Geneva Association Urges Mortgage Reforms to Combat Increasing Property Risks
The Geneva Association has released a report highlighting the growing vulnerabilities in the housing sectors of advanced economies due to extreme weather events and rising insurance costs. The report, titled ‘Safeguarding Home Insurance,’ proposes significant reforms to property valuations, mortgage systems, and insurance practices to incentivize homeowners to increase their resilience to natural disasters.
Maryam Golnaraghi, the report’s lead author and Director of Climate Change and Environment at the Geneva Association, stated that annual insured losses have consistently exceeded $100 billion since 2020 and are projected to surpass $200 billion in 2025. Notably, more than half of these losses were driven by localized events such as floods and wildfires, rather than large-scale disasters like hurricanes.
The increasing property exposures are attributed not only to climate change but also to socio-economic factors. These include the growing number of people living in high-risk areas, inadequate building codes, aging infrastructure, and the destruction of natural buffers. Insurers have responded by implementing risk-based pricing, which has resulted in severe affordability pressures for homeowners. For instance, in many US and Canadian states, 10% of homes are exposed to severe flood risks, making property coverage unaffordable or unavailable.
Key Recommendations for Enhancing Resilience
The Geneva Association’s report proposes several key measures to address these challenges:
- Robust Monitoring of Insurance Coverage: Mortgage approvals should include conditions for annual insurance monitoring to improve data on property insurance challenges.
- Digital Tools for Resilience Assessment: Wider use of digital tools to help homeowners assess and improve their resilience to extreme weather events. For example, Australia’s government-funded Resilient Building Council launched a free bushfire self-assessment app in 2023, which had been used by over 6,500 households by early 2024, resulting in $44 million spent on upgrades.
- Property Risk Data and Risk-Based Land Zoning: Governments should implement mandatory disclosure laws to provide homeowners with critical risk information and adopt more risk-based land zoning to identify areas unsuitable for building.
- Government-Backed Insurance Pools: The report advocates for government-backed insurance pools that focus on resilience, unlike many existing pools that allow people to live in high-risk zones without adequate risk reduction measures.
- Restoring Natural Barriers: Governments should use legislation to restore natural barriers to natural catastrophes, such as the Room for the River program in the Netherlands, which converted development land into floodplains.
The report emphasizes that while there have been some promising initiatives, such as a training center in California promoting resilient building systems, more needs to be done to incentivize resilient home construction at the local level.
By implementing these recommendations, the Geneva Association aims to transform the way insurers, brokers, and governments engage with the property insurance market, ultimately enhancing the resilience of homeowners against extreme weather events.
