Acquiring the right insurance policies isn’t an adequate strategy to mitigate the effects of climate-related risks on your portfolio. The risks posed by climate change aren’t synonym with natural disaster risks – it’s much broader than that.
Sure, this can be an effective short-term strategy. But in the long run, it will prove to be the more expensive one, since insurers will calculate climate risks using advanced technological models, hiking up premiums and making costs more volatile as natural disaster incidents become more frequent.
Some assets may also become uninsurable in the future, as the risk of providing cover is no longer considered worth the premium. With temperatures rising, no one wants to be insuring an igloo.
Futureproofing your investment strategy requires more than just finding the right insurer. It’s about anticipating, diversifying and building a real estate portfolio that is fully equipped to withstand even the most challenging risks.
The insurance industry’s view is that a four-degree increase in global temperatures would make it impossible to insure against climate change-related risks. Here’s why only focusing on insuring your properties is really a head-in-the-sand-strategy:
As a responsible investor, you will want to know the ROI for building improvements to ensure climate change resilience. We’re sorry to disappoint you: there’s no clear data linking improvements to climate change resilience to lower insurance premiums or even higher demand from tenants.
However, the trend is inevitable. And forward-looking investors will realize it is increasingly important to offer tenants properties that are fully equipped to resist climate-related events and risks in the future, in order to minimize potential disruption to their business.
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