**Speaker 1:** Welcome to the Impact on FinTech TV. I'm your host, Jeff Guterman, down on the floor of the iconic IRA stock exchange. I'm joined this morning by Brandon Katz, the Executive Vice President of KatRisk. Brandon, thanks for joining the show today.
**Speaker 2:** Yeah, thanks for inviting me. I'm very happy to be here.
**Speaker 1:** So I always like to ask people first why they do what they do. It's how did they think of this show and why are they using their brains for a force for good? But give me a little insight into why you're in this side of the markets.
**Speaker 2:** Yeah, I absolutely love that question. I mean, a lot of times, you know, I'm a meteorologist and climatologist by training. And when I go back, sometimes people say, well, why are you in insurance? There's a good reason why I'm in insurance. I think there's a lot of people out there that are very intelligent. The climate community is doing extremely important, extremely good work.
But one of the things that we've noticed is that it doesn't always resonate with everybody until you can actually add a number to things and add a number to climate risk. I'll give you an example. We did some work on the coast looking at things like mangrove forests. We wanted to say, well, how valuable is a mangrove forest?
We actually care about that. You can run these models and say, what's the loss to a city before and after? You can see what the resources are. That storm surge, as an example, would be less impactful because it's going through all these mangroves. For me, it's really about being able to translate the science and the really great work people do, and being able to put a loss number on it.
And that really helps people care. It gives a framework for politicians and others who are looking at these things to be able to say, you know, the price of climate change. If you're a city and you're trying to decide whether to put a dam or a levee up in your town, it really helps prove the reason why you're doing that. You can say, hey, this is the value you're going to get for pennies on the dollar.
In five, ten or 20 years, especially as things like climate change happen, you're going to be getting that money back and giving back to your community and the people around you. For me, it's really about putting a price on climate change.
**Speaker 1:** So since you started with talking about the numbers and bringing that to the conversation, I just want to ask you a tough question. A lot of people out there are saying that climate science is a pseudoscience. And yet here you are working with insurance companies, and insurance companies are looking deeply at the science of climate change.
What do you say to all those people out there who say that climate science is pseudoscience?
**Speaker 2:** Oh, I love that question. And, you know, this kind of gets back to where the numbers are, and it's really where the rubber meets the road. I mean, you think about insurance and why insurance is so interesting when it comes to actually quantifying the losses from climate science. We go up against and complement the actuaries.
The really strong statistical data that they are able to leverage and use to make decisions comes from real claims history from these insurance companies, which have thousands, sometimes hundreds of thousands, sometimes millions of claims.
So they know, as an example, what's the rate of getting a flood loss in a given region. What's the rate of getting a hail loss in a region? They've got that data, and it's real data. They actually go out to the houses and take pictures of the roofs. And so we're running our models. We have to make sure that we're validating the models we're running.
We're taking all that climate science and making sure that when we get a result on the other end, it matches what the statisticians are telling us it should be. So it's not just smoke and mirrors. You're really able to go in there and say this validates against specific data, and we have to make sure that, especially in insurance, we're matching those things.
It's not just theoretical. It has to match people's actual impacts that they're observing in the market.
**Speaker 1:** Do you know any insurance companies that are looking at climate data today as a risk?
**Speaker 2:** I really don't. I mean, we work with some of the biggest insurers, brokers, reinsurance brokers, and we work with the National Flood Insurance Program through the government. We work with the German government on some things. We work with the World Bank, and everybody's looking at climate change.
And that's one of the fun things that I love about my industry. They've been looking at climate change for a long time. The insurance companies have seen the impacts of a change in climate on their books. So for them, it's not theoretical. It's real.
**Speaker 1:** So I'm going to now transfer into some of the risks we're seeing on the street, especially as we're on Wall Street right now. Let's talk about the housing market and the risks that you guys are seeing in the housing market.
**Speaker 2:** Beautiful. I think it's an interesting question. It's another one of those areas where the rubber really meets the road again. Some of the things we're looking at, as an example, when we're thinking about the mortgage industry, are the risks to credit and mortgage defaults.
When we think about homes and homeowners, for flood risk, as an example, we look at the underpriced cost of flood risk. That's looking at the mortgage industry as a whole. It's really the downstream effects of insurance. Are you insured or are you not insured?
