliminate” the agency.

In Brief

The European Parliament voted to delay implementation of sustainability disclosure rules as part of a so-called ‘stop-the-clock’ directive. This means companies not currently subject to the Corporate Sustainability Reporting Directive (CSRD) and related Sustainable Taxonomy will have their disclosure obligations deferred by two years, and those not yet covered by  the Corporate Sustainability Due Diligence Directive (CSDDD) by one year. Lawmakers argue the delay is warranted as they work on simplifying the reporting mandates as part of a broad ‘Omnibus’ package. (European Parliament)

The US National Oceanic and Atmospheric Administration (NOAA) has reversed a decision to end a cloud services contract that would have taken most of its research websites offline — websites including reams of climate and environmental data. Last Thursday, Bloomberg reported that the relevant contract had been targeted for “early termination” by the agency, which would have caused external websites based on Amazon, Google and WordPress services to disappear. However, on Friday NOAA said all the websites would remain online — for now. (Bloomberg)

The UK agreed to support the Philippines’ National Adaptation Plan and establish a coordination group to localize climate analytics in high-risk provinces at the fifth bilateral Climate Change and Environment (CCE) Dialogue between the two countries. The Dialogue also moved forward efforts to build an investment platform designed to channel private capital into adaptation and resilience, focusing on climate-smart agriculture, water management solutions, and agroforestry. (UK Government)

UK whistleblower coalition Inside Track has published a memo from senior executives in the food industry warning that climate-driven hazards like soil degradation, water scarcity, and extreme weather “have reached a moment of threat to food security like none other we have seen.” They argue that current corporate strategies and regulatory initiatives — like mandatory climate disclosures — are out of step with the scale of the crisis, with companies generally approaching climate risk management as a compliance issue, rather than as an existential business risk. The group calls on investors and creditors to press companies with targeted questions on their adaptation strategies and investments, and demand insight into their sourcing viability and quality of board governance. (Inside Track)

Adaptation InsurTechs Admitted to Lloyd’s Accelerator

Climate adaptation InsurTech startups Faura, OceanLedger, and 7Analytics were among 11 companies selected to join insurance giant Lloyd’s accelerator program. They will benefit from one-on-one mentorship from Lloyd’s insurance experts and guidance on scaling their tech for the global insurance market.

Faura helps underwriters gauge the survivability of properties in disaster-prone areas, directing insurers to those homes that can be profitably covered even in the face of wildfire and storm risks. 

OceanLedger provides advanced geospatial analytics for coastal ecosystems, mapping coastal erosion, physical asset vulnerabilities, and adaptation measure potential for underwriters, engineering firms, and risk advisors, among others.

 7Analytics offers advanced flood risk model data for insurers, banks, and infrastructure owners.

In Brief

The National Oceanic and Atmospheric Administration (NOAA) has begun curbing maintenance work on two polar weather satellites that are used to produce early-warnings of extreme weather events, according to a memo obtained by E&E News. The memo says the agency should adopt a “minimum mission operations approach” to the two orbiting devices. (E&E News)

Earth observation company ICEYE has launched a hurricane data solution that provides insurers with wind and flood damage assessments within 24 hours of landfall in the US. Using satellite radar and ground sensors, the system offers high-resolution insights into damage and flood depth at the level of individual neighborhood blocks. The data tool should enable faster insurance claims triage and the more efficient deployment of field resources by private carriers. (ICEYE)

Disaster risk modeling giant Verisk has acquired Nasdaq’s catastrophe risk modelling platform, Simplitium Limited. The tie-up opens up the latter’s ecosystem of over 300 third-party models to Verisk’s client base of global insurers and reinsurers. The models are based on the open-source OASIS Loss Modelling Framework, which allows developers to produce tools that create niche and diverse views of risk for improving improve disaster risk evaluation and resilience planning. (Verisk)

RESEARCH

Private benefits from public investment in climate adaptation and resilience (National Bureau of Economic Research)

UK Climate Adaptation Research and Innovation Framework (UK Government)

Insurance: Weathering the storm of inflation, climate change and market-distorting state regulation (JP Morgan)

Thanks for reading!

Louie Woodall
Editor