Saturday, March 23, 2019

Insurance for the new (climate) normal

Insurance companies were among the first to worry about climate change. Bigger, more frequent weather disasters meant bigger payouts. If they keep increasing premiums to pay for them, fewer people will buy insurance, driving prices further.

There are a lot of other problems with their business model. It can take a long time to get paid and the insurance company will try to reduce the size of the payout. One of my colleagues had a serious house fire. She and her husband fought with the insurance company for over a year before any clean up or reconstruction began. They moved out of state and haven’t come back. Last I saw, the house is still empty. It’s been at least three years.

Now insurers are considering parametric insurance: if X happens, the payout is made immediately. X could be a hurricane or earthquake of a specific magnitude or any other measurable trigger.

Until recently, individual consumers didn’t have access to parametric insurance in the US. That’s changing: In October 2018, a company called Jumpstart started offering earthquake coverage to Californians. The trigger is a quake that reaches 30 centimeters per second of peak ground velocity, a measure the US Geological Survey uses to create “shake maps” of intensity.

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