Post-apocalyptic insurers are trying out a new "make it rain" strategy

Friends, have you recently been thinking about your insurance?

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Damn! Wait, no, look: Climate change is aggravating natural disasters in intensity and frequency, and insurance could be a significant way to pay for recovery. International help can be unreliable; State money is really only tax money. Businesses and nations have had access to rapid infusion of cash after the disaster for at least a decade; Now they are also commonplace for ordinary people – and if you are in a disaster zone, a cash bonanza could mean the difference between staying and rebuilding or permanently leaving.

A typical insurance like you probably have on your car or at home helps, but it's slow. It only pays off when you file an application and receive an assessment of the damage ̵[ads1]1; and then you still have to wait for the review. That does not help much if you walk through the floodwaters.

Insurers have found a way to accelerate this – through the restructuring of the system. Forget about claims and adjustments; For these new types of measures it is sufficient to get the financial ball rolling, the occurrence of a trigger, a previously agreed event: such as an earthquake of sufficient size or a hurricane with winds of a certain speed. It is referred to as "parametric insurance", and if any one of these hazard parameters is met, any policyholder who is outside the trigger receives an automatic payment of a specified amount. Pow.

Governments and corporations are interested. The idea came from the investment world, probably because large organizations that suffer complex damage appreciate a quick and predictable payoff. And disasters can make the use of claims adjusters unsafe or impossible. For example, the earthquake in Nepal in 2015 killed 9,000 people and suffered losses ranging from $ 6 to $ 10 billion. Only a fraction of them were insured, and even getting help in the region was a challenge. A large, instant infusion of cash would have helped.

Since 2007, Caribbean countries and beyond, along with the Caribbean Disaster Risk Reduction Facility, have tackled the problems that developing countries typically face after hurricanes, earthquakes, and floods. The African Union has one, as does Hong Kong with typhoons. "If you have enough data and sufficient sensor technologies, like California's Seismometer network or the hurricane-hardened WeatherFlow anemometer stations on the East Coast, you can get that data and quickly determine if someone should be paid. "Says Samuel Jay Gibson of the Capital and Resilience Solutions Group at disaster risk modeling firm RMS. "This allows immediate immediate investment after the event."

Until recently, individual consumers had no access to parametric insurance in the US. That's changing: In October 2018, a company called Jumpstart started delivering earthquakes to Californians. The trigger is a quake that reaches 30 centimeters per second of ground speed, a measure used by the US Geological Survey to create "shake maps" with intensity.

So if a quake occurs and you are in the "red zone" of 30 cm / sec PGV you will receive an automated SMS asking you if you want your money. Confirm, you must confirm for legal reasons, and you will receive a direct deposit of $ 10,000. "Even if your belongings are not damaged, your life will be destroyed by such a large earthquake," says Kate Stillwell, Founder and CEO of Jumpstart, a structural engineer who has spent a decade building earthquake risk computer models. This money can be used to pay for a hotel after evacuation, for child care when the schools close, for a quick car repair or to replace lost working days because the roads are too damaged for transit and transit is suspended.

Well, actuary

Insurance and risk are mostly about math. The basic principle of almost all insurances is that enough people pay premiums over time to cover the high payouts after an event. In California everyone knows that a big earthquake is coming. But only 10 percent of homeowners have earthquake insurance. The same applies to commercial buildings. Even if you survive a disaster, even if most of your war survives, you still have consequences. And those affected hardest hit poor people – who are probably less willing to have cash or stable support networks. Stillwell observed New Orleans after Hurricane Katrina and found that these social vulnerabilities could be as big a problem as the actual disaster. "As a structural engineer, we do not do our work when the other pieces of the resilience puzzle are missing and one of those pieces puts enough money into the system," she says. "What use safe buildings if no one is in them?"

At the Business School, Stillwell learned of "catastrophe bonds," a disaster-prone financial instrument. Parametric insurance fits into this category. She also recognized that new technologies-more accurate threat models, automated financial services, and a robust text messaging system-could actually support a parametric consumer business. "Basically, the motive was to get more money into the system," says Stillwell. This allowed her to introduce it as a charitable body, a so-called B-Corp, to give impulses after the disaster. Originally, the company wanted to pay $ 30,000; She says the California regulators told her that the amount was so large that people might think that Jumpstart should cover all their losses rather than serving as a "blanket" disaster. So she lowered the payout. (The premiums, ranging from $ 11 to $ 33 per month depending on the zip code, cover the business and security costs – a pool of money from Lloyds of London insurer who ensures Jumpstart always pays .) [19659003] The key to parametric insurance is dealing with the "base risk", the match (or mismatch) between a trigger and the actual damage caused. If you model damage for a magnitude 7 earthquake and set it as the trigger, but then suffer damage at magnitude 4, you blew it up. "So, how you design this trigger depends on which of the different types of covers you are looking for," says Gibson. "It starts by understanding the problem space and then moving backwards to an optimal parameter."

Natural hazards are particularly well suited because they are monitored by so many sensors. MTA in New York uses a tide gauge. Satellite images in combination with the topography can work in floods. Forest fires have a specific fire area, regardless of whether your house is specially destroyed. "What you are trying to do is say what damage level I have with this trigger?" Says Matt Junge, Head of Property Solutions, USA and Canada, Swiss Re, a global reinsurer and catastrophe clearing house

The Obstacles are then "education" – that is, telling people that this thing is sold – and regulation. Outside of California, government regulators are still chewing on how and if parametric guidelines should give green light to consumers. They are new and bureaucracies are rightly careful. But if Jumpstart is successful, Stillwell says it will be extended to other states and other dangers next year. "You can imagine summer time, East Coast." We can actually imagine that. Every season somebody thinks about his insurance.

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