Community-embedded insurance: a model for insurance innovation
By Charlie Sidoti, Executive Director, InnSure
The insurance industry is at a crossroads. With weather-related risk worsening due to climate change and insurers unsure about how to adapt — resulting in limited coverage or carriers pulling out of states altogether — now is the time for innovation. Insurance has traversed uncharted territory before; it made electricity, aviation, and automobiles possible by de-risking these new technologies and creating a foundation where one previously didn’t exist. Today, the industry must similarly step up and find creative ways to tackle the challenges of climate change. One example of what this might look like in practice is community-embedded insurance, an innovative way of addressing risks that impact entire communities.
Community-embedded insurance is a model of insurance that is integrated into a specific community or group through a third-party, like a local government entity or homeowners’ association. It’s an extension of embedded insurance, where insurance policies are bundled with another product or service. For example, if someone purchases a plane ticket, they may have the option of adding in travel insurance when checking out — thus bringing the coverage directly to the consumer and “embedding” insurance into the sale process.
In light of climate change and the shifting insurance landscape, embedded insurance has evolved and can expand as community-embedded insurance. While community-embedded insurance is typically customized to meet the unique needs of the insured group, the outcome is the same: it improves access and affordability of insurance.
One example of a strong opportunity for community-embedded insurance is flood insurance. As frequency and severity of flooding rises due to climate change, community-embedded insurance can play a key role in getting coverage in the hands of the consumers who need it. Many inland homeowners may not realize what flood risks their properties are exposed to, especially if they think they’re a decent distance away from bodies of water. However, flooding doesn’t just happen near waterways; it can occur when there’s excessive rainfall. Because homeowners might not understand the risk flooding poses or the security that insurance provides, they might simply forego flood insurance, especially if the premiums are too high.
With a community-embedded insurance model for flood insurance, instead of each home in a community being individually insured, an insurance policy is sold to an entire community, and the risk and financial burden are collectively spread over more homes, resulting in a lower cost per home. Additionally, community education can be disseminated through known and trusted sources, helping homeowners to understand exactly what they are getting for their money, and why the product represents value for them as consumers.
The community-embedded insurance model is the type of innovative thinking that brings subsectors of the insurance industry together to address a previously unmet need — the kind of thinking that InnSure fosters through the Climate Risk and Insurance Sandbox (CRIS) — a climate-relevant data repository that insurance companies can use to test their loss models — and the recently-announced Insurance Innovation for Climate Tech Challenge — a NYSERDA-funded, InnSure facilitated program to accelerate the research and development of new insurance products and solutions that address climate risk.
The insurance industry can and must play a crucial role in tackling climate change. If we’re going to address the issues at hand, we need to come up with innovative and collaborative solutions that protect policyholders and ensure the longevity of the industry. Community-embedded insurance is just one example of creative insurance products that have the potential to close the protection gap and help push the world towards a climate-risk-resilient state.
