Community-based catastrophe insurance (CBCI) solutions have the potential to enhance the financial resilience of communities and their residents, provide affordable and reliably available disaster insurance, and create incentives for community-level and individual risk reduction.
Four broad institutional structures for CBCI illustrate the different roles and responsibilities of the community and other partners:
- A facilitator model
- A group policy model
- An aggregator model
- Purchase through a community captive
The community’s role and responsibility increase from lowest to highest moving from the first to the fourth model. In the first model, the community is more of a facilitator and a negotiator. In the second model, the community takes on a role in distribution, choosing insurance options and collecting premiums. In the third model, the community has a dual role: as the insured on a community contract with a reinsurer and as the disburser of claims funds. The fourth model harnesses an existing institutional structure — an insurance captive — that enables the community to provide disaster policies.
In all cases, the community could offer the coverage for a property owner to voluntarily decide to purchase, or there may be a few instances where a community would compel residents to purchase coverage. When coverage is voluntary, however, a community would likely need to offer purchase incentives to achieve goals of widespread take-up of the coverage.
Read about “Possible Structures” for CBCI, described in detail in the report, Community-Based Catastrophe Insurance: A Model for Closing the Disaster Protection Gap, from Guy Carpenter, MarshMcLennan Advantage and the Wharton Risk Management and Decision Processes Center.