And what effect is that going to have on your probability of having a mortgage default? When we look at things like the current climate versus the future climate, what we're seeing is a very strong picture showing that people are really underinsured or not insured at all for flood. I'll give you an example.
US homeowners, only 5 to 6% of all US homeowners actually carry flood insurance, and 90 to 95% of those are coming from the National Flood Insurance Program. The only reason they're insured is because, to get a mortgage, you are required by law to have National Flood Insurance or some sort of program that insures that risk to the homeowner.
That's been in place since the 1970s, when the National Flood Insurance Program was initiated. The problem with that is that the National Flood Insurance Program creates these flood insurance maps, and a lot of them are pretty out of date. There are some in San Francisco that haven't been updated since the 1980s.
Science has changed quite a lot since the 1980s. The fact of the matter is, they're basing whether you have to buy these insurance policies on these old maps, but they're actually pricing it based on new actuarial science, using companies like ourselves at KatRisk, where our model is powering a lot of what Risk Rating 2.0 is doing.
But it takes an act of Congress to change that. FEMA itself isn't using FEMA maps. And if you don't know what you're defending against, then you're not doing it right. The last thing I'll mention on that point is that the National Flood Insurance Program's mandatory purchase maps cover what we call the fluvial component of risk, which is when a river gets full and floods. They actually don't cover the pluvial risk outside of Florida and Louisiana.
**Speaker 1:** And pluvial is rainfall risk.
**Speaker 2:** Yes. Pluvial is kind of like flash flooding risks. You think about how the water floods on its way into the river, essentially, and Hurricane Harvey is an example. Eighty percent of the homes in the highest impacted areas had pluvial claims from the National Flood Insurance Program, and they were covered.
They weren't covered. Most people were not insured during Harvey.
**Speaker 1:** So just to get back to the numbers for a second, you said 5 to 6% of the population of the US is insured against flood risk. What amount of people in the country who have mortgages are exposed to flood risk?
**Speaker 2:** Everybody's exposed to flood risk. That's one of the fun things we always say, even if you're on top of a hill.
**Speaker 1:** Well, actually, no. I mean, just look at Asheville, North Carolina, where they thought it was a safe haven from flood risk.
**Speaker 2:** Exactly. And, you know, with Hurricane Ian, if I recollect, that went through that area, they thought they didn't have flood risk. There are two compounding factors. I would say there are things we do know that people don't realise.
A lot of people who were flooded in downtown Asheville, as an example, were actually in an NFIP floodplain. So that was a known area to flood. When we look at our maps, those are areas that are being flooded every ten years or every 30 years. So they are actually very high-frequency flooding areas where people assumed that because they hadn't seen it in their lifetimes, it wouldn't happen again.
It's a very similar issue, with tragic effects. If you think about Kerrville, in that flash flood alley, it's an area that has flooded, I think, three times in the last 30 years. They've seen it. But because it was never as bad as what they experienced this time, it happened.
When we had that tragic loss of life, again, it's people who see things and think, well, I've not seen it in my lifetime. It's not been that bad in my lifetime. But that's where these models are really important. Obviously, we're doing this for insurance companies and insurance, but it really is a signal that can be used outside of that.
We try to talk to emergency managers as well. Looking at some of these maps, we try to give them some maps for free sometimes because, obviously, we have a fiduciary responsibility as a company, but we're also trying to make sure we're being good stewards in the country.
**Speaker 1:** Right, right.
**Speaker 1:** So I want to talk a little bit about the risk that you're seeing, because what a lot of naysayers or climate sceptics are saying is that it's not that the climate is getting any worse or that the climate is changing. It's that we're building in places where we shouldn't be building. And you're someone who looks at maps and studies maps.
So again, you're saying there are examples from 30 years ago where we saw storms and people are putting camps up there. How much of this, from your perspective, and you don't have to give hard percentages, is building in the wrong places or the cost of rebuilding getting a lot more expensive because of inflation? First, is the climate actually changing?
**Speaker 2:** Yeah, it's a really interesting point. I mean, you can use the counterexample to climate. Think about severe convective storms, so hail, straight-line wind and tornadoes. We had, in 2025, a $50 to $70 billion global loss. That year was the worst loss of any peril in the world. People don't think about it that much, to be honest.
For insurers and reinsurers, it's typically part of their placements, but it's a very small part of their placements. Usually, hurricane wind and earthquake are really what drive that. But there is death by a thousand paper cuts. These perils really matter. So then the question becomes, well, is that climate risk? Is that going to get worse with climate?
