The resilience imperative

Physical risk has crossed a threshold from a long-dated sustainability concern to an active capital allocation and financial stability issue. This report introduces the ‘Investing in Resilience Framework’, an insurance-centric operating overlay designed to translate documented resilience investments into underwriter-recognised risk reduction. In 2024, global natural catastrophe losses reached approximately US$318 billion, with a significant 57 per cent of those losses being uninsured, resulting in a global protection gap of US$181 billion. The framework seeks to reposition insurance not as post-loss recovery but as a signal that encourages proactive resilience investment.

The emergence of a new physical risk reality

The global economy is entering a new normal where physical volatility must be treated as a core business issue. Moody’s estimates that by 2050, the global economic impact of physical risk may reach US$41.4 trillion, or a 14.5 per cent loss in gross domestic product. Insured catastrophe losses have exceeded US$100 billion for six consecutive years. Market signals of this stress are already visible; for instance, major insurers like State Farm and Allstate have paused new homeowner business in California, and multiple property insurers were declared insolvent in Florida following Hurricane Ian. Global reinsurance has also repriced sharply since 2022, leading to higher attachment points and tighter capacity.

Why resilience investment has failed to scale

Despite growing awareness, resilience investment remains fragmented due to economic asymmetry. Asset owners face immediate upfront capital costs while benefits, such as probabilistic avoided losses, remain uncertain and unquantified. Furthermore, community-level interventions often suffer from a ‘tragedy of the commons’, where benefits accrue across multiple stakeholders while costs are borne by individual actors. The framework aims to create a ‘resilience dividend’—a stream of tangible economic returns, including lower insurance premiums, reduced deductibles, improved business continuity, and enhanced asset durability.

Why existing frameworks have not solved the incentive problem

Existing frameworks like PCRAM 2.0, ASTM E3429, and FORTIFIED Commercial focus on assessment, engineering, or disclosure but do not integrate directly into underwriting operations. Four structural barriers persist: a lack of accepted forward-looking risk assessment, limited evidence of resilience measures reaching underwriters, weak translation between risk reduction and pricing, and a misalignment between multi-year investment horizons and annual insurance renewal cycles. There is currently no widely accepted mechanism to translate reductions in Average Annual Loss (AAL) into reliable insurance benefits.

The Investing in Resilience Framework

Launched as a collaboration between Carlyle and Marsh, with founding participants including Mubadala and Sampension, the initiative brings together institutional investors, insurers, and engineers. The framework is intended to be a resilience-insurance incentive overlay layered on top of existing methodologies. While PCRAM provides an institutional appraisal lens, the Investing in Resilience Framework provides the underwriting translation layer needed to convert documented resilience into actionable insurance incentives at scale.

A four-step insurance-centric operating framework

The framework operates as a closed-loop resilience incentive system through four stages. Step one involves forward-looking hazard and loss modelling at the asset level, with a strong preference for vendors aligned with the Coupled Model Intercomparison Project (CMIP). Step two consists of a vulnerability and gap assessment, suggested to align with the ASTM E3429 standard. Step three focuses on the selection and implementation of targeted resilience upgrades, such as asset hardening, requiring credible documentation and alignment with standards like FORTIFIED Commercial or ASCE 7/24. Step four involves the structured translation of these measures into potential insurance benefits, including premium credits, deductible reductions, and coverage enhancements.

Why this framework matters

The framework aims to deliver simultaneous outcomes across the financial system. For market stability, it seeks to improve risk transfer options for climate-exposed assets and protect lending markets. At the asset level, it aims to reduce long-term economic losses and enhance long-duration valuation support. While it is not intended to solve every dimension of climate adaptation—such as regional flood defence systems that require public-sector investment—it strengthens the economic case for private-sector resilience by creating a clearer connection between risk reduction and insurance value.

Conclusion: a market architecture for an era of physical risk volatility

The traditional assumption that insurance alone can absorb worsening physical risk volatility is becoming increasingly difficult to sustain. Long-term economic resilience will depend on a combination of risk reduction, adaptation, and risk-transfer solutions. By linking forward-looking risk analysis and documented resilience investment within a common operating framework, the Investing in Resilience Initiative seeks to create the incentives necessary for businesses and institutions to act before losses escalate beyond manageable levels.