For Florida homeowners, hurricanes are unavoidable and insurance is a must-have. But in most cases, only a portion of the overall hurricane loss is covered by homeowners insurance. The remainder falls into what is known as the "protection gap", or gap between economic and insured losses. This includes the homeowners' policy deductible and other expenses like debris removal and temporary housing.
One of the most important objectives after a catastrophe is getting people back on their feet quickly. Hurricane Irma provided a great example of how parametric insurance products can work well to accomplish this.
Unlike traditional insurance, parametric products use a model to calculate the payout of the insurance policy. This payout is determined by the occasion of a loss, the strength of a storm and its proximity to the insured's address. The greatest benefit is that insured can receive their insurance payout within 24-48 hours following a storm. While they would still need to provide proof of loss (within 45 days of the event), they do not have to wait through a lengthy claims process to receive their payment. As mentioned above, this money can be used to pay for temporary housing or other expenses not covered by traditional homeowners insurance, like debris removal, landscaping or losses below their deductible. Better yet, the coverage is easily obtained by just providing a name and address and can be purchased online.
Earlier this year, Assured Risk Cover and the Topa Insurance Company launched a parametric wind product in Florida called StormPeace. Irma was the first opportunity for this cover to be tested -- and it was successful in both quickly assessing claims based upon the parametric outline, or triggers, as well as quickly issuing payouts to its insureds. 98% of policyholders received funds within three days, and most within 24 hours.
Irma demonstrated how parametric insurance products can work to help get individuals back on their feet and close the protection gap. In addition to hurricanes, these covers have the potential to be helpful with other catastrophes like earthquakes, tornados, etc. Based on the success of StormPeace after Irma, we can anticipate seeing more of these products in the market moving forward.
Category: Climate/natural disasters: Floods/storms, Resilience
Location: Florida, United States