Actually, the interesting answer to that one is no. The issue we're seeing with hail, as an example, is an expanding geography. You're expanding the surface area from which you can get losses. Think about Atlanta, as an example.
Look at Atlanta in the 1940s versus Atlanta today. Urban sprawl is the name of the game there. It's gotten bigger and bigger and bigger. So there are just more areas where hail can fall. There are some perils that are more affected because the vulnerability of building stock is changing. But even within that, there's now a paper that just came out about a year and a half ago tying derechos, or straight-line wind events and very high wind events, to increasing temperatures associated with climate change.
So I'd say this is a little less impacted by climate change, but there is still a climate signal. Everything we're talking about is bad today, and sometimes people don't realise that it's only going to get worse with climate change.
**Speaker 1:** So we've talked about the housing market. We've kind of covered that. Where do you see flood risk headed geographically?
**Speaker 2:** We had a study that we worked on with the Society of Actuaries and one of our partners, Milliman. We wanted to look at the risk. We try not to pretend that we know more than all the climate scientists out there. So whenever we're looking at climate change, we're using information from the IPCC, the Intergovernmental Panel on Climate Change.
We're looking at the RCP and SSP scenarios from the last two reports. With that model, we wanted to say, where is the risk for storm surge and hurricanes today, and where is it going to be in the year 2050 for a medium and a worst-case scenario? What's interesting is that if you look at surge risks today, it's really New Orleans and Miami-Dade. That's where the risk is right now.
But as sea levels rise, the surge risk is travelling north. We see the largest changes by the year 2050 happening from North Carolina and really being centred in New York City, right here where we're sitting down the street.
The reason for that is if you think about surge risk, it starts from the water. As sea levels rise, the base from which that starts has changed. Those Category 0 and Category 1 hurricanes are going to start overtopping some of the flood defences. Now, you and I both know New York has done a lot post-Hurricane Sandy.
They're building these giant flood walls that are great, about 12 to 15 feet high. In some areas, like New York City, they might have some resilience. But in a lot of other areas, we see Long Island and Connecticut having a huge increase in their losses due to hurricane risk. Everyone says Miami-Dade is the area where surge matters.
But in the next handful of years, it's going to be shifting more and more north as places that never saw these risks in the past, and are not prepared or are underprepared for them, experience increased impacts.
**Speaker 1:** When you're talking about this, we're headed into, or now in the midst of, the worst El Niño that has been on historic record. California has already declared a state of emergency because of the potential rainfall they're expecting. Is climate change playing a part in all of this?
**Speaker 2:** It's absolutely important to understand this. Whether we have more or fewer El Niño years is still a little bit up for debate, but I would say it's exacerbating the effects of that. This is where things like correlated models matter. We won't get too deep into the mathematics, but it really matters how you correlate these things together.
If you think about the "Godzilla El Niño," as they're calling it, that's coming in, the flooding is going to be bad. The flooding is going to cause losses. But what's interesting is what happens next year. When you have a lot of rain, what does that actually do? It adds a lot of fuel for wildfires.
Now the plants are growing. So next year we have a lot more fuel than we would have had before. And because of climate change, we have fewer rainy days, temperatures are higher, humidity is lower, and therefore your fire weather is worse.
**Speaker 1:** They call it the whipsaw effect, right?
**Speaker 2:** Exactly.
**Speaker 1:** You create a lot of brush from the rainfall. Maybe you get a dry season, and that brush is like a tinderbox.
**Speaker 2:** Precisely. And that's one positive thing I'll say about California. In the last two or three years, they actually changed the law to allow catastrophe models, such as models we develop, to be used for underwriting decisions. For the longest time, people were only allowed to use the last 20 to 30 years of claims history.
That's all people were allowed to use for pricing flood and fire insurance risk, which is concerning when we think about climate change. The past does not predict the future. One of the positive things about California is that they have now changed their laws to allow these climate-aware and correlation-aware models, so they can get a little more intelligence and price the risk appropriately in a state like California.
**Speaker 1:** So what's the size of this mispricing, and who's holding the risk?
**Speaker 2:** Yeah, I think that's a really important question. The size of the mispricing can be in the $500 to $600 billion range for flood especially. We'll concentrate on flood because that's the one I'm a bit more aware of. You have the risk of credit defaults being around 40%, as an example, under future climate change.
