Sophia Frazer-Binns | Climate change and a new insurance environment

Climate change has created a multi-hazard environment for which UNEP’s Adaptation Gap Report 2023 states that developing nations alone will need between $215 and $387 billion to deal with the fallout from climate change.

While much has been said about the notable effects of climate change, such as flooding, more intense hurricanes, and warmer temperatures, there remains an area not widely discussed, and that is how climate change is affecting housing and insurance.

For Jamaica, climate change has created an environment characterised by:

1. increased beach erosions such as the Hellshire beach

2. unsafe housing stock as the sea levels rise, increasing the potential for housing loss, climate migration or climate refugees

All of which impact affordable homes and adequate insurance.

Professional service company Grant Thorton speculates that climate change poses a ‘systemic risk’ to insurance. While Swiss Re noted that extreme weather events have led to insurance losses of $105 billion in 2021– the fourth highest since 1970. This has led to the rate of insurance steadily increasing year over year.

In Jamaica, we have experienced significant increases in insurance rates.

In a March 1, The Gleaner article labelled it “Insurance catastrophe”. It stated that the ripple effects of extreme weather events brought on by an unfolding climate crisis will be an increase in premiums for some homeowners, while others are expected to be priced out of catastrophe insurance coverage. This is expected to trigger a significant reduction in insurance coverage for Jamaican homeowners.

SOCIO-ECONOMIC EFFECTS

Preliminary data shows a significant number of homeowners purchase homes through mortgages, yet in order to obtain a mortgage, one must have catastrophe insurance. However, if one is to accept the projection that insurance premiums will increase year over year, the cost of insurance will be a real deterrent to home ownership.

If premiums are unaffordable, this will have a direct effect on the number or type of homes being purchased. A reduction in sales will directly affect the construction sector, which, on average, contributes between three to five per cent to the GDP. Slowing down of this sector will directly affect employment and thereby the economy.

At the same time when our young people, especially males, who are the primary employees on construction sites, are not gainfully engaged. They are left to negative influences, including gangs which can lead to crime and violence.

The issue of climate change and insurance becomes even more pressing when one considers an emerging trend in the industry of assets becoming uninsurable due to climate change.

A recent study in Australia revealed that as sea levels rise, more than half of all homes have been left uninsurable due to their risk of coastal flooding and erosion. These uninsurable properties are excluded from most insurance policies due to what is called the “actions of the sea”. It is projected that one in 24 properties will be uninsurable by 2030.

In the United States, recent hurricanes have strengthened the discussion about whether some states or parts of some states are uninsurable.

Whereas we have not reached the point of being uninsurable, given our geographical location, climatic history and the fact that the Caribbean is ranked the second most disaster-prone region in the world, there is nothing to prevent Jamaica or parts of it from being labelled uninsurable.

GREAT CONCERN

With a fragile economy, which depends heavily on tourism, is compounded by the fact that the location of a majority of the hotels is on the coast, this matter should be of great concern.

While there has been some effort to address the issue, the discussion has not gone far enough and must be treated with the urgency of now. We must commence in earnest a multi-stakeholder conversation to consider the effects of climate change on housing, the insurability crises that could unfold and what it means for us in Jamaica,

This environment of high premium and uninsurable assets presents an opportunity to harness our creativity in finding innovative ways to deal with insurance.

Innovative insurance requires us to see it not only as a response to climate change but a way to build resilience to climate change. For example, climate resilience discounts in insurance coverage can be offered to homeowners who have hurricane straps or shutters installed on buildings. This is similar to no-claim on motor vehicle insurance and is a win-win approach, which not only reduces the cost of insurance but puts one in a better position to withstand strong Category 4 or 5 hurricanes. Actions such as these will reduce claims on the insurance companies while building climate resilience.

Second, there is a need for research on the widening and deepening of parametric insurance, where the payout is linked to the occurrence of an activity which meets a particular threshold, such as rainfall over certain inches. Once this threshold is attained there is an automatic payout. After the passage of Hurricane Beryl, Jamaica was able to benefit from a $2.5B payout under the Caribbean Catastrophe Risk Insurance Facility.

Innovative insurance must be seen as a driver, a pathway to building resilience in this climate-changed environment.

At the same time, we must undertake and enforce modern, holistic, fit-for-purpose physical planning that considers:

• Type of structures and how they are being built

• Proposed use of the land

• Location and topography of the land

• Historical and present use of the land

• Whether there are sufficient drainage and runoff systems.

Because sea level rise is a feature of climate change, we need to revisit the issue of setbacks in coastal communities to protect against sea level rises and tsunamis. At the same time, we must strengthen coral reefs, plant more mangroves and build more defensive structures such as properly engineered walls to aid in the regrowth of mangroves which are critical to reducing the impact on our shoreline.

The environment and climate change must be the foundation of development policies. Every plan or budget from every ministry must have the environment at its core.

We cannot build schools or hospitals without considering how climate change will affect them and the areas in which they will be built. Whether it’s the design or the effects of climate change on the health of our people. Roads cannot be built without examining the type of materials being used, they are being built and how they will be impacted by climate change.

It cannot be business as usual – nature has changed, and so must we.

Sophia Frazer-Binns is a senator, an attorney-at law, and shadow minister of land, environment and climate change. Send feedback to lecchange@gmail.com.