Photo Credit: shutterstock.com/Brian Patrick Feulner
This is the second installment in a blog series from CA FWD and Insurance for Good. CA FWD and Insurance for Good have partnered to develop an actionable guidebook that outlines replicable funding and financing strategies for risk reduction and resilience. This blog summarizes the key themes coming from recent discussions by the expert workgroup convened through the partnership; special thanks Shalini Vajjhala, Executive Director, PRECollective, Zach Knight CEO and co-founder of Blue Forest and Kyra Peyton, Senior Innovation Manager, CSAA Insurance Group. Read the first blog here.
By Nuin-Tara Key, Carolyn Kousky, and Joshua Mendoza
Climate change is driving up the risks of many shocks and stresses, imposing mounting economic costs on households, businesses, and communities. The ultimate impacts of these risks are wide-ranging and the ability to manage them is spread across many entities. Risk ownership can thus be overlapping and fractured. As climate-driven risk increases, the stakes of “who owns the risk” are no longer theoretical—they are shaping the future of housing affordability, insurance markets, local budgets, and community well-being. Yet our systems for financing resilience and lowering these risks remain fragmented, designed for a different era, and often structurally incapable of matching the scale and pace of today’s climate threats.
Across sectors—insurance, housing, utilities, local governments, finance—the conversation is converging on a simple but urgent issue: risk is currently landing in the wrong places, and the mechanisms to transfer, reduce, or pool that risk are strained or breaking. The challenge now is to realign responsibility, incentives, and investment so that resilience becomes the logical—not the exceptional—investment.
1. The Missing Link: Valuing Risk Reduction
A fundamental barrier to scaling resilience investment is that avoided losses are rarely valued by the systems that determine capital flows. Most balance sheets do not track avoided future losses, making investments in lowering those risks a cost without a commensurate benefit. Many markets, from lending to housing to insurance, fail to price future climate risks. Until the financial benefits of risk mitigation can be measured, modeled, and reflected in both balance sheets and market transactions, resilience will remain underfunded. For example:
- Wildfire home-hardening: Retrofitting homes to be more wildfire-resistant, including clearing defensible space around structures, can cost tens of thousands of dollars. Even well-resourced homeowners struggle to justify investments when insurance premium reductions remain uncertain or small to nonexistent. Other benefits, such as reduced uninsured losses, improved safety, and lower community-wide economic impacts, do not generate financial flows. Right now, cost-effective mitigation is not reliably translating into financial benefit, slowing adoption.
- Flood and sea-level rise: Community leaders may intuitively understand that investments in resilience protects future property values and reduces long-term costs, but these benefits rarely appear on municipal balance sheets in ways that influence credit ratings or borrowing costs. With little financial or political reward from expending scarce resources on investments in lowering future losses, underinvestment is common.
- Extreme heat: Public health impacts from heat are well documented, yet their economic costs—healthcare savings, avoided disruptions, reduced mortality—remain largely uncounted in financing decisions. With hidden and diffuse economic benefits, there are little incentives for outlays in heat mitigation measures, such as extending and expanding access to cooling or growing the urban tree canopy.
Until resilience yields quantifiable value in insurance models, credit assessments, and municipal finance, investment will lag. This is a central challenge for expanding needed investments.
2. Bridging the Right-Hand / Left-Hand Divide
Many of the most promising resilience solutions fail to scale because project implementers and financial decision-makers speak different languages—if they speak at all. Engineers focus on physical risk, underwriters and investors focus on financial risk, budget managers focus on short-term metrics. Each set of actors operates within systems that rarely intersect. A few examples from PRE Collective of how this disconnect plays out:
- The acclaimed Hoboken resilience park, an ~$80M project that grew from a simple question—could parking help provide and pay for flood protection?—would not have emerged through standard capital budgeting alone. While public funding from municipal, county, and federal (FEMA) sources eventually supported the project, the innovation was successful due to the early focus on financing options to enable such a large-scale investment that emerged from bridging physical and financial risk perspectives.
- Affordable housing developers in Maryland, facing mold, flooding, and energy challenges, were caught in a “treadmill” of thin margins and reactive spending. A new Montgomery County Green Bank program aligned their operational needs with financing structures—through a loan product that combines features of a line of credit with a low interest loan that is priced in a way that makes loan capital more attractive than so-called “free” money (grants), demonstrating that well-designed capital tools can unlock demand and move beyond ad hoc fixes.
- In Illinois, systemic supply chain risk from water on roads and railways is producing mounting balance-sheet losses across the logistics, agriculture, and public sectors—yet no single entity has a mandate or the reach to drive comprehensive solutions. This underscores the need for new governance models that can capture shared value across many beneficiaries.
These examples reveal the power of financing models that align incentives and make resilience “investable”—not by forcing projects to fit traditional categories, but by reshaping capital tools around community needs and real risk dynamics.
3. The Limits of Relying on Insurance Capital Alone
As a market that very explicitly prices risk, many stakeholders are looking to the insurance sector as a potential source of resilience funding and financing, but structural constraints limit how far insurers can be the solution. Several realities shape this dynamic:
- Insurance regulators require high liquidity and low volatility in insurer investment portfolios–since they may need to be quickly liquidated to pay claims post-disaster making long-duration community resilience projects difficult for insurers to hold.
- Even when mitigation measures are cost-effective, insurers will not deploy their own funds for policyholder-level resilience investments since they are worried the customer could just leave for a competitor such that the insurer would not recoup the value of the investment.
- Successful examples like the California Earthquake Authority’s Brace + Bolt and North Carolina’s fortified roofs work because they are publicly-created insurance programs whose mission is loss reduction and reducing the size of the program, not growing market share.
The consensus: insurers are critical partners—but they cannot fill the investment gap alone, and mandates need to be thoughtfully designed.
4. Making Risk Ownership Shared, Not Abandoned
The old model—where local governments absorb long-term risk, the federal government provides a backstop, and insurers cover sudden losses—is breaking down. With federal funds shrinking and state budgets tightening, new forms of shared ownership are emerging:
- Public–private funding pools for nature-based infrastructure.
- Program-level financing that aggregates multiple small projects into investable portfolios.
- Resilience districts and neighborhood-scale investments.
- Cross-sector coalitions, including utilities, insurers, health systems, and CDFIs.
These models recognize that risk—and therefore responsibility—is distributed. So the financing must be, too.
Outstanding Questions Moving Forward
While the challenge is clear—until avoided losses can be measured, certified, and monetized, resilience will remain underfunded—there are still a set of key challenges that need to be overcome:
- How can we measure, model, and certify the financial value of risk reduction in ways that reliably influence insurance pricing, lending, and credit ratings?
- What governance structures best support multi-beneficiary investments where no single actor has a mandate to lead?
- What is the role of a long-term state funding mechanism that avoids reliance on volatile one-time appropriations?
- What financing tools can make resilience upgrades affordable at scale, across income levels and building types?
- How do we align incentives so that insurers, lenders, developers, and households all benefit from mitigation—without forcing any single sector to bear disproportionate costs?
These aren’t theoretical questions; they determine how communities remain insurable and economically viable in a world of increasing risk.
As CA FWD and Insurance for Good continue their partnership, one theme is clear: risk ownership must evolve, and with it, the systems that fund resilience. Getting this right will require not just new products, but new partnerships—and a shared commitment to stop treating resilience as an externality and start treating it as material.
