As climate disasters rise, New York tests fast insurance payouts

This story is part of a series on weakening access to insurance protection in the United States in the face of growing losses from climate related disasters: End of insurance?

• Up to $15,000 to city households within days
• Assistance can be used for any purpose
• First such use of 'parametric' strategy in US

WASHINGTON –  A New York City pilot program is seeking to get money quickly to families affected by flooding – and avoid the cascading financial problems that can spell economic ruin long after climate disasters have struck.

The program, the first of its kind in the United States, targets the key period right after floods when families can wait weeks or months for insurance payouts or government aid.

"You're stuck with emergency costs that could cause very severe downward financial spirals," said Theodora Makris, a senior policy and research associate with the nonprofit Center for NYC Neighborhoods, which is spearheading the pilot project.

The $1.1-million project is using a complex insurance tool known as "parametrics" to make up to $15,000 available to low-income households affected by inland flooding – and to pay them within just days.

Unlike many insurance payouts, the funds can be used for anything a family needs immediately after a flood – a hotel stay, transport, childcare or for simply making up lost wages.

"We had a homeowner who was an Uber driver, and his car got stuck. So he was out of work and couldn't pay his mortgage," said a spokesperson for the center, recalling the impacts of a 2021 hurricane.

Organizers purchased the one-year policy from Zurich-based Swiss Re in February and are looking at ways to extend it.

The program comes as the United States has been hit with a record number of billion-dollar disasters, including Tropical Storm Hilary, which brought flash floods to California this month.

"Climate change impacts are requiring us to think differently about post-disaster insurance and financing," said a spokesperson for the New York Mayor's Office of Climate and Environmental Justice, which is offering advisory support for the pilot project.

"Many residents in New York City and across the country lack access to the savings necessary to address damages and disruptions after a disaster," the spokesperson said.

There is a growing recognition of the community-wide implications of disaster recovery, said Jeff Dunsavage, a senior research analyst with the Insurance Information Institute, an industry association.

"You bring the individual interest in protecting their property and their families, and align that with the community interest in not having a lot of your citizens suddenly being out of luck," he said. "Mitigation becomes everybody's business."

Protection gap

A traditional post-disaster insurance payout is based on an investigation into the extent of damage to a property – a potentially lengthy process, said Carolyn Kousky, an associate vice president with the Environmental Defense Fund, a nonprofit partnering on the New York project.

A parametric approach is different, involving preset triggers – say, a certain amount of rain in a particular place – that automatically generates a payout.

"When speed is important, parametrics is a good tool," said Kousky. She said the pilot was part of an attempt to make disaster insurance more inclusive and seek to understand how large grants need to be in order to have a serious impact.

Parametrics have been used in other countries – the World Bank has helped set up programs related to climate risk in dozens of countries – but far less in the United States, and never before for residential flooding, Kousky said.

Los Angeles County is also looking into parametric tools for heat emergencies, said Rita Kampalath, the county's acting chief sustainability officer.

In the United States, flood insurance is excluded from homeowner policies, so most people who do have flood policies get them through a federal program, said David C. Marlett, a professor of insurance at Appalachian State University.

Still, only between 5% and 7% of homeowners have flood coverage, and that figure is likely lower among low-income communities, he said.

Even for those insured under traditional policies, many experience what Marlett called a "protection gap" between the insured loss and a household's overall economic loss.

"So having a third party – whether it's a state or federal government, or nonprofit entity – have a parametric bond issued on their behalf ... makes a lot of sense."

The National Flood Insurance Program also does not provide for "additional living expenses" when there is a claim, said Don Griffin, a department vice president with the American Property Casualty Insurance Association, an industry group.

The New York project "is a great start to help offset emergency costs," he said, but cautioned that it would not be a substitute for a regular flood policy.

"We had nothing"

The United States is in the midst of an "insurance crisis", said Helen Wiley, disaster preparedness program director with SBP, a national disaster recovery nonprofit that is also supporting the New York pilot project.

"Insurance affordability is a huge issue," she said, as are the additional costs stemming from temporary displacement.

"Resources like aid don't often come until months later. So what do you do in that interim period? ... That timing really is critical to avoid further long-term harm and compounding challenges," Wiley said.

SBP is currently helping rebuild Iris Colen's Houston home, destroyed by a hurricane and subsequent flooding in 2017. Colen and her family were celebrating her daughter's birthday when they heard about Hurricane Harvey - within hours, they had 5 feet (1.5m) of water in their home and had to flee by boat.

"We had no clothes. We had nothing," Colen, 62, recalled.

After 21 moves and years of fighting with post-disaster aid programs, work on her new home is due to be completed in October, she said.

For Colen, immediate aid with no strings attached would not have fixed everything, but would have been a huge help.

"Money would be so helpful, and a real amount of money – enough to go get a car," she said, noting that the family was without transport in the early days after the hurricane.

"We were relying on the kindness of strangers," Colen said.

The years of trying to bounce back have been extremely frustrating, she said, leading to mental and physical health problems for the entire family.

"Disasters are going to happen and are already happening," she said, but warned her experience showed the relief system was broken. "They have to figure out better ways."

(Reporting by Carey L. Biron, Editing by Jonathan Hemming)