SFI Senior Research Scholar
3 min read
The back-to-back destruction caused by Tropical Storm Helene in, North Carolina and Hurricane Milton in Florida puts into focus the ways in which building codes and broader housing policy impact a community’s disaster resilience. Collectively, the back-to-back hurricanes have claimed at least 43 lives and caused tens of billions of dollars in damages. Recent reports highlight decisions by North Carolina lawmakers–under pressure from the home building industry– to delay the adoption of stronger building standards, unwittingly increasing many residents’ vulnerability to catastrophic weather events like Helene. The justifications for waiting to adopt stronger standards for flood, wind, and landslide protections include reduced housing costs and increased supply of new homes. But absent stronger standards, North Carolinians face higher insurance rates and less access to federal disaster funding (e.g. for flood mitigation projects and other crucial disaster preparation)–both of which are paramount to the pursuit of climate adaptation and resilience.
By contrast, reports claim Florida’s comparatively tougher building codes have enabled greater resilience in the face of Hurricane Milton. Local officials began updating building codes in the wake of Hurricane Andrew in 1992, which caused record-breaking insurance losses, creating the worst insurance crisis in state history. These measures have made the difference between damage and total destruction in previous storms, and could mitigate the damage caused by Milton.
As the experiences in North Carolina and Florida make clear, state policymaking for housing and insurance markets can help or hinder a community’s climate resiliency. In places like North Carolina, the apparent tensions between affordability and resilience could lead to a breakdown in local insurance markets if rate filings by insurance companies do not incorporate pricing responses for increased risks, such as relaxed building codes and the expansion of building areas. Moreover, the situations in both North Carolina and Florida highlight a broader challenge: policymakers and regulators lack the tools to manage insurance markets so that they can effectively price climate risks and incentivize behavior change. This is, in part, because of the dense, unstructured nature of rate filings, whereby regulators struggle to comprehensively analyze information-rich filings that may contain tens of thousands of pages. This inability to comprehensively evaluate insurance data leaves a significant gap in understanding how well markets are adapting climate risks, specifically how insurers assess and price risk in response to changing regulations.
Our research at SFI aims to address this gap by investigating various issues arising from the inability to comprehensively analyze insurance data. In early August, we submitted a research proposal investigating how changes in Florida’s housing code impacts insurance. Looking ahead, we hope to broaden our focus to other jurisdictions. Insurance plays an essential role in climate resilience and adaptation, and our goal is to develop tools that enable a better understanding of insurance rate filings on a large scale.
We are developing this research program in collaboration with Stanford's Human-Centered Artificial Intelligence research program. Our proposal is to develop an AI-based virtual research assistant that analyzes insurance rate filings, beginning with the Florida example, in order to better understand what can be achieved. Our broader vision is to create a tool capable of analyzing complex insurance product filings to support policymakers and regulators. There will be many applications beyond housing and insurance interactions, as the ability to analyze these filings at scale is unprecedented. Based on our initial research, we expect to the analysis of these filings to generate key insights related to coverage and endorsements, such as "Ordinance and Law" and "Guaranteed Replacement Cost,” which in turn will shed new light on how building code changes affect insurance products, market stability, and regulatory decisions.
Ultimately, our research aims to identify where state building codes and insurance regulations are out of sync, potentially undermining local efforts to enhance resilience. The situation in North Carolina illustrates what can happen when regulatory efforts are fragmented rather than integrated. If building codes are updated to require elevated homes, but insurance policies do not adjust rates accordingly, homeowners may find themselves unable to afford coverage. This misalignment can lead to insurers withdrawing from the market or raising premiums unpredictably, creating a cycle that hurts both homeowners and climate adaptation efforts. More broadly, this research will improve our understanding of the source of such misalignments – be they regulatory bottlenecks or affordability measures that ignore long-term risk – and facilitate greater synergies for policymakers through the development of AI-based information tools. With better tools to analyze insurance filings, our research aims to support coordinated regulatory approaches that balance resilience, affordability, and market health. In a changing climate, these data-driven insights are not just valuable – they are essential.
