Florida case study shows benefits of hurricane adaptation efforts


Florida case study shows benefits of hurricane adaptation efforts | Insurance Business America

New research delves into the business impacts as coastal cities become more populated

Catastrophe & Flood

Kenneth Araullo

A recent case study by Moody’s reveals that in locations like South Florida, meeting or surpassing evolving building codes can slash home damage costs almost tenfold.

In the face of increasingly expensive physical climate risks in urban areas, the need for adaptation measures that reduce susceptibility to hazard-based damage is more critical than ever. With climate change, the severity of hazards from hurricanes and sea-level rise is expected to rise. These hazards encompass high wind speeds, storm surges, associated flooding, and heavy precipitation.

The report noted that cities and governments have the option to safeguard coastal areas from hurricane-induced damage by investing in robust coastal defense infrastructure, including seawalls, levees, and storm surge barriers. While the initial construction and maintenance costs may be substantial, in the long run, the economic losses averted from property damage and business disruption render these adaptation measures economically viable.

Moreover, implementing stricter building codes and standards for hurricane-prone regions can enhance the structural integrity of buildings and reduce the risk of significant destruction during severe storms. Although compliance costs may initially be higher, the overall economic benefits in terms of reduced reconstruction expenses and human casualties are substantial.

Assessing the cost-benefit of adaptation investments is pivotal in making strategic upgrades and property construction decisions. Allocating capital and building resilience into properties are both essential for sustaining viable insurance markets in regions at risk.

Financial impacts of different risks

Moody’s RMS physical risk models provide valuable insights into hazard risks and financial impact drivers for on-the-ground adaptation cost-benefit analyses at the location level:

  • Storm surge: To maintain insurance, new builds in flood-prone areas must be constructed above the base flood elevation, with ground floor height emerging as a key predictor of storm surge risk. Buildings not meeting the current code incur annual average damage (AAD) costs just under double those in compliance, while buildings surpassing current codes experience AAD costs nearly 10 times lower than those below code.
  • Wind resistance: Building codes emphasizing advanced construction techniques and materials for enhanced wind resistance have, since the 1990s, reduced expected AAD costs associated with intense winds by more than sixfold for standard family residences.
  • Projections: These reductions in calculated AAD from storm surge and wind resistance risks remain consistent when looking ahead to 2050. This implies that the costs of implementing adaptation measures can yield significant dividends over the course of a 30-year mortgage.

With over half of the global population residing in cities, and an additional 2.5 billion people expected to join them by 2050, according to United Nations estimates, the need for adaptation measures in urban centers cannot be overstated. Some of the fastest-growing US cities are the most exposed to physical climate hazards, facing rising perils in a warming climate.

Given the escalating costs and severity of physical climate risks in urban areas, adaptation measures that reduce susceptibility to hazard-based damages are indispensable. South Florida, including the Miami metropolitan area and the Florida Keys, continues to experience population growth and development expansion, despite the high risks associated with rising sea levels and hurricanes.

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