In this episode, host Ben Perfitt speaks with Stephanie Race, CEO of Earth Analytics Group (EAG), about how risk reduction through property hardening and nature-based solutions can lower exposure, reduce risk and unlock capacity in difficult-to-insure property markets such as California wildfire. Stephanie explains how EAG is delivering solutions to improve resilience across regions by reducing expected losses through targeted adaptation projects, which lower physical vulnerability, support insurability and improve the economics of risk transfer.
They also discuss how EAG is developing innovative structures with real estate investors and property developers that leverage alternative risk finance, such as captives and catastrophe bonds, that finance adaptation and resilience, expanding the window of insurability, making coverage available and affordable in post disaster communities. They discuss how with the right mix of adaptation measures, clearer appraisal standards, and market incentives that reward risk reduction, further improvement can be supported in global insurance coverage even as exposure rises.
Learn more about Earth Analytics Group here
Read the full transcript:
Ben (00:00)
Hello and welcome to the Sustainable Finance Guernsey podcast. I'm your host, Ben Perfitt.
In this series, we speak to global leaders shaping the future of green and sustainable finance, drawing on Guernsey's internationally recognised expertise in the sector. Today, I'm delighted to be joined by Stephanie Race, founder and CEO at Earth Analytics Group. Earth Analytics Group is an environmental data and analytics firm that uses science and technology to assess climate and nature related risks, helping businesses and financial institutions understand price and manage their exposure.
In this episode, we'll be exploring how these risks are reshaping insurance and financial markets and how innovation, resilience and new partnerships can help build more sustainable solutions.
Stephanie. So welcome to the podcast.
Stephanie Race (00:47)
Hi, Ben, nice to see you.
Ben (00:49)
Yeah, great to you too. Perhaps could you start telling us a little bit about your background and what led you into the climate and nature space?
Stephanie Race (01:02)
I'm Stephanie Race. I'm a serial entrepreneur and the founder and CEO of Earth Analytics Group, which is a company I founded in Silicon Valley in 2009. This is my fourth company in 28 years. I've had two public exits to Microsoft and Accenture. And I've been commercializing science and technology to the benefit of people on the planet now for decades. So what led me to this moment?
If I rewind the clock all the way back to the mid 90s, when I was an executive at Oracle, I met some retired NASA scientists in a parking lot in Orlando, Florida, and discovered the world of satellite remote sensing. And left my job at Oracle in the late 90s, moved to Silicon Valley full time, did a couple of startups, exited both of those to public companies, and by 2009 decided to start this business. Initially, we're focused on developing an index for the environmental footprint of food production to solve
the challenges with the transparency of all products that come from land and water resources, starting with the food and beverage industry to develop an index for the environmental footprint of food production. And that quickly evolved to a business that's monitoring pollution in the environment. And now we're chasing stranded assets, pricing mispriced risk of property and real estate that has been undervalued and
largely due to the fact that future climate risk hasn't been priced into property and infrastructure valuations. And now that we see that we have real material losses, given extreme weather events like the fires in Los Angeles, this is impacting the insurance market. So we're now not just selling data to the insurance industry, but structuring risk capital on behalf of our clients to get ahead of these issues.
Ben (02:54)
Thanks, Stephanie. And I opened the news this morning and I see the fires in LA spreading. I just wonder where is your focus at the moment in terms of geography?
