Catastrophe Risk Models and the Management of Built Environments-at-Risk

Abstract

An actuarial tool first widely used by property re/insurers plays an increasingly important role in shaping the governance of urban futures: the catastrophe risk model. “Cat models” bring together a wide array of data on natural hazards (i.e. hurricane winds, floods), building construction and other spatial features, and financial risk. The actuarial synthesis provided by cat models informs how re/insurers determine the price, terms, and availability of insurance policies, and how they make internal financial decisions to meet their own profitability goals and solvency requirements from regulators. Following a series of expensive disasters in the 1990s, cat models have become an essential element of re/insurance market-making and expansion worldwide, but also a focal point of critique and transformation. In recent years, a growing variety of institutional actors have taken up the use of cat models to facilitate new and speculative practices of climate risk management in the built environment, such as credit rating agencies, governments, and institutional real estate investors. Through cat models, cities are rendered as portfolios of property value-at-risk to be secured through bundles of risk mitigation interventions: a well-placed neighborhood flood defense, benefit-cost-optimized asset “hardening” retrofits, new insurance techniques, or sharpened real-estate finance investment underwriting terms. In this context, cat models represent an important tool within an emergent paradigm of what may be called “property value-at-risk urbanism”—an orientation of urban climate resilience intervention towards measures that preserve existing financial and fiscal relations within the built environment against the prospects of climate devaluation and dislocation.