Interconnected Issues of Resiliency, Sustainability and Flood Insurance Reforms in Urban

Real Estate Development

Climate change presents various financial and economic risks to households, communities, and
market sectors globally (Gourevitch et al., 2023). In response, FEMA introduced Risk Rating
2.0, an updated flood insurance pricing methodology that aims to address these issues and bring
about significant changes in the real estate sector (NAR, 2023). This essay will analyse the
interrelated concerns regarding real estate developments and the application of Risk Rating 2.0.

Resilience in urban development pertains to cities' capacity to recover and adapt in response to
environmental disasters, such as floods. In today's fast-paced and often uncertain world, banks
and other financial businesses face many challenges. Their customers deal with both physical
dangers and changes that can impact them financially. These changes can lead to big problems
with money lending, buying and selling, and daily operations. Smart businesses will look closely
at these climate-related risks and make plans to handle them. Being prepared and making good
choices today is the best way to stay strong and successful in the future (UNEP, 2023). The
updated Risk Rating 2.0 directly addresses these considerations in the field of flood insurance.

FEMA introduced Risk Rating 2.0 in October 2021 as a departure from the conventional flood
insurance rating system that has been in use for the past 50 years (Collier & Cox, 2021). The
previous system of pricing homes based on flood zones has been subject to criticism and
misconceptions due to concerns about fairness and efficiency. This risk rating prioritises the
individual assessment of every home's flood risk and replacement value, and this leads to a more
enhanced transparency and accuracy in pricing.

Risk Rating 2.0 not only promotes sustainability but also improves resiliency by addressing
rating disparities and promoting equity in the flood insurance programme (Noonan & Sadiq,
2018). An important part of resiliency, as described by Bracken (2022), is investing in
technology and data. The concept is to make sure properties are not only physically appealing
but also up-to-date with the latest digital features. The goal is to provide a smooth, customized
experience for everyone.
According to CWP (2021) report, climate change increases the risk of severe weather events,
which are likely to become more common. Events like coastal storms, high tide floods, flash
floods, and extreme heat will rise in the future. It's crucial to address this, especially considering
that marginalized and low-income groups are often the most affected. Therefore, the focus
should be on creating programs that prioritize the health and well-being of every resident.
Reducing the influence on climate change and lessening its risks on people, buildings, and
infrastructure requires two main actions, namely, development of strategies for climate resilience
and adaptation and implementation of climate sustainability and mitigation strategies.

The new risk rating includes measures that helps mitigate the potential impact on homeowners,
such as an annual rate increase limit of 18 percent and the preservation of grandfathered rates.
These measures prevent homeowners from being unfairly disadvantaged during the transition to
the new rating system, thereby strengthening the principle of equity that is essential to resiliency
(Nelson et al., 2007). Besides, this new risk rating is not designed to negatively impact real estate
markets or create complications in transactions, despite certain criticisms.

References

Bracken, K. (2022). How can the real estate industry become more resilient? An expert explains.
The World Economic Forum. https://www.weforum.org/agenda/2022/11/how-can-real-
estate-become-more-resilient/

Collier, S. J., & Cox, S. (2021). Governing urban resilience: Insurance and the problematization
of climate change. Economy and Society, 50(2), 275-296.

CWP (2021). New York City Comprehensive Waterfront Plan - First Section (Climate Resiliency
and Adaptation) and Last Section (Governance). New York City Department of City
Planning. https://www.waterfrontplan.nyc/download/

Gourevitch, J. D., Kousky, C., Liao, Y., Nolte, C., Pollack, A. B., Porter, J. R., & Weill, J. A.
(2023). Unpriced climate risk and the potential consequences of overvaluation in US
housing markets. Nature Climate Change, 13(3), 250-257.

NAR (2023). FEMA Risk Rating 2.0: NAR Myth Buster. National Association of Realtors. 5pp.
Nelson, D. R., Adger, W. N., & Brown, K. (2007). Adaptation to environmental change:
contributions of a resilience framework. Annu. Rev. Environ. Resour., 32, 395-419.

Noonan, D. S., & Sadiq, A. A. A. (2018). Flood risk management: exploring the impacts of the
community rating system program on poverty and income inequality. Risk
analysis, 38(3), 489-503.

UNEP (2023). Climate Risks in the Real Estate Sector. United Nations Environment Programme
Finance Initiative.
https://www.unepfi.org/wordpress/wp-content/uploads/2023/03/Real-Estate-Sector-
RisksBriefing.pdf