The latest Swiss Re sigma report reveals a global protection gap of USD 121 billion. Little by little, insurance is helping narrow that gap in places like Guatemala and central Africa. It goes into the world’s most remote areas where even electricity and safe drinking water are scarce and helps farmers and business owners maintain their standard of living through drought, flood and other disasters. Insurance is an adaptable and durable concept—a model that’s easily transferred between industries and economies.
Time and again insurance has proven its worth to society on the world stage, yet it can do so much more in the United States. Despite its position as a world economic power, the US still has a sizeable protection gap and the time has never been better for parametric insurance solutions.
When floodwaters overtake a town or an earthquake hits a metropolitan area, too many people lack the basic protection to restore even a basic standard of living. As the Southeast braces for an above average hurricane season, a windstorm policy offers false comfort because much of the household remains uninsured.
Sensing the potential effects of this gap as population and development increases in the most vulnerable areas, several colleagues and I left our jobs at modeling firms and resolved to do something about it. We developed a product called Stormpeace. By guaranteeing an instant payout based on the storm’s strength and proximity, a Stormpeace policy puts cash in the hands of residents immediately to pay for things their homeowners policy doesn’t cover, such as restoring power, clearing a giant tree blocking the driveway or paying for a motel room if the home is uninhabitable.
If that isn’t enough, a claims payment can also be used to pay the deductible on the family windstorm policy. Homeowners and renters often don’t have the cash to pay their deductible so they can start the process of rebuilding, but with proceeds from a StormPeace policy, they do. And there’s a knock-on effect because more cash flowing in the first 24 to 72 hours buys more goods and services, so the benefit to local economies is palpable.
The path to closing the consumer protection gap in the US is clear. The insurance industry has the capacity and the modeling expertise to make it happen. Innovative products such as Stormpeace are starting to win favor with consumers. A few dollars a day for a policy provides an instant payout with no claims process. The concept is simple and now the key to increasing takeup is education. It’s time to help residents understand their risk and see the difference a little extra financial preparation can make. It’s the difference between paralysis and resilience.
Alok Jha is founder and CEO of Assured Risk Cover, Inc.
Category: Climate/natural disasters: Resilience
Location: Pleasanton, CA, United States