Traditional Home Insurance Is Collapsing. Here’s What Could Fill the Gap
Four years ago, during a major rainfall, an especially bad flood poured into an East St. Louis neighborhood called Mary Terrace, wedged in a low-lying
Four years ago, during a major rainfall, an especially bad flood poured into an East St. Louis neighborhood called Mary Terrace, wedged in a low-lying area between Interstate 255 and a set of raised railroad tracks. First responders staged a rescue operation, launching boats into the recessed neighborhood from an elevated strip of pavement near a senior citizens’ center and a Seventh Day Adventist church. Then the city set about blowing out mud that had accumulated in the sewer system, pumping water out of homes, helping families with mold mitigation, and repairing streets that had collapsed when water lines burst. Without extra funding to help them meet these immediate needs, the city had to take significant bites out of its already-tight annual budget, including money to assist residents of a 39-home neighborhood that was submerged for weeks.
East St. Louis is an extreme case, but these are exactly the kinds of municipal traumas that Wellenkamp hopes a parametric plan will alleviate. For the pilot project—which would likely include East St. Louis—Wellenkamp plans to peg the parameters to the flood heights recorded in 2019. If floodwaters reach those levels, the mayors of qualifying river cities could accept a near-immediate payout from the insurance plan. They could use it to restore power or bring in additional pumps, remove water from city streets before they buckle, or suck sewage from residential and commercial basements before they condemn the property to mold. But some environmentalists have their doubts about parametric insurance’s salvific potential. Critics point to the problem of the parametric cliff: Say an area has been hit with 95 mile-per-hour winds and suffered severe damage; it might not receive a payout, while a nearby neighborhood that has sustained minimal damage but recorded the prerequisite 100 mile-per-hour winds would qualify.
In September of 2024, for example, Hurricane Francine caused some damage and power outages to buildings owned by the New Orleans Public Schools, which had purchased a parametric insurance policy—but the storm didn’t meet the predetermined parameters set by the plan, and no money came for repairs. In the 2010s, farmers in Ethiopia relied on a parametric plan to support them in case of drought; in a particularly bad year, many farmers saw extensive crop damage, but satellite readings in their area didn’t register the drought, which disqualified them from receiving aid. In the private market, insurance companies are building datasets that let them maximize profits while paying out as little as possible. While some insurers use publicly available weather data from places like the US Geological Survey and the Oceanic and Atmospheric Administration to assess risk, others rely on third-party, proprietary data—often sold to them by private companies that have built robust networks of these high-tech sensors around the target area.
The BriefWire