Climate Risk Strategy

Financial services across all markets—mainly residential, consumer, auto, capital markets, and insurance—focus on managing risk. For instance, in residential lending, credit risk, collateral risk, and origination risk are carefully assessed during the origination process, re-evaluated during securitization, and effectively hedged while servicing loans. Until recently, consumers had little insight into their own risk assessment and creditworthiness. Even today, the information available to consumers offers a limited understanding of how their credit rating is calculated and how to influence it.

For many financial consumer transactions involving credit, insurance is a prerequisite linked to the consumer’s health, likelihood of default, overall market risk, and collateral. For conforming residential mortgage loans guaranteed by the GSEs, Fannie Mae and Freddie Mac, homeowner's insurance is required. Similarly, auto insurance is essential for auto lending. Therefore, in addition to assessing the risk of the financial transaction, there is an extra risk assessment performed by the insurer, which the consumer cannot see.

Climate risk is now an inherent part of risk assessments for origination, servicing, securitization, and insurance. It remains a controversial global issue with little oversight or consensus. Additionally, the scientific complexity involved in assessing this risk is beyond the understanding of most laypeople, regulators, and consumers. For example, in the multi-trillion-dollar housing market, there is a crisis in homeowners’ insurance affordability and coverage, with insurers citing global warming as a key factor. Stakeholders lack visibility and comprehension of the risk assessment and resulting premiums. This affects the price and fungibility of the housing market. Recent data confirms that in many U.S. regions, homeowners’ insurance and property taxes combined are approaching or even matching typical mortgage payments, effectively doubling the monthly cost of homeownership for many households in 2025. And there is no visibility or standardization.

In the Web3 paradigm, consumers have sovereignty, and the asymmetry of information is eliminated. This presents a crucial investment opportunity for financial service firms, data and analytics companies, federal agencies, and FinTech solution providers. Similar to a credit FICO score, a transparent and widespread climate risk score can enable risk fungibility within the financial service ecosystem. It doesn't need to be the ultimate authority on collateral and environmental risk to add significant value to the marketplace and ultimately to consumers.

Dain Allen can provide leadership in ecosystem use case scenarios to generate value and establish default use cases for the entire system. We can assist new startup data and technology companies in developing go-to-market strategies and raising capital; support existing data firms with their market expansion efforts; and help legacy enterprise ecosystem players align around a vertical value proposition that individual parties could not achieve alone.