Defining a Resilient Home Loan
Abby Ross, CEO, The Resiliency Company
For the past year, we’ve been operationalizing the Resilient Delta Fund. Why? To be disaster-resilient and insurable, most homes need to exceed the minimum standards required by building codes. But building ‘above code’ is not typically covered by financing even though resilience measures make properties better assets. We call this gap the ‘resiliency delta’, and the Fund was created to test, refine and scale a new financial product that the financial sector could provide.
The Fund supports lenders on the basis that what the money will be used for will make a building resilient. For that to work, we need to have a clear definition of a resilient home that can be included in the legal documentation for the loans and grants. This week, the team met to gather what we’d learnt from operating the Fund for a year and what that means for the definition we use.
In this edition of Making Resiliency The Norm, I am documenting what we decided as a timestamp for our learning and what they mean for how the Fund needs to operate.
Five Guiding Principles
The Fund initially focuses on helping homeowners and builders in Los Angeles rebuild after the January 2025 wildfires because it was well-known in the industry that building codes were insufficient for the increasing risk of fires. The guiding principles we’ve developed for whether a loan or grant can be used for resilience are as follows.
1. There need to be evidence-based standards
This perhaps goes without saying but it’s important to say it. There are lots of views on how to make places, homes and buildings wildfire-resilient but not all have been tested. We looked for evidence based on robust, real-world research into fire resilience.
2. The standards need to distil to a single home
The evidence needs to distill down to what can be done within a single home, such as to siding doors, windows, roofs, and decks. On the basis of principles 1 and 2, we anchored our loans and grants in Los Angeles to the Wildfire Prepared standards created by the Insurance Institute for Building and Home Safety (IBHS). Additional debt for a property can be tracked to those standards.
3. Resilience needs to be translatable and verifiable
For the financial sector to develop their own versions of the Delta Fund, there needs to be clear information on how an intervention reduces risk, and to what extent. IBHS’s standards were, again, useful in this as they have been translated into a clear set of building materials and methods that can be verified independently. Indeed, in parallel to the Delta Fund, we co-founded Pillar, a company that can independently verify building plans, the resilience of materials, and methods used in construction for insurability (Pillar is now an independent company).
4. Market acceptance of the standards is important
While protecting one’s home is always a good idea, one way in which homeowners might reap the benefits of making it more resilient is through increased availability and affordability of insurance. It helps, then, if the insurance industry accepts the underlying evidence and standards. The fact that IBHS is a respected, independent and nonprofit research organization whose work already informs some state policies and is widely used by insurers to evaluate resilience upgrades makes it more likely that insurance companies will be willing to provide insurance, and at better prices.
The Hedge
Wildfire risk is likely going to continue to change and the underlying standards and the terms of the Resilient Delta Fund needs to be responsive. In addition, there might be new risk reduction innovations that come to market that need to be incorporated into the standards.
Today, IBHS provides the most comprehensive and clear definition of a wildfire-resilient home that we are helping lenders build financial products around. And IBHS continues to evolve, as they and others crowd in data. We want our loan documents to always be the best “or equivalent" to ensure that the guiding principles can be met for the longevity of the fund and work required.
What We’re Still Figuring Out
We are aware that our approach simplifies resilience in three ways that may be problematic.
The first is that not all homes require the same level of investment to become wildfire-resilient. IBHS have, in fact, two levels to their standards, Essential and Enhanced. In the Fund, we’ve found ways to leverage these two standards but need a way to help support the homeowner in making the right decision for what time of investment they should make to achieve resilience.
The second is that many homes are dealing with more than one hazard (i.e. not just fire). For instance, in California, we’re often asked about resilience to earthquakes. We can see that the Fund will need to evolve to help homeowners manage more than one hazard at a time.
Finally, the benefits of a fire resilient home assumes a level of continued maintenance, particularly of the landscaping, especially in the most fire prone areas. The IBHS standard requires 3 year recertification but there isn’t a clear enforcement mechanism from the loan, so we have to assume that the homeowner recognizes the ongoing effort required in order to receive the benefits of resilience.
If you are a lender considering incorporating resilience into your products or services, we’d love to hear how you’re handling these things, as well as to get feedback on our principles.