Stephanie Race (03:08)
Well, let's just break down the question. think the focus of the company, we're a global organisation based in the UK and in the US. So we started in California. We were brought to the UK in 2012 by some of our large customers in order to have better geographic reach. I would say about 50% of our business continues to carry on in the food and farming sector, focused on food and water security and something we call natural capital which is aligning nature services to financial markets at scale. This is things like monitoring pollution and streams and rivers, as well as assessing the vulnerability of landscapes to future fire risk. So that work is continuing globally. So the other 50 % of our business is really focused on something we call ecosystem restoration, which in English terms would be protecting the environment to avoid future loss and damage due to these extreme weather events. So the second part of your question, where am I spending my time? Split between California and the UK. However, we have global clients and ⁓ quite a bit of business in the global South and in Brazil in Southeast Asia with the rest of my team. The fires in LA, this fire season is extending. It's getting to be a 12 month out of the year phenomenon as opposed to traditionally fires have happened down the West coast of North America from, I would call it September through December. And now we're seeing fires 12 months out of the year. So in 2017, in the middle of one of our water quality monitoring projects in Northern California, the fires broke out. So since 2017 to the present, it's been the last nine years we've been actively involved all over the state of California doing fuel risk reduction and erosion control projects, which are essentially preventative measures to prevent the worst effects of future fires and future post-fire floods from impacting property infrastructure as well as the supply chains, mostly of agricultural producers on landscape. So I think the news is always catching up to our work. Somebody told me you're so far ahead of things. It's like, okay, so maybe we were 10 or 15 years early. But we've been doing the work and, you know, living in the UK part time when I'm here, there's always, you know, kind of shock and awe saying, I can't believe this is really happening. Is it coming to the UK anytime soon? I think in the UK, we see a lot of heat and a lot of water in the system, both drought and then excess flooding. So
Ben (05:30)
Yeah.
Stephanie Race (05:54)
And all of that's down to the disturbance of the water cycle. And this is happening in California. And the biophysics are happening faster there than in most places, at least in the Western world. So to answer your question on where I'm spending my time, it's equally split between the UK and California right now. And a large part of that is down to the fact that we've been asked to set up an insurance business on behalf of our clients in Southern California due to these losses.
The losses were more than, the insured losses were about 40 billion, depending upon who you listen to, but the uninsured losses were about 235 billion. So is that over a 90 % protection gap? And the protection gap is largely down to the fact that the capacity, i.e. the insurance carriers, a number of them had pulled out of the market before these fires occurred.
Ben (06:28)
Okay.
Stephanie Race (06:47)
So we have a structural challenge in California with insurance in general, which is why we're getting involved in structuring risk capital on behalf of clients to get ahead of these issues. We really need to finance prevention to reduce risk as opposed to just transfer risk, which is traditionally how the insurance industry has been set up and designed. But yes, I'm straddling both geographies with a team of 63 people. So, you know, it continues to be interesting stuff.
Ben (07:17)
Yeah, but yeah, you have a lot going on Stephanie. I should pick you up on the what you mentioned there in terms of the insurance pulling out before the fires. I'm just curious about what's going on now as you see it today.
Stephanie Race (07:38)
There's a lot happening. think if we roll the clock back 16 months ago when these fires in Altadena and the Pacific Palisades in Malibu kicked off in the first week of January of 2025, the state of the market in terms of understanding the value of something we call home hardening or zone zero, which has to do with protecting properties from fires was not well understood and most of the construction in that area of the world is designed to a set of building codes that are outdated. So I think a lot of this goes down to land use, change, the maintenance of landscapes, as well as how the built environment is put together and where people are living. And a lot of those challenges don't necessarily play into any one industry. It's about people in local government. And a lot of this is down to the property tax revenue. I made a video about my thoughts on the fires right after they happened. And I said, you know, California is addicted to property tax revenue. They'll allow people to build anywhere. We see the same thing in the UK with people building in floodplains. But in California, I think that the challenge there has much to do with land use change and zoning and building codes as it does climate change. Essentially what you have is you have something called the Santa Ana winds which blow east to west. So you have something called fire weather, which is hot, dry conditions. And if you have a lot of vegetation on the landscape in Southern California, it's something called Chaparral, which is like a sage brush type of vegetation. If you have a lot of dry vegetation, which is fuel, you have fire weather, all you need is an ignition. It could come from a human source. In this case of the Pacific Palaces, it was started by arson. In the case of the Altadena fire, I think that the word on the street is it was caused by power lines. There's a big lawsuit against power companies. So the ignition point is, I think 95 % of the cases are down to humans and the other 5 % are largely down to lightning strikes. So you have these conditions that create vulnerability of a given geography to fire in California, the different regions in California have different, let's say this, levels of vulnerability based upon fire weather, as well as fuel load. But being able to predict the fires is only part of this. I we have to get the landscape ready while in advance of the fires actually coming about in order to reduce the risk.
So back to your question about how much of this is a surprise and what's going on with the insurance industry. think the insurance industry was smart enough to know that their models traditionally have been backward looking and it wasn't until recently that they were in the state of California allowed to use forward-looking climate models to forecast future risk and then price according to that future risk.
