Accessing Flood Information for Physical Climate RIsk Assessments in the Capital Markets.

Abstract:

Today an estimated 5 trillion dollars of property in the US are at high flood risk, but many homeowners are not aware of the flood risk they carry. A large reason is that 60% of the country has inaccurate, out-of-date, or non-existent flood risk maps, which determines the necessity and likelihood of homeowners purchasing flood insurance to secure their mortgage and assets. Official government flood maps not only determine whether insurance is required but are also used to assess risk when originating mortgage. At the same time, climate change is expected to double or triple the amount of flood damage. Based on our research and conversations, many American banks realize the reality of the poor flood data they have access to and the degree to which climate change will impact their investments and the underlying financial resilience of the mortgage markets, insurance markets, housing market, and the eventual financial resilience of homeowners themselves. However, outside of limited and arcane National Flood Insurance claims, financial institutions lack an accurate record of what exactly has flooded in the past to help determine what may flood in the future. Meanwhile, banks are investing in environmental and climate model data for somewhat uncertain purposes. Financial firms have made some acquisitions around climate data, however these data sources vary and their methodological compatibility is low. The absolute best technology to solve this problem today is directly observed flooding, rather than models or climate simulations. Cloud to Street’s platform, which provides near real-time flood information from public and commercial satellite sensors and geospatial datasets, has been used to understand and mitigate disaster and climate change risks associated with flooding in its bank’s real assets portfolio and in investable products banks offer to its clients. The platform helps financial institutions offer climate risk products, like aggregate/community based risk transfer products that protect an entire community's asset and mortgage non-payment risks. These risk transfer and mortgage products do not perpetuate unsustainable climate risk and ultimately underpin the financial resilience of the American economy.