Step 3: Manage

STEP 3: MANAGE BUILDING RESILIENCE AND MANAGING CLIMATE CHANGE RISK

Restricting global warming to less than two degrees celsius might not sound like it would require a huge change and exercise in risk management, but journalist, Melissa Montang, discovers the reality is quite different.

“I might sound a little utopian, but essentially everyone needs to pull together and do their bit. Governments, the insurance industry and individuals alike,” says Andrew Lester, Head of Property and Engineering - Broker and Agency at Allianz.

“This includes things like investing in a low carbon economic future, balancing pre- and post-disaster recovery funding, well considered urban planning and building codes, sensible and nuanced public discussion to strike the right balance between risk mitigation and environmental protection."

Without management, the insurance industry is likely to see the impact of climate change as this increased risk cannot be simply absorbed, predicts Lester. The increased net loss burden coupled with catastrophe reinsurance costs that will generally focus on the increased level of severity risk need to be factored into costing and pricing models.

“With this in mind, the priority is to acknowledge that the risk profile of most Australian households (mine included!) and businesses will continue to increase. With this increased risk profile comes a greater emphasis on the need for robust risk assessment, well considered continuity planning and mitigation and a balanced approach to risk transfer with regards to coverage, self-insured retentions and premiums.”

THE ROLE OF BROKERS IN HELPING CLIENTS TO MANAGE RISK

Lester notes that the Australian broker community does a fantastic job as advocates for clients and operating as trusted advisors in risk assessment and risk transfer solutions.

“Climate related risk is no different, in that by consulting with and helping their clients to understand the specifics of their current risk profile, as well as how future business strategy may be impacted by this changing risk profile is critical in determining the correct course of action,” he says.

8 “It’s clear that costs will continue to rise in time based on the increased severity and frequency of catastrophic loss, which of course will flow through to business owners and the consumers of their goods and services.

Lester notes two key areas that brokers can use to benefit clients: information and education.

“Firstly, by focussing the client’s attention on risk assessment and understanding that risk mitigation has a direct link to the future health of their business, brokers would certainly benefit their clients by spending time developing risk control frameworks that include business continuity plans, capital expenditure allocation balanced between business growth and asset protection as well as a clear risk appetite between retained and transferred risk.

“Secondly, keeping on top of the trends and ensuring early engagement with the risk transfer markets. This will help educate the clients on the mechanics behind availability of capacity and conditions of cover specific to natural perils risks and help ensure sustainability of protection along with managing the allocation of costs.”

RESEARCH DRIVEN RISK MANAGEMENT AND RESILIENCE BUILDING

Dave Henderson, Chief Research Engineer at the Cyclone Testing Station (CTS) at James Cook University notes that in terms of climate change, a great deal of research has been

We need to keep looking at innovations as they come out. There may be new materials that become available, but we need to be sure they are fit for purpose and don’t come with unintended consequences.

“From a cyclone perspective, we think about building codes and what they do for resilience and life safety. There have been massive changes after Cyclone Tracy. This includes strengthening the building code and how houses are constructed, but we also need to be looking at the flood patterns and storm tides and how they’ve changed, which may mean there are places we should no longer build or be building differently.”

One way the QLD government approached improving resilience was through the aptly named Household Resilience Program, which provided funding to help eligible homeowners improve the resilience of their homes against cyclones.

The research done by organisations like the CTS at James Cook University helped to identify what level of durability is now required by new climate extremes, making sure that new building materials and techniques can withstand the climate we face now.

Henderson notes: “We need to keep looking at innovations as they come out. There may be new materials that become available, but we need to be sure they are fit for purpose and don’t come with unintended consequences.”

HOW WILL WE DO THINGS DIFFERENTLY REGARDING BUSHFIRES?

It would be remiss not to acknowledge the literally burning question at the forefront of many Australians’ minds: how will we increase our resilience to bushfires in the future to avoid large scale catastrophes like the 2019/20 bushfires?

Similar to how the Cyclone Testing Station approached improving safety and resilience to cyclones in QLD, there are many changes that could be considered to manage bushfire risk in the future.

Landcare Australia notes that adopting traditional Aboriginal burning and Indigenous fire management programs, involving ‘cool’ fires in targeted areas early in the season. The fires burn slowly, reducing fuel loads and creating natural fire breaks. These types of fires are also used to promote biodiversity and the slow speed of the burn gives animals notice to leave the area.

There will also be things we can do to future proof our buildings and homes, from air purifiers and indoor air quality monitors to deal with increasing amounts of bushfire smoke, to using high-performance glazing,

1 Optimal Disaster Preparation by Saeed Nazhati, University of California – The End of Normal – How climate change affects weather patterns and what to do about it (A compendium of essays for the Allianz Climate Risk Research Award 2019). 2 American Meteorological Society Policy Program Study (October 2014)

insulation and an airtight building (a German concept, the Passivhaus design – adopted in Australia as ‘passive homes’). For homes in bushfire prone areas, passive homes have been designed to meet the development requirements for the highest bushfire risk rating, according to the Australian Passive House Association. These homes can have complex systems of remotely controlled electric shutters, triple glazed windows, fire resistant external cladding and fluid ventilation. The idea of these homes is to balance energy efficiency with strict fire safety standards.

Some experts believe that new technology and artificial intelligence will have a strong role to play in climate change risk management. In his essay Optimal Disaster Preparation 1 , Saeed Nazhati argued that artificial intelligence can assist with decision-making in times of catastrophe to help ensure efficient and effective recovery.

Essential items such as food, water, energy and transportation are delivered by ‘interdependent critical infrastructure systems (ICISs)’ and impact to these systems by a catastrophe can cause acute disruption. Efficient and effective recovery scheduling, the type that could be provided by artificial intelligence, could restore the functionality of these systems promptly. Feasibility testing of this proposed method has already begun in California, USA as a response to earthquake recovery.

Hopefully advances in risk management such as these can be tested and adopted in Australia to help manage our risk in the face of climate change.

THINGS TO CONSIDER

Climate change risk management approaches generally fall into four broad categories 2 :

• Mitigation—efforts to reduce greenhouse gas emissions

Adaptation—increasing building resilience and capacity to cope with changes in climate

Geoengineering/climate engineering— additional, deliberate manipulation that is intended to counteract some of the impacts of greenhouse gas emissions

Knowledge-base expansion—efforts to learn and understand more about the climate system, which can help support proactive risk management.