And in doing so, they looked at the regulatory cap, which has been 7 % per annum is the regulatory cap on admitted lines for residential and commercial real estate. So the capacity, i.e. the carriers, are only allowed to raise rates on a 7 % per annum basis. And they looked at the calculus and said, in some cases, you're going to have to raise rates anywhere between 25 to 40%.
So it's going to take us four to five years in order to turn a profit. So we've got to leave. And that's why one left and then the next left. And then you had a whole group of carriers leave the state of California. And they sent these letters to the consumers saying, we're not going to renew your policy. A lot of them didn't explain why they weren't going to renew the policies. for financial, reasons for it's basically a business decision that they made to leave the area. Interestingly, it happened within the six months prior to this actual fire and within the six weeks prior to the fire, even more carriers had pulled out. They had market and scientific intelligence that perhaps they weren't sharing with the general public, but they, as they said, got out of Dodge, they left and the property owners were stuck.
It's not to say they didn't take it on the chin. mean, we had one large reinsurer and one of the carriers, you know, held much of that burden in terms of the 40 billion of insured losses that have actually taken place. So from a legislation point of view, there's something called the sustainable insurance strategy with the California Department of Insurance, which came into effect in 2023. And then there was reform in 2024 and 2025. However, the laws that tied to the California Department of Insurance's Sustainable Insurance Strategy hadn't mandated that carriers give consumers a break, like a discount on their premium if they were to harden their home. And that continues to go around in a circle. There was a half a dozen bills that just went through the state legislature on insurance reform. the number one, thing that happened after the fires of the insurance industry is this, this issue with certain insurance companies are read it in the press state farm and farmers not paying out claims. So, the rebuild is really hung up over claims not being paid by a couple of the big carriers. So, first things first, they have to, to get the financial house in order relative to paying out claims. And then we need to figure out what the next regime is for property insurance in all of California, not just in the post wildfire burn scars where you basically have to redevelop entire communities. was 16,000 structures lost. It was the second largest structure lost 22 deaths. but massive amounts of wealth and a lot of very wealthy people there that essentially became homeless. And you don't see that featuring in the UK press. It was something like one hundred and fifteen thousand people were deployed displace. it's really, it's caused a giant kerfuffle. I don't know what the right word is for it, but getting the insurance industry to really dig in, understand and participate as an equal partner in this process of insurance reform is something that isn't just a nice to have, but it's a must have in terms of a thriving insurance ⁓ market. And really understanding what's to come in other geographies around the world. This is not just a one-off occurrence.
Ben (14:49)
Thanks, Stephanie. And I've heard you before talk about ⁓ turning resilience into a measurable asset. And I guess the challenge you've spoken about is insurance companies either pulling back ⁓ or reducing the cover or taking away cover completely because they don't see it as profitable business. I wonder if you can explain to me ⁓ when you talk about turning resilience into a measurable asset what that means for you.
Stephanie Race (15:14)
So if we just think about traditional insurance products, we're actually talking about a contingent liability, a promise to pay a claim. That's essentially what insurance is. We're selling ⁓ the promise to pay a claim. So that is a contingent liability for all of you accounting nerds out there.
So we need to have, you know, a commensurate asset for every liability. So in the case of wildfire, we're talking about risk reduction. We can talk about risk reduction in flooding. Like what are the activities that can take place either on or in an individual property or the adjacent areas to a property in a neighborhood or in the adjacent geography, either in a catchment or in something we call the wildland urban interface, which is where homes are built very close to the natural environment or even in the wild land. So there's a couple of different concepts here. The first is spatial risk. So every peril has got a different spatial risk in terms of where the event happens versus where the risk originates. So we may understand vulnerability, but we don't have a real good handle on exposure as an industry.
And so that's essentially what Earth Analytics Group is doing is shining a spotlight on how to quantify exposure all the way down to the property level. Exposure, not just due to one single peril, but multiple perils, ⁓ which is another concept that runs counter to how insurance is currently written and thought about. So back to this resilience and what is resilience? People talk about mitigation, not mitigation from the perspective of reducing greenhouse gas emissions in the atmosphere. We're talking about mitigation to avoid loss and damage. What is it that we need to do to a property to make sure that it's safe from future losses? So this might be putting home hardening in place with non-combustible materials and having a roof, a fortified roof.
