The exceptional frequency—8 hurricane landfalls—and severity of hurricanes over the 2004 and 2005 seasons in Miami prompted catastrophe risk modeling firms to account for a higher ‘new normal’ level of hurricane risk. Changes to the underlying model assumption about the riskiness of hurricane wind underwriting, as reflected in the new ‘Near Term’ (NT) event catalog, had significant consequences for how insurers sold policies, procured risk transfer through reinsurers, and made other key operational decisions. The NT catalog incorporated an increase in hurricane frequencies by 21% for Category 1 and 2 storms, and 36% for Category 3, 4 and 5 storms, relative to the existing Long-Term event catalog. This had important consequences for the appreciation of hurricane risk: residential rates increased by 15% between the end of 2005 and 2007.

Two market shifts driven by financial and political considerations ensued. First, changes to cat models bolstered capital market confidence that the state’s hurricane risk was being sufficiently valued, and could therefore be traded as an asset class, in the form of insurance-linked securities and other ‘alternative’ risk capital products. Second, state actors rebuked changes to models and to protect residential policyholders from rate increases. The passage of Florida House Bill 1A (HB1A) in 2007 limited consumer rate increases required by private insurers and required Citizens to cover homeowners denied private coverage. These interventions were aimed at insulating residential policyholders from rate increases and ensuring consumer access to an insurer of last resort, the state-run Citizens. The pressure placed on private insurers to compete with a public insurer that can undercut private market prices also made it impossible to remain in the private market at systematically fair prices, resulting in the cross-subsidization of risk across the market. This cross-subsidization was both spatially regressive and temporal, with inland and more modest-income households subsidizing the cost of coastal insurance through their policy premiums and policyholders repaying losses incurred in previous years.
The regulatory interventions had profound consequences for the structure of Florida's residential insurance market, resulting in a substantial rise in the market share of Citizens and the emergence of a new type of private "specialist" insurer in the state. As Dr. Taylor puts it, ‘re/insurers delicately threaded their case through multiple riskscapes—across the synthetic domain of risk modeling, the political calculus of state actors, and capital provider demands—in order to maintain a viable window for profitable underwriting.’ Furthermore, Florida’s risk is traded with participants across the globe, and by using catastrophe modeling as loaded dice, re/insurers have failed to realize significant enough catastrophic losses ‘to spark a true return to hard market conditions on which the sector thrives’.

Climate Gentrification in Miami

Due to the exceptional climate risk faced by Miami, property developers look to offset their risk through “resilience dividends” - property speculators are increasingly steering development to higher elevation, low-income communities, which is further accelerating the current trend of gentrification. Dr. Taylor’s research shows that these speculative climate risk management practices will meaningfully transform cities and housing geographies—and their ownership and affordability—long before rising seas permanently breach property lines.

Recently, scholars have focused on how ‘financialization, touristification, and studentification’ can facilitate gentrification and how these processes frequently intersect with public policies - statecraft and patterning of riskscapes. Climate gentrification cannot be attributed solely to climate risks, ecological interventions, or greening efforts. It is actually a broader process that amplifies existing patterns of gentrification. Gentrification has already been causing changes in disinvestment, displacement, activism, and other interventions in specific contexts for a long time.

Dr. Taylor’s research analyzes Climate Gentrification pressures using 3 important concepts - Rent Gap, Risk Rent, and Rent at Risk. The rent gap is the contrast between the current value of a piece of land and its potential future value if it is developed to its maximum capacity, often through improvements or upgrades. A key driving force of gentrification is the way in which investors perceive risks and prospects in the built environment, directing both the inflow and outflow of investment accordingly. For example, In Philadelphia, there may be an area near the University of Pennsylvania’s campus that has a lower land value because it is not being used to its full potential. However, if the University comes in and upgrades the buildings and infrastructure, the land value will increase as it is being used in a more profitable and productive way. This difference between the current lower land value and the potential higher land value is what is referred to as the rent gap. The developers can then charge higher rents for the improved buildings, which can lead to gentrification and displacement of the previous low-income residents.
The term "Risk rent" refers to the process of generating and obtaining new economic value based on climate risk. One example of this is the property insurance industry, where real estate climate risk is monetized through yearly premium payments made by policyholders. Catastrophe risk models and actuarial practices allow insurers and reinsurers to assign economic value to climate risk and charge policyholders accordingly as detailed in the Miami example above. On the other hand, Rent at Risk refers to the potential losses of rental income due to climate risks or their management, including increased capital and operating costs, direct property damage, and reduced demand for risky property markets.
Dr. Taylor uses the above mentioned concepts to analyze Climate Gentrification in Miami through 3 vignettes: The Gentrifying Uplands, The Citadel By the Sea, and The Still Simmering Suburbia.