Swiss Re, Guy Carpenter & ICEYE deliver NYC parametric flood insurance

Reinsurance firm Swiss Re, broker Guy Carpenter and insurtech ICEYE are all engaged in delivering a pilot parametric community flood insurance scheme for New York City neighbourhoods.

The parametric trigger behind this flood insurance scheme is particularly innovative, as it leverages ICEYE’s unique satellite data insights, as well as other data sources that can help to reduce basis risk and ensure the parametric insurance cover is tightly calibrated to actual flood experience.

The Center for NYC Neighborhoods (CNYCN), in partnership with the New York City Mayor’s Office of Climate & Environmental Justice (MOCEJ), the Environmental Defense Fund, and social impact organization SBP, have launched the pilot project to support low- and moderate-income (LMI) communities in high-flood-risk neighborhoods, with the parametric insurance solution designed to pay emergency cash funds after a major flood event.

The project is being led by Principal Investigator Carolyn Kousky, associate vice president for economics and policy at Environmental Defense Fund, and CNYCN.

CNYCN purchased the parametric insurance product to finance paying emergency grants to NYC households in need of assistance in the aftermath of a flood disaster.

As we said, the parametric trigger is innovative, in that utilises a mix of satellite data, on-the-ground real-time sensors, and social media images, all compiled by insurtech ICEYE.

With these observations, the extent of a flood event can be determined within days and so funds released rapidly to help the most affected communities with urgent post-disaster needs.

Qualifying households would receive a grant up to $15,000 from CNYCN in the aftermath of a major flood, with an application portal opened up after a flood event triggers the parameters for the insurance coverage.

If a flood occurs, the insurer Swiss Re Corporate Solutions and ICEYE will determine the percentage of each insured neighborhood that falls within the flooded area.

Swiss Re Corporate Solutions will then issue a payment to the CNYCN, so that it can distribute funding to qualifying individual households.

There is some complexity to this trigger, in the way it leverages multiple data sources to come to a determination of whether a flood event qualifies for an insurance triggering and payout.

As technology advances, more complex parametric triggers become feasible and reliable enough to support insurance products, enabling the delivery of coverage with reduced basis risk and greater certainty that payouts will be made at precisely the time they are needed.

“Extreme flooding and natural disasters often impact traditionally marginalized communities the most, as they have little to no savings and are often denied post-disaster loans, while federal funding is typically insufficient or extremely delayed,” said Christie Peale, CEO and Executive Director of the Center for NYC Neighborhoods. “This innovative program will stimulate real change in providing immediate access to funds that help build towards recovery.”

“I am proud of the strong partnership and bold innovation that led to this creative pilot, which will help frontline communities,” said Kizzy Charles-Guzmán, Executive Director of the Mayor’s Office of Climate & Environmental Justice. “As our city faces increasing flood risk from heavy rainfall and coastal storm surge, we need nimble tools aimed toward protecting the financial health and livelihood of New Yorkers.”

“Research has found that lower-income households and communities suffer disproportionately from disasters and recover less quickly. This pilot is designed to make financial resources immediately available and prevent households from spiraling into worse financial hardship,” said Carolyn Kousky, Associate Vice-President for Economics and Policy at Environmental Defense Fund.

“Flooding disasters not only have an immediate effect on communities, but their impacts can be felt long after flood waters have receded. This specific project, led initially by the University of Pennsylvania and now the Environmental Defense Fund, is an innovative, community-approach to responding to flood disasters by improving financial resilience. Through the prototype in New York City, the team is ensuring that the immediate disaster needs of lower-income households can be met. We’re grateful for the partnership with the NYC Mayor’s Office of Climate & Environmental Justice, the Center for NYC Neighborhoods, and other technical partners,” said David Corman, National Science Foundation Program Director.

“With the increasing frequency and severity of adverse weather impacting communities, it is crucial that we take steps to protect the most vulnerable,” said Jake Clark, Head of Public Sector North America for Guy Carpenter. “Guy Carpenter is honored to be a part of this important solution and we encourage other communities to use these approaches as a component of disaster risk management efforts.” The contract was placed through Guy Carpenter’s affiliate, MMC Securities LLC, U.S. registered broker/dealer and member FINRA/NFA/SIPC. Both entities are wholly owned by Marsh & McLennan Companies.

“Current flood recovery options are not well suited to meet the needs of our most vulnerable populations. SBP sees this time and time again in the communities we serve around the country, with few households having protection, and many struggling to access other recovery funding quickly post-event. This pilot is an important step forward in utilizing mechanisms to fill financial gaps in recovery and offers many lessons for other communities interested in taking similar innovative approaches,” said Helen Wiley, Disaster Preparedness Program Director, SBP.

“This innovative product allows New York City to optimize its resources and focus on helping low and moderate income communities to recover more quickly after a severe flooding event,” said Jackie Higgins, Head Public Sector Solutions North America, Swiss Re Corporate Solutions.

“This historic program will bring critical financial support to low-income households and help the City respond decisively to flood events,” says Andy Read, Global Head of Government Solutions at ICEYE. “This partnership represents a cornerstone step in the right direction as we seek to address a growing flood protection gap.”