And there are building standards that are coming into effect by organisations like Insurance for Building and Home Safety. It's called the IBHS. It's a voluntary certification standard. There are several at the international level. But there's this whole initiative globally right now on something they call, they're calling it mitigation. But essentially what it is, is it's activities to reduce vulnerability to an asset.
And that is essentially the resilience. So what resilience measures do we need to put in place in order to reduce the risk to avoid loss and damage? So when we talk about resilience as an asset, that insurance policy is a contingent liability and what we actually do to the property to avoid the loss and damage, i.e. the home hardening is the asset in this case. And if we look at spatial risk, we're talking about what do we need to do to the whole neighborhood to prevent the fire from coming into the neighborhood and making all of the adjacent structures fuel for the fire. So unlike prior fires that you may have seen, not just in the United States, but around the world, this Los Angeles fire was something called a conflagration, which basically means a fire enters a geography and then the initial structures that burn become fuel for the fire and then it takes off. So when you have an urban fire, like a conflagration, you really need to do hardening at the neighborhood scale, not just each individual property at a time. And I think the challenge with the insurance industry is they're always writing risk. want to cherry pick which properties within a neighborhood should we insure based upon the fact that they have a lower likelihood of actually being lost in a fire. there's mitigation at multiple levels. So we have risk and then we have risk mitigation. So the risk is the contingent liability, ⁓ i.e the insurance and the risk mitigation is the asset to counter that liability. Hence something we're terming the resilience ledger, which is how assets tie to liabilities. So in the future, we hope to see that every insurance policy has an element of prevention included in the pricing. People will only behave differently if they know that they can avoid loss and damage. If someone knows they're going to lose money or they're going to lose their home or they're going to lose their equity, or the price of a cup of coffee is going to go up five X, then maybe they'll start to pay attention and behave differently. So it's been 17 years of hard work to come to the conclusion that the fastest way to scale our capability and solve problems is through resilience as an asset.
Ben (20:02)
You've touched on this point, but when you identify, so you identify the preventative measures to put in place to avert or at least help mitigate fires, floods, etc, who then pays for that mitigation on the ground? Is that a local level? Is it government level? Is it the insurance? Yeah, can you explain to me who's paying for that mitigation? Okay.
Stephanie Race (20:26)
So all of the above, all of the above. And so this is the question is, well, who pays for the mitigation? you know, if I reflect upon the event where I met you recently in London, this is a big discussion point. So who pays for the mitigation? Traditionally, it's been the public sector. It's been local city governments, municipal governments on the ground financing flood defenses or fuel risk reduction for fire risk or vegetation management. In the case of California, we've got a complex situation. 57 % of the land in California is owned by the federal government. So not very many people know that, not even people from California. Then you have state governance of land and then you have private land. So when you have an issue, you know, the event doesn't care about the jurisdiction or the governance of those land and water resources on the landscape. So you have to
Ben (21:05)
Didn't know that.
Stephanie Race (21:21)
coordinate the activities across multiple public sector entities. And then you have who really cares are the people that have money on the ground. Somebody owns the commercial real estate for the shopping malls in the local area, a big oil and gas company that's got infrastructure at risk, farming companies that rely on agricultural supply chains that should be damaged by these events. So it's the usual suspects in terms of a combination of those parties. Now, if you look at traditionally who's been engaged in financing resilience beyond the public sector, it's usually utilities and the insurance industry has been on the receiving end of these losses. And so the opportunity is for the insurance industry to take its premiums on the other side of its balance sheet and start to invest in resilience as an asset class because it could lower its own exposure on its underwriting book of business.
So we're in discussions with a number of carriers as well as reinsurance companies about doing just that. As well as the pension funds that have an interest in keeping the community in place. Because if you don't do this correctly, what happens is people can't rebuild and you lose the tax base and then everyone leaves and you have climate refugees. So there's two different scenarios. There's build back better and there's everyone gets up and moves to Wisconsin.