When you think about who's holding that risk, every mortgage represents a family. It's people who are being affected, and that matters incredibly. It's also going up the chain because, at the end of the day, when you think about all these mortgages, you think about a 2008 or 2009 mortgage crisis-type event happening.
If we're not pricing flood risk appropriately, and people aren't getting insured and transferring that risk out of their own homeowners' pockets, it has a cumulative effect where it's going to bubble up. I was thinking about this as what I view as a sort of climate bubble that we're all sitting on from a mortgage perspective. Is there going to come a point where the bubble gets too big and too heavy, and we pop that bubble? There could be a correction in the market similar to post-2008 and 2009, but due to climate risk.
We can have all these people losing their homes, and that risk will bubble up to the credit agencies and the banks. If we're not planning for it now and managing it, rather than allowing it to be a slow, gradual change, we're going to hit a breaking point at some point. We'll see something similar to the financial crisis, and the markets will adjust because the risk isn't going anywhere.
But I would rather manage that proactively as opposed to reactively.
**Speaker 1:** What happens to that risk? Is it transferred when someone sells a home that was previously flooded?
**Speaker 2:** Yeah, I think that's an important point. There are a lot of states that have no requirement to notify people whether a home has had a previous flood risk. I like to use Florida as an example. About 10% of all homes sold every year have actually had a previous flood risk.
That is not noted, and people are buying homes without that knowledge right now. I'm not saying everybody has to buy a flood insurance policy. Even if you're in a high-risk area, that should be up to the homeowner's choice. But if you're not being told the risk appropriately, then you can't make a good decision based on actual information.
I think that's one of the issues. You see a lot of homes being sold that have had previous flood risks, and people aren't being informed. It's also an equity issue. We see roughly twice the number of homes below the poverty line having had previous flood issues, and those areas have an outsized risk profile in many cases.
One of the studies we did on the cost of flood risk showed that it's also an equity issue. It's not that every house is equally likely to be impacted. Eighty percent of the losses come from 10 to 20% of the homes in the United States for flood risk.
**Speaker 1:** All right. What needs to change? It's a huge problem. We see it, we're experiencing it, and it seems to be getting worse. What needs to change?
**Speaker 2:** I think a lot of it is around education. As I mentioned, if you at least know that you could be impacted by flood risk, we have maps and we know the areas that are higher or lower risk. That didn't exist before. The National Flood Insurance Program and the government have those maps from us and many others.
**Speaker 1:** But we saw disclosures happen in the real estate market, and then we saw those disclosures disappear.
**Speaker 2:** Yes. Some of our colleagues in the industry have been the targets of various lawsuits. At the risk of getting into too much detail, there are a lot of very powerful lobbying organisations that would rather not have some of that information disclosed. We've seen disclosure go out, and we've seen disclosure come back in.
That's where I think the government needs to play a part in disclosure. The NAIC worked on the climate risk disclosure framework that went through the SEC. In the last handful of years, they've actually dropped that legislation from the SEC. But I suspect that in the next handful of years, individual states like California, New York and Illinois will be talking about adopting that framework.
That framework is essentially the same as what's already being done in the United Kingdom through the PRA and TCFD, which is a climate risk disclosure framework.
Essentially, if you have a building, you have to say, this is what my loss is today, and this is what my loss is expected to be in 2050. They want to make sure that you're aware. It's really this awareness that we need to be promoting in the industry and making sure that the prices are correctly reflecting the risk. It's in everybody's interest, especially large financial institutions, to know what the risk is, price it in and make sure they're ready for it.
Otherwise, as we said, the bubble is going to pop. We're going to fall through, and it's going to come out one way or the other.
**Speaker 1:** Well, maybe we could get Spielberg to do a second Disclosure Day movie, since the first one didn't work out so well. This could be based on the mortgage market and the risks we're seeing in the marketplace.
**Speaker 2:** I'd go see it, so they'd have two ticket sales, you and me.
**Speaker 1:** Brandon, thanks so much for being on the show today. Really enjoyed it. The name of your company again is KatRisk, and you're doing God's work out there. So thank you so much.
**Speaker 2:** Thank you very much. I really appreciate getting to come and talk with you. And, yeah, we appreciate your time. Thank you.
**Speaker 1:** Thank you. That's it for the Impact on FinTech TV. I'm your host, Jeff Guterman. And until next time.
