AI is changing the world right before our eyes. Already in wide use by federal agencies, banks and insurance providers, AI is adding value to industries across the board. Need an example?
When was the last time you looked at a property on Zillow? Scroll down. A little further. There. under Climate Risks. Wait. When did that show up? Who determines those calculations? Welcome to the brave new world of AI, specifically a partnership between Zillow and AI analytics company, First Street. Not just any AI. AI that directly impacts property values, risk assessment, lending, regulation… and residents. Kind of important for property owners to know. Right?
Tech that delivers
For some time now technology has been reducing the barrier to entry for products and services that turn ultra-thin apartment operating margins into room to breathe. Innovation, knowledge and products that once stood behind a barrier of cost and logistics are now available to every business regardless of size, demographic or location. The latest challenge, however, is staying connected to this fire hose of innovation, while at the same time sorting out relevant opportunities.
Increasingly intensity climate events are a growing risk for apartment properties and their residents. AI is already changing the world of climate modeling by providing previously unattainable precision. The implications of this convergence of data, science and math promise a sea change in risk mitigation and community hardening.
I love uncertainty, said no business owner ever
Connecting localized climate modeling with individual properties at the accelerated rate of AI delivers a data stream that owners and residents need to manage the changing world of risk. Advanced knowledge of risk probabilities allows for interventions such as structural hardening, defensible space planning and other preemptive measures that can reduce damage and protect the well-being of residents and the health of assets.
New and remarkably precise calculations are creating “responsive” actuarial tables. These resources connect physics, pyrome calibrations, decades of peer-reviewed research and structural characteristics of a specific building and calculate the statistical probability of a significant climate event occurring. It then projects the potential damage and downtime of that structure and its operation should the event occur.
Just as Doppler radar moved planes around wind shear conditions, AI is already helping to create a future with less uncertainty—and more intelligent planning—for property owners. What does this mean in practice?
Lessons of the past
On their way down from the mountains, Santa Ana winds (or Diablos if you’re in Northern California) can become 30 degrees hotter in a single mile. Almost mythically, these superheated western blasts roar through narrow mountain passages, largely in September and October.
It’s that time of year when the origin of the prevailing wind reverses from the ocean to the land, flowing from the inland Nevada and Utah deserts toward the Pacific. Following the laws of thermodynamics, wind heats up losing moisture as it descends from the heights. To make the phenomenon more dangerous, these winds occur during the driest season of the Western year.
For all of human history, Santa Anas have left wildfires, dust storms, and destruction in their wake. In addition, the decades-long buildup of ground fuels across forest floors has extended the fire season by 40 to 80 days longer than it was just three decades ago.
The 1991 Oakland fire is one of most studied examples of multifamily-WUI in history. (“Wildland-Urban Interface” is where developed land directly abuts wilderness.). It also, perhaps, represents a larger lesson about the increasing risk for multifamily properties and the growing numbers of U.S. renters, and even the value of renters insurance.
It was October and an unmistakable smell filled the air. Like the pressure drop of a tornado, Diablo winds bring an ominous feeling of portending. Foreboding quickly turned to catastrophe in what would become $3 billion of destruction (in today’s dollars) in mere hours.
Just one of the properties in the path of destruction was the 433-unit, circa-1970 Parkwoods apartments. The property would become a heap of embers and ash within 20 short minutes. Hot winds mixing with cooler air from the ocean created erratic, dangerous gusts, while rotational vortexes whipped the white-hot fire across the property at unbelievable speeds.
Remarkably, no lives were lost. But given literally only minutes to evacuate, residents fled with nothing but the clothes on their backs. The full impact became most obvious when fleeing residents didn’t even have their wallets, purses or identification to get a hotel room that evening, or so much as their toothbrush if they did find a place to stay.
Lessons from the past
Within days it became known that less than a dozen of the 433 Parkwood households carried contents insurance. Unlike homeowners’ insurance, which mortgage lenders compel, renters do not have the same obligation to carry personal property insurance unless it’s required by the apartment owner.
Three decades later, while the portion of renters with contents insurance has risen, but it’s still only 55 percent of the market according to a 2023 industry survey. This equates to 61 million renters. The number of insured renters is on track to reach 65 million in 2024, but it’s still not keeping pace with the growing intensity of climate events. Also adding market pressure, new AI models using fluid dynamics have revised existing maps, extending the high risk footprint.
The number of renters obtaining contents insurance is growing for several reasons: insurance premiums have fallen since 2015, a growing number of landlords require it (75 percent), and media coverage of intense natural disasters, such as that of Parkwoods, spotlight the inherent risk of no coverage.
As climate events intensify, population centers continue to expand further into harm’s way. WUI’s are also expected to increase as the Federal government moves to solve the housing shortage by selling federal land parcels to developers to build more housing. A large percentage of federal land consists of under-managed forests that have only recently begun to get the attention they need to clear fuels from forest floors and to thin overgrown tree groves.
These are great advancements, but industry communication is a large part of the process. Staying ahead of the rapid pace of innovation and assuring it streams to property owners in a timely and useful way is key. Also, the development of products and services that help owners mitigate risk and keep bottom lines healthy, can only happen within strong industry partnerships.
Partnering for a better future
To this end, Yield Pro magazine and industry partners are teaming on a new research project dubbed Event Horizon. The initiative is focused on collecting and analyzing market insights around multifamily insurance products and services.
The initiative will kick off with a survey, continue with a published report on the results, and culminate in an advisory panel of industry experts focused on the development of innovative products and services in the apartment operations-insurance space.
The program will create ongoing visibility into the rapid changes that impact multifamily and insurance. Event Horizon will inform service and product development linked to the rapid cycle of innovation and technological change by bringing together apartment owners and operators and industry experts to identify and address future risk across multifamily properties.
To participate in the Event Horizon community survey, click here. Watch for updates in Yield Pro.