And we're starting to see that in the United States. I know it sounds rather extreme, but there are steps to prevent these things from happening. And we're working in LA with people on the ground in local government and community activism groups, as well as utilities and now the insurance industry, not just locally, but the insurance markets in general need to how do I say this, step up? Because if you look at where's all the money in the world, it's in the insurance markets. I if I go back in the capital markets, where does this money originate and how does it work? I spent the last 18 months walking the streets of London, figuring it out, which has been very ambitious. And why are we doing that? We have clients that are big property developers going back into places like the Pacific Palisades to rebuild the place. And they haven't thought through homeowners insurance. They need that in their capital stack. So it's not just about our company establishing a managing general agent and bringing policy capacity back into the market through retail brokers. We are doing that, but there's bigger opportunities on the horizon for alternative risk capital and bringing the capacity back into the market that's priced accordingly. So priced according to the risk reduction, the resilience and getting those economics back baked into the cost of rebuilding a community.
Ben (24:19)
are there specific partnerships that you can talk about that are working for you at the moment?
Stephanie Race (24:27)
I was just at Lloyd's last night giving a presentation and I was back there in March of this year giving a talk to 700 people. So I think a lot of this is about education and understanding we can use these traditional structures for not just using cat bonds as part of a captive and
Ben (24:29)
Okay.
Stephanie Race (24:52)
getting all fancy with ILS, but even using traditional reinsurance with a front-end carrier and a capital stack to bring property insurance back into a geography for say 1,200 homes. So we have several clients now that we're working with from the insurance markets to structure risk capital differently to bring capacity back into California. And it is innovative. We ran this by a whole host of different insurance executives at Lloyd's last night.
And I have a very long day ahead of me in terms of follow up. So on specific partnerships, I would say since February of 2025, we've got three of the four global brokers engaged in various ways in bringing capacity back into Southern California and devising products for other geographies. This is not just fire risk for one geography, although that does feature in our solutions that we also have post fire flooding and pollution. So we do monitor pollution in the environment. So we flew our science plane through the smoke plume during the fire. So we know all about the atmospheric chemistry of the fires and where all of the heavy metals deposited themselves onto land and water resources. And we've been on the ground since the fire is doing remediation for individual property owners. What are the implications of that? The insurance industry, we need to layer in pollution liability into these property insurance policies in order to have a fit for purpose solution. And that's new thinking to the people that we've been dealing with in the London market to have liability insurance coupled with a multi-parole property insurance ⁓ capital stack for real estate development.
And I think what we'll see when we go to Miami and to New York City where we're also engaging on resilience is it's a different set of perils, but the same basic template in terms of coming up with alternative risk finance for disaster risk reduction either before, during or after an event, because we're going to continue to see extreme weather events happen in predictable geographies, whether it's hurricanes, storm surge, flooding and land subsidence in Miami, or storms and flooding in the New York metro area, or severe convective storms in the Midwest or flooding in the UK. I can just list them all. So there's a different way to bring the existing insurance capabilities to market to address these scenarios. That's what we're actively engaged into.
Ben (27:48)
And another buzzword in the insurance market, as you know, is parametric triggers.
Stephanie Race (27:52)
we have been doing parametric insurance now since 2014, initially to support agricultural supply chains that are at risk of drought, flooding, pests and disease. So we have early warning networks to predict a drought. And in agricultural supply chain, we've also developed molecular diagnostics that sequence the DNA of the air to identify where a disease is present and to prevent the disease from affecting agricultural production of tea or coffee. So we've been doing that kind of work for years. I think that the beauty with parametric is it pays out based upon a biophysical trigger. The real issue is it's streamlining the payment of the claims and getting people on their feet faster. It doesn't necessarily prevent the loss from happening in the first instance. So no, it's not actually a great solution for flooding or even for post-fire or for fire risk or for post-fire flooding risk. It's fine in terms of a biophysical trigger paying out a claim, but the money doesn't show up in the insured's hands fast enough to actually prevent the loss from happening. So we're actually talking about finance that's in advance of the event itself, which is like pre-parametric. I don't think the industry loves buzzwords and they think parametric is the answer to everything. And there have been some great startups that have raised hundreds of millions of pounds, dollars, pick your currency, euros, what have you, to develop these products. And they're doing great in terms of insurance businesses and they're delivering value to customers. But it's not a complete solution. It's part of the answer, but not the total answer. So we still need to finance risk reduction to avoid loss and damage, even if you're paying out on a parametric basis need to get the basis risk correct in terms of making sure you're not paying out claims for events that never happened. So I think that if we look at the business of insurance, the business of managing not just risk, but risk transfer and how the capital moves around, we really need to think through lowering claims altogether, not just paying them out faster.
