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The Calamitous Surfside Condo Collapse: A Climate Resiliency Lesson All Insurers and the Government Can Learn

While no evidence has linked climate change and the Surfside collapse, many speculate it could be a factor.

The impact from the tragic condominium building collapse in south Florida is still reverberating throughout the country. This horrific disaster has raised new concerns as well as renewed the debate around climate change’s crippling effect on the nation’s infrastructure.

As rescue efforts continue, elected officials are reviewing existing regulations, and insurers look to reduce their exposure in the region. Rather than working in isolation, both should be focused on implementing new climate resilient building standards to ensure we can better safeguard the public and the country’s economic security.

Delayed maintenance repairs to the building’s infrastructure, totaling a hefty $15 million, are believed to be a main cause of the collapse. Yet, researchers are looking at whether climate change and rising sea levels could have accelerated the building’s deterioration.

A recent study by Florida International University found that the Champlain Towers South building had been sinking at a rapid rate over the past decade. This, in addition to the inaction by the condo association and fee-weary owners, may have created a deadly combination.

Delayed repairs due to cost can be a common problem amongst private building associations that tend to have little oversight after construction is completed. Some cities have taken steps to address maintenance issues, such as New York City where the upkeep of a building’s façade is mandated. While a step in the right direction, this too can easily miss core structural issues resulting from more extreme climate and weather events.

Insurers’ response has been swift to address this risk, albeit rather protectionist.

In a hardening insurance market where carriers have seen record breaking losses, further aggravated by COVID, many insurers looked to off-load at-risk properties from their books. Carriers sent out notices requiring 40 year or older condominium buildings in south Florida to provide proof of all passed inspections to ensure safety standards are met.

Those failing to do so can have coverage terminated within 45 days.

This is not the first-time carriers have tightened their coverage requirements.

This scenario is currently playing out in the aftermath of February’s freezing temperatures in Texas. Insurers have been implementing changes to restrict coverage for key loss drivers, like frozen pipes, which are now leaving Texas residents without coverage as they face large repair costs. These actions by carriers may help protect profit margins but do little to address the bigger problem at hand.

Restrictions or “redlining” of perceived high-risk territories by insurers also limits availability of viable coverage, ultimately leaving the nearly 10 million residents of Florida’s condominium communities without options and financially exposed.

Federally subsidized programs like the National Flood Insurance Program (NFIP) provide some cover, but these plans can be limited in coverage and are facing equally strained conditions. Restricting coverage or geographic access is a short-term solution that will only result in greater distrust of an already opaque insurance industry.

Rather than retreat, insurers should take the lead in addressing these complex risks. Revamping the traditional risk rating and underwriting models would be a logical starting point.

Current underwriting practices for coverage are based around analog applications with warranty statements. A more involved and dynamic approach should be taken, requiring ongoing reporting of maintenance and repairs.

South Florida’s recertification rule only applied to buildings 40 years or older. Like the canary in the coal mine, this model highlights the critical issues when it may be too late to fix them.

Insurers can and should require a more frequently reviewed and standardized model, similar to the FAA’s airworthiness certification process and maintenance requirements. Additionally, insurers should require repairs to abide by climate resilient building codes, gradually reinforcing aging buildings overtime.

Working with policymakers, insurers can lobby for mitigation credits to apply when ensuring buildings with more stringent climate codes, allowing them to provide coverage in these higher risk areas.

Similarly, an agency like at the Department of Housing and Urban Development (HUD) can provide guidance to condo associations struggling to find ways to meet these enhanced building standards.

Arlington County in Virginia has restarted The Condominium Initiative, which provides a series of workshops for condo associations that includes information such as when to conduct capital improvement assessments and which contractors should perform them. The Condominium Initiative can be a blueprint that HUD can offer to other local communities around the nation.

Numerous studies by the National Institute of Building Sciences have shown the value of climate-resilient construction, which can lead to disaster recovery savings of up to $11 for every $1 invested.

These active mitigation steps in infrastructure and building construction reduce damage to property and recovery costs, as well as minimizes productivity disruptions benefiting insurers and taxpayers alike. Most importantly, they can also save lives.

Climate risks have a direct impact on our economic stability. Reports from the Government Accountability Office (GAO) have flagged the economic risk from climate change as “high risk.”

Rather than continuing with the current model where state and local governments tap federal assistance when disaster strikes, programs that reward proactive measures can be leveraged. Risk transfer and mitigation grants to kickstart risk reduction initiatives will help increase safety and reduce taxpayer borne expenses for disaster recovery efforts.

They can also ensure economic inclusion and housing affordability as condo associations that incur large and unaffordable repair costs are otherwise forced to sell properties to developers or other investment groups.

The current infrastructure package that is making its way through Congress could be the start of a path towards climate resilience. Hardwiring climate resilient building codes and fostering greater insurer collaboration into the nation’s infrastructure strategy can help reduce risk both for everyday citizens and government budgets.

However, to be successful, insurers must participate. Closing access and retreating to the sidelines will only increase the fiscal risk of impending extreme weather events and the country’s future security. Building back better needs to be the mandate that will not just protect lives but ensure that housing is made available to all members of the socioeconomic spectrum.

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