Harvard Business Review: Prepare for Climate Change

Flooding, wildfires and other risks associated with climate change are on the rise, and “and yet behavioral economics research argues that we are collectively underinvesting in protecting ourselves,” write Matthew E. Kahn, Brian Casey and Nolan Jones for Harvard Business Review. Reasons include a tendency to focus on short time frames, optimism on risk exposure and lack of preparation. The insurance industry, walking a fine line, could lose clients by refusing to protect disaster-prone properties or increasing prices so much that property owners let policies lapse. “Innovations in spatial sciences, combined with big data, raise the possibility of the insurance industry introducing innovative pricing strategies that induce private real estate owners and local governments to take efforts that together yield a more resilient real estate capital stock. In short, the insurance industry is adapting in order to profit from climate risk, and in doing so it will help society adapt as well,” the authors argue. Price differentiation and discounts could convince communities and property owners to invest in protections against climate hazards. Climate research is well documented, and images of hardship after any disaster spread quickly online. Investors and workers will increasingly avoid disaster-prone communities that refuse to acknowledge or invest in climate resilience. – YaleGlobal