Ben (30:05)
Yeah, no, thank you for, yeah.
Stephanie Race (30:05)
And the fastest way to lower the claim is to invest in resilience. So again, we're back to that, educating the market on what is this thing? It's not in a list of activities in a database somewhere. We have to think through the context for what we're trying to avoid so that we have fewer losses.
Ben (30:10)
prevention.
Yeah, no, thank you, Stephanie. So prevention is key, as you say. And yeah, you're right in terms of parametric is not the solution. But it's one way the insurance market have looked at helping, I guess, the situation in paying out quicker, as it were.
Stephanie Race (30:42)
Yes.
Ben (30:43)
for our listeners, what do you view as the biggest climate and natural risks as you see it in the UK over the next 10 years, say?
Stephanie Race (30:51)
I think there's three things. And I spent a lot of time, I would say in the last 24 hours with a UK-based property insurer as well as a broker on flood risk. So the first is flood risk. So it's streams and rivers that have impedances in terms of pollution. And a lot of this is caused by not just sewage sludge and water companies, but it has to do with agricultural runoff and extreme precipitation. So there's a confluence of events that are happening in the biophysical world, as well as in the land and water resource space that make the UK vulnerable to more flooding based upon how streams and rivers have been managed or mismanaged over a number of years. I think I've been going on about this since I showed up here in 2011 and certainly since 2017/ 2018 have been meeting with the Environment Agency, showing them the data on what the flood risk is, not just in rural areas, but to physical assets. Now we've got the insurance industry looking at property and infrastructure and saying one out of four properties in the UK is at risk of flooding within, say, the next five to 10 years. This isn't a 2050 problem. It's going to happen sooner. And we're going to see the same phenomena with property insurance premiums and asset values that we're seeing in the United States. And I was just describing the same thing as playing out in the UK. So we're engaged in the Wye River Valley doing work on monitoring non-point source pollution, which just has to do with trying to figure out where the pollution is coming from, something we call source attribution, and then what to do about it. So we identify what the risk is, how to mitigate it, like how to fix it, and then how to price the risk to things that people care about, i.e. property, infrastructure, and supply chains, and then implementing the risk reduction and then repricing the insurance commensurate with a solution that's fit for purpose. I think implementing that full life cycle of solutions is sorely needed in the UK. The second is storm surge and then ⁓ lands of silence and erosion of of the coast. And so we're starting to see that. So the UK is sinking in parts, ⁓ as well as we've got erosion. If you look at all the future forecasts on what the UK is going to look like, by the end of the century, a lot of it's gone. We're going to have Cambridge on sea and Bedford on sea. The entire wash will go away. Parts of the south part of the Isle of Sheppey is going to go away. And this is a very populated country. I don't need to tell you that.
You know, so what are the implications for where people are living? I would say the number one risk in the UK has to do with the Thames barrier. And the city of London is on top of that making big investments in retrofitting that thing. But more importantly, there's 200,000 people living in apartment blocks in East London that need a better evacuation route. So a lot of this is down to reorganising how and where we live and dealing with transport networks and evacuation. So the UK needs to not just focus on itself and its best in class academic research and all the civil servants and the money that's been in all these fancy meetings that I go to with coffee. That's not so good. Okay, I had to say it. I had to say it. But it's down to learning from other countries, you know, not just the one that I'm from, but other countries. It's really happening. Even we see it in France, we see it in Spain, this whole part of the world, the Northwestern part of Europe. We've got small, villages built on rivers. mean, London's not a small village anymore, but it was at one point. So we're gonna see the same phenomenon. Now the real issue has to do with how do we tie the investment community to future-proof those physical places to protect property and infrastructure. And there's several companies that have raised money from UK pension funds to get ahead of the flooding issue.
