Large national insurer have a business need to maintain geographical coverage in parts of the United States where disaster perils were rising with frequency and intensity.  Their climate risk dashboards are comprehensive, but it give little insight into inputs beyond science.  

Climate readiness analyzes the capacity for a location to build preemptive advantage in adapting to a changing climate. It acknowledges cities of similar climate risk possess varying levels of climate readiness.

Insurers can allocate a greater share of their book to higher readiness markets, both rewarding markets making strides to adapt, and protecting capital from unnecessary exposure.

In the climate data available, when aggregating all future climate risks (2021-2050) into a blended score, Cincinnati and Indianapolis have a similar profile.  

Their readiness tells a different story.  

Cincinnati and Indianapolis are a little over 100 miles apart, but a thousand counties separate them on climate readiness. What leads to such a disparity? It can be factors such as socio-political readiness, or the velocity of legislative action at the local level to defend and create multi-use spaces that absorb disruption well. It could be economic readiness, or the profile of industry and critical infrastructure that is first to receive recovery capital and conduct business as usual most rapidly.   

Incorporating readiness gives confidence to insurers and reinsurers that a prudent range of information is being incorporated into their methodology.  

Banks and lenders are in the business of assessing prudent risk. Commercial lending and home mortgage loans are a key part of the financial system, allowing banks and lenders to earn interest from borrowers in need of financial backing for property purchases, and provide borrowers funding to fuel economic growth. Backing loans is the main source of bank income and financing mortgage market securities can be very lucrative for investors. 

A major concern for banks is what they don’t know.  

In our dataset, Los Angeles, Chicago and Houston possess the three least ‘climate-ready’ counties out of 3,143 in the country. Large, sprawling cities are expensive to maintain, hard to defend, hard to coordinate, and exposed to a high Value at Risk (VaR) impairment should a major peril strike.  

Homeowners in the L.A. area owe $423,315 on average, the fourth highest average mortgage debt in the country. Nearly a quarter of all residents (22.3%) owe debt in collections. California has received 34 major federal disaster declarations since 2011 – the highest in the nation. If a bank purchases data on everything from credit card transactions to active job listings, why not the climate readiness of their major loan book geographies? 

US municipal bond investors concerned with climate change as a credit and portfolio performance risk have had little data with which to drive allocations and monitor positions. Because few municipal borrowers default in any given year, lenders are ill-prepared for disruption.  

The pioneers of climate risk analysis in the municipal bond market have already proven three realities: population, property value and financial impairment are all correlated with climate risk. Locations with higher climate risk see lower home price appreciation relative to their peers. Locations with higher flood risk see lower population growth. Locations with higher overall climate risk see high rates of mortgage delinquency.   

Population, property and payments are the foundational pillars of municipal finance. Readiness acts like a foil to risk, digging deeper to see where accumulating ‘climate-ready' advantage is occurring, but not receiving the lower risk premium it deserves. 

As an example, three of the US municipalities that enjoy a AAA credit rating include West Palm Beach (FL), Norfolk (VA) and Charlotte (NC). The first two rank in the 97th-99th percentile for readiness, with frequent and recurring risks and difficulty coordinating plans to defend such low-lying settlements. Charlotte is in the 2nd-3rd percentile, with fewer risks and a comprehensive plan of action for the potential disruptions it might face.  

It is tempting to think climate risk is concentrated in just a few (mostly southern) corridors of the United States.   

In fact, ninety-one percent of congressional districts include a county that has received a federal disaster declaration for an extreme weather event between 2011 and 2023. These events impact both urban and rural, Democratic and Republican-held districts alike. In 2023 alone, the U.S. experienced 28 separate billion-dollar climate disasters, with more than three million people displaced. Local and state governments need to understand what preparedness looks like.   

Climate readiness, and the nationwide county ranking, acts like a bellwether for the places making plans now to absorb, accommodate and thrive alongside recurring risk. Some features are unique to a city’s geographic attributes. Others are a simple program or initiative easy to replicate.   

Eight of the top ten counties in the United States with the highest federal disaster declaration count since 2011 are in one state — Kentucky. And yet, the largest city in the state, Louisville, has been relatively untouched. Is this good fortune, or does Louisville exhibit good climate readiness for a city of its size?  

The answer is Louisville’s climate readiness is on par with a supposed ‘climate haven’ like Minneapolis, MN — showing that for governments and their efforts to adapt, the devil really is in the detail.