Business & Investment

Inconvenient insurance market, how the climate crisis threatens the construction boom

Barry B. Rupatner Esq.

The construction industry has a lot to celebrate. This is an essential industry for the wider economy. The nearly $ 1.2 trillion infrastructure law has triggered a massive construction boom in all 50 states, and the industry is recovering from the business downturn caused by the Covid-19 pandemic. But if we do not recognize and address the looming challenges of recovery caused by climate change and the slump in the insurance market, these are short-term wins and lead to long-term devastation.

Following the tragedy of the collapse of buildings in Surfside, Florida, coastal states are imposing stricter legislation to ensure the structural integrity of old skyscrapers. The heat wave in the United States killed hundreds and destroyed thousands of homes. NS Major new UN scientific reports We conclude that droughts caused by overheated planets will raise temperatures and lead to catastrophic floods that could wipe out major parts of coastal cities and communities by 2050.

Insurance complications

Complicating these climate change threats is an important but poorly understood world of insurance. Yes, I said insurance. While all construction projects require the insurance company to provide builder risk insurance for the construction process, general comprehensive liability insurance provides an essential financial backstop for all completed projects. Without these compensations, construction lenders, permanent lenders, or private investors will not fund future projects.

Billions of dollars in restoration and construction funding after a natural disaster have come from insurance that insures owners for losses due to the occurrence of these “force majeure”, but insurance to enable these recovery It’s no longer natural for companies to rely on continuing payments. ..

In California, six fires have burned more area than the 2018 fires in the last 12 months, including about 433,000 acres of Dixie Fire, the third worst rank in state history. In 2020, nearly 26,000 wildfires in the west burned about 9.5 million acres, compared to more than 33,000 wildfires, which burned just under 700,000 acres in the east.

Insurers and reinsurers that are holding back losses are seriously considering withdrawing housing and commercial coverage within these regions. Insurance companies warn that climate change may not make insurance for the general public affordable. World’s largest Reinsurers have accused global warming of losing $ 24 billion in a wildfire in California. Also, according to a recent Munich Re report, low-income and average-income people in some areas may not be able to purchase insurance if compensation is provided.

High risk

In addition to growing concern, at least at a cost that most people can afford, some parts of the United States may be too risky to insure. Private insurance companies are threatening to block coverage for old buildings that have not passed compulsory safety inspections. In California, we have seen similar reports that insurers are fleeing fire-prone areas or that insurers are refusing to renew their insurance policies.

In April, the National Flood Insurance Program, which has a large debt, announced that it would increase premiums for some people by more than five times. Carolyn Kowski, Executive Director of the Wharton Risk Center at the University of Pennsylvania, said:

NOAH forecast By 2050, it shows that up to $ 106 billion worth of coastal assets are likely to be undersea (if the current route is continued). Along the east coast, the realization of the Atlantic rise has begun major project funding to mitigate floods in major areas of southern New York City. Hurricane Sandy sent a river of water into a major tunnel, flooding most of the financial district and beyond, and the destruction of the Conedison power plant disrupted much of the city.

Old structure of trouble

The impact on tall, old structures that require continuous repair has raised new concerns. Local and state legislatures are updating their call to provide stricter enforcement of standards that guarantee the structural integrity of such buildings. In addition, the disclosure that Surfside’s board secured only $ 44 million in general liability insurance was one-third of the potential cost of reconstruction, as well as damages for 99 deaths from the collapse. I barely covered 1.

Insurers and lenders create much more stringent underwriting standards to ensure old structures, requiring engineering analysis to be performed almost immediately under expert supervision if repairs are needed. It is certain to do.

Finally, the limited availability of insurance and the impact of climate change will undoubtedly influence the determination of infrastructure spending on roads, bridges, solar / wind facilities, and rail lines. Why spend tens of billions of dollars on Amtrak tracks, NOAH predicts? It is predicted to sink in water in 30 years. Waterfront airports such as Boston’s Logan Airport, LaGuardia, and New York’s JFK allocate tens of billions of dollars without funding the types of flood mitigation used to prevent floods in Amsterdam. Do you justify it?

The construction boom of the next 30 years is ready to begin. Is our country also ready to address the daunting problems of the limited insurance market and the dreaded warnings about how climate change affects many of our countries? A call for our government and business leaders to unite to address these issues can be heard here.

Barry B. LePatner, Esq. Is the founder of LePatner & Associates LLP and CEO of Insights + LLC. He is a prominent author and advisor on business and legal issues affecting the real estate, design and construction industries and is widely recognized as the ideological leader in construction. For more information on LePatner Have a look at this..

Inconvenient insurance market, how the climate crisis threatens the construction boom Inconvenient insurance market, how the climate crisis threatens the construction boom

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