Milken Institute and Marsh Unveil Innovative Financing Models to Close $200B Climate Resilience Gap

The Milken Institute, a nonpartisan, nonprofit think tank, today released Ensuring a Better Future: Innovative Financing for Resilient Communities, a new report produced in partnership with leading global professional services firm Marsh.

The research, based on findings from a recent Financial Innovations Lab, comes at a time when communities worldwide find themselves facing a new and expensive reality of extreme weather events they cannot withstand. Across the world, disaster losses are now in excess of $200 billion a year for the last ten years. The LA Fires, with estimated damage between $76 billion and $131 billion in economic losses, was the most expensive natural disaster last year.

The report comes amid increasing weather risks across the world with devastating effects on livelihoods and communities putting pressure on future balance sheets. Globally, uninsured losses now account for more than half of total disaster losses worldwide. Rebuild and recovery are taking longer, with cascading impacts across residents, companies, and governments. More than one year after the wildfires, seven in 10 survivors of the LA Fires remain displaced from their homes.

Insurance companies have been warning about the gap between growing resilience needs and today’s inadequate levels of investment, with coverage shrinking or getting costlier in high-risk areas. Yet at-risk communities do not have the resources to invest proactively in resilience to close this protection gap and reduce their risk. The report’s authors note that the gap between actual levels of investment in resilience versus what is needed will continue to increase unless new financing structures are developed so private capital can play an important role alongside government and insurers.

Solutions that bring together the public and private sectors to fund resilience are emerging in the US and globally. The first US “resilience” cat bond designed by Marsh Securities LLC and Hannover Re for the North Carolina Insurance Underwriting Association will increase funding for greater investment in wind-resistant roofing for buildings in North Carolina and is a reflection of how insurers can collaborate with asset owners to drive proactive resilience investment.

“Resilience is an investment in our communities and our future, and the evidence shows that resilience pays for itself. IBHS FORTIFIED roof designations, for instance, started with a state-enabled grant program and today in Alabama, 80% of FORTIFIED roof homeowners installed roofs without relying on state financial help, recognizing the return on investment. The program has now expanded to 34 states,” said Caitlin MacLean, managing director of Catalytic Capital, Milken Institute. “This report gives investors, insurers, and communities solutions to move capital where it’s needed before the next disaster strikes, not after.”

Building on research, a series of off-the-record stakeholder insights, a full day Lab workshop in LA and subsequent virtual working groups, the report identifies pathways for greater policy and capital alignment in strengthening neighborhoods in our new climate reality. It outlines five models designed to attract institutional and private-sector capital: a stakeholder-driven community plan with early insurer engagement; a private-sector-led revolving loan fund; a district-backed resilience bond; a resilience innovation technology investment fund; and a state policy playbook.

“Extreme weather is reshaping the risk landscape, and resilience can no longer be viewed as optional or a cost to be avoided,” said Nick Studer, CEO, Marsh Risk. “At Marsh, we believe the future depends on smarter collaboration between the public and private sectors to mobilize capital, strengthen communities, and reduce losses before disaster strikes. We’re proud to work with the Milken Institute on a report that offers actionable solutions to help future-proof American communities in the face of growing climate risk.”

The report’s recommendations are already informing real-world planning: a version of the community plan model is under active consideration for Altadena’s rebuild.