Treasury Secretary Scott Bessent sold his mansion in a Charleston flood zone—and is making some good points about managing climate risk

Trump's new Treasury Secretary says the federal government could help lower physical risks and keep property insurance markets afloat

Last month, Treasury Secretary Scott Bessent said that his father was a real estate developer and a "boom-bust kind of guy." He told Chamath Palihapitiya and David Friedberg of the popular "All-In Podcast" that was where his "passion for risk management came from."

Sec. Scott Bessent speaks with podcast hosts David Friedberg and Chamath Palipapitiya

When it comes to physical climate risks, Secy. Bessent's recent personal real estate moves are prudent. John McDermott of the Charleston SC Post & Courier reported in February that Bessent's "meticulously restored pink East Battery mansion" was under contract. Here's a picture showing just how close that house is to the Cooper River:

Bessent’s former home is the second one in from the corner, painted pink

This is a picture of a section of the Charleston Battery just around the bend from Sec. Bessent's former home:

Hurricane Irma’s Surge at Charleston Low Battery, Sept. 11, 2017 / Credit: Jared Bramblett

This photo, by Jared Bramblett, shows storm surge flooding along the Charleston Battery during Hurricane Irma in September 2017—at a moment when the Cooper River, the Atlantic Ocean, and the City of Charleston became one. It doesn't take a hurricane for Charleston to flood: there were 89 floods in 2019, and the top ten years of flooding over the last century all happened in the last decade. (I wrote a book about the risks Charleston faces.)

Bessent's new home is 200 feet above sea level, unthreatened by the Potomac River, on a lovely street that runs across one of the highest points in Georgetown:

Approximate location of Sec. Bessent’s new home in Washington, DC

These are personal choices. But on the professional front, Bessent's interest in managing physical climate risk is also evident. On the All-In podcast (complete transcript here), he said he'd been thinking about property insurance issues around the country and considering federal solutions that would lower physical risks—and thus create or maintain insurable markets.

Specifically, Bessent sees the patchwork of outmoded, city-specific building codes that developers and investors face as a problem, and he's thinking about solutions that include federal financial mandates or subsidies driving "proper hygiene" in the form of updated, safer building codes as well as safer building materials and brush removal to dampen fire and other physical climate risks. He may not have cleared these comments with the White House, but they're nonetheless welcome. And prudent.

"Are the insurance markets broken?" Bessent asks at 1.04.23 in the interview. He goes on to answer his own question:

There've been no technological changes in house building in 50 years, maybe 60. Some of the building codes go all the way back to the Chicago Fire. So what can we do?

Sec. Bessent suggests that perhaps the federal government could give "window guidance" that would support standardized, prefabricated approaches to housing that would help developers and result in safer, more affordable housing for residents that would be insurable. ("Window guidance" means using influence and persuasion—and perhaps money—to guide market actors toward taking desired steps.) He goes on to praise Connecticut for mandating that 10 percent of vacant land be used for multifamily housing, giving people (including "nonprofits for housing") leverage to demand that their local zoning boards give them an opening for multifamily. This is remarkable.

But it is insurance that is on Bessent's mind. He thinks the federal government could help lower physical risks and thus keep property insurance markets functioning. How? By providing a layer of federal property insurance that carries with it a distinct mandate to build safer houses (at 1.07.09):

Bessent: Is there something the federal government could do for California where we come in? Everyone's paying homeowners insurance, then there's reinsurance on top of that. Then I think the California reinsurance company is called the FAIR Plan.

[colloquy with co-hosts, who know the Fair Plan is a separate, horizontal plan. Bessent sees the situation vertically, and says "It's stacked" on top of private insurance and reinsurance.]

You're stacking it. So is there something we could do where you put another layer of private money in there and then the federal government is the fifth risk tranche. But if the federal government comes in, can we mandate down here proper hygiene? [Bessent flattens and lowers his palms and moves them from side to side in front of him, a gesture that shows ground-level action needed]

David Friedberg: Changes in the building code?

[again, co-hosts and Bessent fill in together]

Sec. Bessent: Well, changes in the building code, changes in brush cutting, material choices.

Bessent makes clear that he's not talking about local zoning decisions—although a few minutes earlier he was enthusiastic about the state of Connecticut overriding local zoning board stonewalling of multifamily housing.

In a context in which J.P. Morgan is making clear (report published this week) that insurers of last resort in 33 states—and thus the states themselves—are exposed to extraordinary risks, a layer of federal help sounds welcome.

From J.P. Morgan report: Annual exposure in FAIR plans, in billions. Florida, in blue, and California, in orange, lead the pack.

In particular, the California FAIR Plan is struggling to carry out its new role as the "only option for hundreds of thousands of homeowners," according to Nicole Friedman and Jean Eaglesham of The Wall Street Journal, stretched thin by explosive growth and inadequate resources.

Attention must be paid: The FAIR Plan has already paid out nearly a billion dollars to policyholders to cover claims related to the Palisades and Eaton fires, is asking for a $1 billion assessment from insurers, and just raised its commercial property coverage limits to $20 million per building—all while being exposed to $450 billion in risk. Without the billion-dollar assessment, the Fair Plan would have run out of money last month.

Homes in California are systematically, chronically underinsured given the physical risks they face, according to Susie Neilson and Megan Fan Munce of The San Francisco Chronicle. (It's not construction costs that are the problem. Insurers' coverage and rebuild estimates are far too low, according to Neilson's and Munce's reporting.)

Risk transfer, which is what private insurers do, won't fix the property insurance crisis—because the risks involved are both predictable and quickly intensifying, making it difficult to shift them to anyone else. J.P. Morgan is trumpeting the simple message that risk reduction is the answer. To create and maintain insurable markets, to escape "the doom loop of rising costs and private sector exits," we have to figure out a way to reduce everyone's vulnerability.

And it turns out Sec. Bessent has a major part of the answer: demanding modern, standardized building codes, demanding retrofitting that amounts to "better hygiene," creating and mandating plans that suppress ignition sources will help. The federal government could do all this as a condition of providing a backstop to languishing state property insurance markets. That's risk management. That's a good step.

During the same All In episode, Sec. Bessent gave us a glimpse of his inner life. He said he admired Bruce Kovner, calling him a "great macro investor." Kovner had a saying, Bessent recalled (at 4.29):

He said, 'I succeeded because I could imagine a different future and believe it could happen.' So the key is to believe it could happen and then manage the risks.

Can we believe the U.S. could take on the physical climate change risks it faces and manage them? Sure we can. And the federal government can play a key role. If Sec. Bessent wants our nation to learn from his father’s boom-and-bust career, now is his chance.

Car in floodwaters near Sec. Bessent’s former Charleston home