The first step in the iterative five-part process that can guide communities as they consider implementation of a community-based catastrophe insurance (CBCI) program, is “Defining the Need or Problem” that the community is trying to solve.
CBCI is enormously flexible and can be tailored to the perils and specific population of interest to the community. For instance, is coverage needed for pluvial floods outside the U.S. Federal Emergency Management Agency’s (FEMA’s) Special Flood Hazard Area? Is earthquake coverage desired? Wildfire? A multiperil policy? Does the community want to provide a base level of coverage, or more? Does it want to offer a policy for property damage or to cover other disaster costs? Is the targeted population small businesses? Renters? Low-income owners? An affluent neighborhood? Specifically identifying the risk and population is an important step that informs other aspects of program design. Defining the need also includes ascertaining the current take-up rates of coverage or interest in coverage among residents, and their willingness and ability to pay for the coverage.
This step, along with the remaining four steps in the process: (1) Defining the authority to act, (2) Engaging stakeholders, (3) Analyzing risk, and (4) Transferring risk, are discussed in detail in the new report from Guy Carpenter, Marsh & McLennan Advantage and the Wharton Risk Management and Decision Processes Center, Community-Based Catastrophe Insurance: A Model for Closing the Disaster Protection Gap.