Insurance Firms Back Effort to Storm-Proof Homes

Researchers have built a storm-testing house inside this hangar in Ontario, Canada i i

Researchers have built a storm-testing house inside this hangar in Ontario, Canada, part of a project to test how structures withstand powerful winds. hide caption

itoggle caption
Researchers have built a storm-testing house inside this hangar in Ontario, Canada

Researchers have built a storm-testing house inside this hangar in Ontario, Canada, part of a project to test how structures withstand powerful winds.

After building this test house in a hangar in Canada, researchers subjected it to winds of 200mph. i i

After building this test house in a hangar in Canada, researchers subjected it to winds of up to 200 mph. hide caption

itoggle caption
After building this test house in a hangar in Canada, researchers subjected it to winds of 200mph.

After building this test house in a hangar in Canada, researchers subjected it to winds of up to 200 mph.

Two years ago, the insurance industry had its most expensive year ever. Some $83 billion in claims were received, largely because of Katrina and other hurricanes in the United States. Now the industry is sponsoring research into houses that can better withstand storm damage.

With global climate changes threatening to bring a surge in powerful storms and other disasters, insurance companies are trying to find a solution — other than refusing to issue policies in some areas, or raising property-insurance premiums.

One new approach is on display in a dimly lit hangar on the edge of a small airport. Inside it, University of Western Ontario researchers have built what amounts to an enormous research lab — a two-story brick house, complete with sliding glass doors and sheetrock walls.

In the hangar, engineering professor Greg Kopp and his colleagues study storm damage, using vacuum hoses attached to an enormous fan to try to pull the house's roof apart. He wants to see how well it stands up to hurricane-force winds. The hose writhes and chugs as the pressure builds.

Nearby, one of Kopp's graduate students measures the building. Kopp says she's building an air cannon to fire two-by-fours at the walls.

When you have an intense storm, things break," Kopp says. "And when those things break, they become missiles — literally. Your neighbor loses his roof, you could have his sheeting and his two-by-fours from his roof hitting your house. In Hurricane Andrew, the estimate was between 25 and 40 percent of the damage was from debris hitting other structures. And so it's a really significant issue."

Harder to Predict Risk

This project was funded in part by the Canadian insurance industry, which wants to find ways to make houses stand up to big storms better. Kopp says insurance companies have become more supportive of research like his.

"They're seeing the major storms that hit Florida in 2004 and 2005," she says, "and they're realizing something needs to be done with this. And climate change, I think, can only make that worse."

There's no doubt that the insurance industry has a great deal at stake in the climate change debate. Insurers make money by trying to guess the likelihood of major disasters, and how much damage they could do. Then they set premiums accordingly. Greg Larkin, an analyst at Innovest Strategic Advisers, says climate change makes it harder to quantify risk.

"They're not able to do that anymore," Larkin says. "There's an unprecedented amount of carbon in the atmosphere, and everything is changing, and the weather is doing things in a way for which there is no historical precedent."

When Coverage Is Cut Back

When claims soar, companies can either raise premiums, or cut back coverage —or both.

After the storms of 2005, some companies fled high-risk markets altogether.

A mobile made of seashells hangs over Richard and Patricia Ray's front porch in Belmar, N.J. The Rays' house is just five blocks from the Atlantic Ocean. Last year, AIG sent the couple a letter telling them their property insurance policy wouldn't be renewed, even though they have never filed a claim. Richard Ray says the company gave just one reason for its decision.

"It was within five miles of ocean — that was the only reason for the letter," he says.

"I thought it was terrible," he adds. "I didn't want to change policies. I wasn't complaining about the money — they raised me every year, I go along with that. But then you start now going to another company and saying you've already been canceled, you're not starting out so good."

The Rays tried two other insurance companies before getting coverage from State Farm.

U.S. Industry Slow to React

Some big insurance companies are also trying to persuade federal and state governments to set up risk pools that would subsidize them when catastrophic claims really pile up. But most U.S. insurance companies have been slow to talk about climate change.

Franklin Nutter, president of the Reinsurance Association of America, says their reluctance to take a stand on the issue may simply be ideological.

"European companies generally seem to have more synergy with the environmental community over a variety of issues," Nutter says. "In the United States, there's a history, unfortunately, of... almost an antagonism toward the environmental community."

Because of that antagonism, Nutter says, some companies could end up ill-prepared to deal with climate change. They could also miss out on the opportunities it presents.

The Upside of Climate Change

Nutter says some firms see a new market in alternative energy companies, which are likely to prosper as the world tries to reduce carbon emissions. Andrew Castaldi, senior vice president of the European company Swiss Re, says there's a new reality facing the insurance industry.

We have increased exposure. We're going to get increased hazards. We should start doing something about it," Castaldi says. "First step is, try to reduce CO2 emissions. Second step might be, let's build a little more sustainable something that might withstand what the future might bring us."

One of the new realities is that the politics of this issue are changing. More and more voters say they're worried about climate change. And that could lead to changes in any number of areas, from local building codes to federal laws about waterfront development.

The changes will affect wide swaths of business, whether or not climate change becomes the threat that many scientists expect.

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