Securing commercial property amid extreme weather events
A version of this article originally appeared as partner content sponsored by FM in the Financial Times.
Extreme weather events are on the rise globally, with associated costs increasing steeply. Wildfires, heatwaves, hurricanes, tornadoes and flash floods are becoming more common worldwide, with flooding in Europe reaching an 11-year high in 2024. The World Meteorological Organization’s European State of the Climate Report records that storms and flooding in the region in 2024 are estimated to have cost at least €18bn.
These events are devastating for businesses, resulting in expensive repairs, disruption to production, lost customers and even value write-off. In 2024 a report commissioned by the International Chamber of Commerce estimated that climate-related extreme weather events have cost the global economy more than $2tn over the past decade. The insurance industry is at the forefront of addressing these climate and extreme weather challenges.
“It is becoming increasingly clear that some of the predicted impacts of climate change are now inevitable,” says Charlie Jacques, Head of Sustainability and Impact Investment, Real Estate, Schroders Capital. “The need for rapid, considered and collaborative efforts to appropriately assess and adapt to the impacts of a changing climate is pressing.” She cautions that owners must fully understand how their assets are exposed to potential climate risks and impacts. “Investors need to consider both physical and transition risks to support progression towards climate-resilient net zero assets and future-proof portfolios,” says Jacques.
Resilience as a team effort
Insurance can help commercial property owners make good after damage occurs. But the most forward-looking insurers must look beyond the policy to truly partner with businesses – especially in the age of climate change. They can work with clients to limit potential damage, and to predict where and when that damage might occur. In this respect, insurers are becoming more proactive by using troves of data and years of scientific research to advise on loss prevention. Meanwhile modelling, augmented by AI, is becoming more accurate. With these tools, some insurers can take a more tailored approach to commercial property protection – looking not at a sector, but at a site.
“Our approach is unique,” says Dr Angelika Werner, Research Area Director for Natural Hazards and Climate at the global insurer FM. “We spend time with our clients and conduct detailed assessments based on our in-house hazard models, and that gives us the ability to overlay our models with exactly what’s happening at a precise local level and understand exposure levels.”
Clients are able to tap into their insurer’s extensive engineering expertise, long-standing research and mass of data in order to calculate risk and make strategic decisions covering construction, additional protection and even property location. FM’s state-of-the-art research facility in Luxembourg, called the FM Science and Technology Centre, Europe, is expected to open in 2027, with a focus on researching extreme weather and adaptive technological solutions.
Placing the research center in Europe will ease collaboration with regional academic institutions and governments, and create a productive environment for clients, prospects, colleagues and partners to receive training and learn through experiential laboratories. The center complements existing research facilities in the US and Singapore, all connected through a digital co-laboratory approach.
The insurer also provides a suite of tools to help clients predict events and outcomes. Its Climate Resilience Tracker is an interactive dashboard that gives clients a comprehensive view of their locations’ current and future exposure to extreme precipitation, wind, temperature, drought and sea level rise. The tracker also uses artificial intelligence to calculate risk and enables clients to make strategic planning decisions through actionable insights into current and future risks. That helps mitigate losses and contributes to a circle of resilience. “We partner with companies that share our belief in mitigating risk and protecting against losses before they happen,” says Werner.
Fixing the roof when the sun shines
Taking pre-emptive steps to secure exposed facilities makes a demonstrable difference. FM’s loss history shows that businesses with a strong flood emergency response plan suffer 70 per cent less damage than those without one. “You accept that you’re in a flood zone, so you work out the detail of how fast it might happen, how high the water might get and you suggest solutions based on that,” says Dr Bill Bradshaw, FM Operations Manager, London.
Bradshaw explains that, for critical plant rooms full of transformers or switch gear, it is crucial to be ready to deploy tested and certified products so that flood waters won’t enter. “Or if a site is really strategic and it’s exposed throughout, there’s the option of building a flood wall around it,” he says. “The damage potential has such a magnitude on earnings and long-term strategic direction that businesses can’t afford not to take action.”
FM allows eligible policyholders to assess climate risk exposures and provides the means to invest in protection. Since 2022 it has issued three resilience credits to eligible clients. With the first two resilience credits, which are applied as a premium offset, clients increased implementation of recommendations to protect against natural hazards such as wind, flood and wildfire, driving a potential reduction in economic impact of more than $50bn. FM’s credits make it exceptional in its sector, says Bradshaw. “Fundamentally, all the tools we provide are incredibly useful for helping clients go after risk. No one wants to be the next headline.”