Controversial “Climate Risk Scores” Keep Rising—And It’s Making a Major Dent on Investor Profits in Major Markets
Summary
Climate risk scores are becoming a major factor in real estate, influencing insurance costs and potentially impacting investor profits. Hosts in high-risk areas could face higher insurance premiums and difficulty securing coverage. Hosts should assess their climate risk, consider property upgrades, and work with experienced insurance brokers.
Key Insights
- •A report warned that the real estate market could lose up to $559 billion, affecting 28% of real estate asset value in the S&P Global REIT Index, from physical climate risks by 2050.
- •Homeowners in the highest-risk areas paid $2,321—82% more in premiums than those in low-risk zones. Those in high-risk areas were also more likely to be dropped by their insurers, according to a Treasury study.
Action Items
- ✓Buy in low-risk locations using First Street’s property-level climate assessments.Effort: mediumImpact: high
- ✓Ensure the property is set back from woodland and constructed from fire-resistant materials.Effort: mediumImpact: medium
- ✓Create a paper trail of improvements for insurance companies: Keep detailed records of all mitigation work, including photos, invoices, permits, engineering reports, and code-compliance certificates.Effort: mediumImpact: medium
- ✓Use experienced insurance brokers for expertise in placing coverage in climate-exposed markets.Effort: lowImpact: medium
Tools & Resources
- →First Street: First Street offers climate stats to potential buyers and sellers.
Common Mistakes
- ⚠Investing in a risk-prone area without mitigating the risks can lead to high insurance costs, difficulty securing coverage, and potentially lower profits.
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