But if I sit back and look at some of the things that are being done, even in the nonprofit sector, people are coming to me asking me if this is even possible when we've actually been doing the work for 17 years. Yeah, it's not only possible, here are all the case studies. So I think that the challenge with the UK is you have the knowledge and the understanding and the academic capability here, but from a commercial point of view, it hasn't happened the way it needs to. And that's starting to change. I do have, I do have faith that it will come around. The insurance markets are here. The issue is here. You have the academics to solve the problem. You have our company to solve the problem here. Now we just need to join this up and connect the dots to avoid what we're seeing happen in the United States. I mean, it's the same phenomena, but there's more geography. And in the case of, one could argue in the case of Southern California or in the state of California in general, there's a lot of money that will be lost if they don't get ahead of this in the biophysics they are changing a lot faster than they are in the UK and a lot of that just has to do with how the water cycle is changing and what that means in the context of where people are living.
Ben (36:23)
Well, it's good to hear you say the players are here and people are coming together, even if it's, I'm sure, taking longer than you wanted to. Bringing it even closer to home for this podcast, I guess, in terms of Guernsey. What role do you think jurisdictions like Guernsey can play in supporting innovation in this space around climate resilience and sustainable insurance in general?
Stephanie Race (36:30)
Yes.
So I had the fine opportunity of meeting some of your colleagues in the context of pursuing this opportunity with property developers in Los Angeles. I think Guernsey Finance has got a unique opportunity to bring its history of structuring ⁓ risk capital in captive structures to the disaster risk finance world. And we look forward to working with you going forward.
Ben (37:18)
Thank you very much, Stephanie. And looking forward, I guess, in terms of the insurance and risk management space, what do you see changing in the next few years or beyond that? And I guess, what do you hope changes? And what are you optimistic about going forward?
Stephanie Race (37:38)
I hope people wake up. I mean, it's not too late to get ahead of these events, but a lot of these biophysical changes are baked into the Earth system. So we really need to up the ante in terms of getting the financial services industry, both the insurance industry as well as the investment community at large, whether it's the capital markets, the investment banks, you know, to understand where the investment opportunities are, we need to see more data on the business case. It's not even, ⁓ we need better models. We need to have more public information. We need transparency. We think AI can do everything. A lot of that's nonsense. Yeah. People know what they need to do. We have in the UK, you know, the world's best catastrophe risk modeling, you know, ecosystem exists within this the square mile, the city of London. Okay, so it's there. So what are we missing? So we hope to play a major role in tying the Earth System Science community to the insurance markets, to devise these novel solutions to get ahead of these events so that we can prevent loss and damage. And sadly, people don't change until ⁓ we see more events, you know, they have short memories. And so what do I want to see have happen? I want people to have longer memories so that we're not just talking about, we're in a soft market. There's a lot of money around, so we're not gonna move so fast. People need to get moving. Again, they care about two things, the equity in their home, the roof over their head, and the price of a cup of coffee. And we're working on both of those things. If I walk around the city of London like I did yesterday and last night, people are concerned about their own livelihoods. So this is all about bringing it home to individuals. And the people that control a lot of the world's capital are actually in this geography, getting them better connected to understanding the nature of these risks, how to reduce them, and more importantly, to play into their set of incentives. People behave commensurate with how they're compensated. So showing them how they can make a lot of money and solve these problems at the same time. Somebody told me this is great is good. Okay, so whatever it is that we have to do to solve these problems, we will help these insurance guys make a lot more money. And believe you me, we have the data on what's the cost of doing nothing versus doing something and what's the return on investment. So we hope to have more interesting and lively discussions with you, the insurance carriers as well as the capital allocators in the City of London. We want to see them invest with their feet in resilience.
Ben (40:33)
Well, thank you. I really appreciate, I'm sure the audience, you know, here's your passion on the subject. And I just want to lastly just thank you for your time There's lots more we can talk about. But as you said, you've got lots to be getting on with today in terms of your following your discussions last night with Lloyd. So I won't keep any longer.
Stephanie Race (40:50)
Yeah.
Ben (40:53)
Thank you very much, Stephanie, for joining us today and helping us to advance the conversation around sustainable finance as a core pillar of global finance. And thank you for listening. If you enjoyed today's discussion, we have plenty more interviews for you to explore on our channel. We look forward to bringing you the next episode.
