Façades are a risk driven industry, and the risk Lizette McNeill wanted on the table is the one that changes the rest: not a material or a code, but the climate they are written for. She splits it in two. Gradual change, meaning hotter days and rising humidity. And extreme, event driven risk, which is where the insurance market has already moved.

Climate risk for façades is something that stands to change everything that we do.

Lizette McNeill, IXO Partners

Why the underwriters got strict

Edward Farrelly explains the pressure. Up to 2022 the global property underwriting business lost money every single year for a decade, and reinsurers' return on equity sat at or below their cost of capital. Premiums rose, but he is candid that rising premiums are not sustainable, and in some markets they are capped: California limited increases after the Los Angeles fires. The causes compound, since populations keep moving towards the most exposed places.

What insurers did instead was tighten the inputs. Catastrophe models were recalibrated, valuations demanded on a reinstatement rather than a market basis, and engineers' risk surveys made a condition, their recommendations required to be acted on. And there is now a laser focus on data: any gap in the construction, occupancy, protection and exposure information is assumed to be the worst case and priced accordingly.

You must do something. You can't just ignore it, because eventually it will appear in your balance sheet.

Edward Farrelly, Marsh

One thing that does not help is being green. A net zero or carbon neutral building earns no insurance benefit, because it does not change the asset's physical risk profile, and underwriters price physical risk rather than transition risk. Nor has the gradual half of climate change moved the market: policies run a year and investors think in five to eight, so insurers respond to losses already suffered. What is growing is demand for probable loss studies, and probable loss is rising faster than the industry appreciates.

What it took to get 11.7 per cent

Woody Chan closes the loop. In September 2023 Hong Kong recorded its highest ever hourly rainfall, a one in 500 year event, and Link Asset Management was among the worst affected owners: about 3.2 metres of flooding at one mall, eight tenants unable to trade for nearly two months. The response was a portfolio wide programme rather than a repair: around five million Hong Kong dollars on floodgates, IoT sensors, pump rooms moved out of basements, and details as small as swapping slotted drainage covers for larger holes so a partial blockage still passes water. Alongside the hardware went the unglamorous part, making sure staff know when to deploy a floodgate and what to protect first.

They did all of it without knowing whether any insurer would reward it, on the basis that protecting the asset and its tenants is simply the job. Premiums had jumped sharply after Typhoon Mangkhut in 2018, so rather than wait for a repeat, they and their broker put roughly 25 insurers in one room and set out what had been done, including scenario planning against different emissions pathways.

We got together around 25 insurers in the same room and essentially told them this is what we have done to our entire portfolio.

Woody Chan, Link Asset Management

Eighteen months after the flood the renewal came in 11.7 per cent lower, with a provisional further 7.5 per cent in year two if the loss ratio stays under 60 per cent. For scale, the Hong Kong market index at the time was moving about 3 per cent, so most of that was bought by the works rather than the cycle.

The risk the façade industry has not priced

Marius Mariano offers a corrective, admitting the industry mostly deals with the technical and had not connected its work to valuation or insurance at all. He returns to first principles: a façade exists to shield the building and its occupants, then to make the internal climate controllable, and only then to look good. What has changed is how much else it carries. Through the 1980s and early 1990s there was no sustainability requirement at all; then came low emissivity coatings, thermal insulation, integrated lighting, dynamic façades and now carbon. Each addition brings exposure: where two layers of coating was once the minimum, four is specified and may not be enough.

Unlike all those old materials where we have seen it for decades, with the new material there is also a risk. We don't know its durability.

Marius Mariano, Inhabit

He treats extreme wind as largely handled, because it is statutory, and Hong Kong's 2019 wind code is stringent enough that European architects question building to it. Rainfall and moisture he considers a design risk rather than a regulated one, and the one most often got wrong: he cites an inspection of a relatively new building by a well regarded contractor where occupants reported mould and condensation appeared through summer as well as the wet season, traced to a system never fully implemented as designed.

Where the standards are going

Grace Kwok maps the direction of travel. Five or six years ago green building certification was only beginning to ask how climate risk should be assessed; the standards now reward adaptive design and are moving to evaluating whether the strategies are adequate. Her reference point is the ASTM property resilience assessment standard published last year, which works at asset level and covers earthquake and fire alongside flooding and extreme heat. BREEAM already rewards measures against extreme weather across a building's lifespan rather than at one moment, and one North American pathway rewards designing for occupant thermal safety during a power outage, which lands squarely on the façade.

Green building standards are still voluntary in a lot of regions, but if climate adaptation and resilience become mainstream, later on it may become resilient design code.

Grace Kwok, Allied Sustainability and Environmental Consultants Group

Uptake of the resilience credits, though, sits at only around 20 to 25 per cent, held back by cost and uncertainty about alignment with local codes. Farrelly adds the argument that may move it faster than any certificate: property insurance covers damage and business interruption, and resilience is what shortens the interruption. Mitigation stops the loss; recovery speed is what the rest of the premium is about.