In a special series, the Innovation of the Month is currently focusing on the award winning and innovative projects championed by MetroLab’s member universities and civic partners that advanced to Stage 2 of the National Science Foundation Civic Innovation Challenge, a multi-agency, national research and action competition that aims to fund ready-to-implement, research-based pilot projects that have the potential for scalable, sustainable and transferable impact on community-identified priorities.
If you’d like to learn more or contact the project leads, please contact MetroLab at info@metrolabnetwork.org for more information.
In this installment of the CIVIC Stage 2 Innovation of the Month series, we highlight a project called “Inclusive Insurance: Improving the Post-Flood Financial Resiliency of Low- and Moderate-Income Households” from New York City. The project seeks to improve the ability of low- and moderate-income households to recover after a flood through innovative insurance pilots and capacity building within the city, and civic partners to harness risk-transfer markets for social goals.
MetroLab’s Elias Gbadamosi and Josh Schacht spoke with Carolyn Kousky, executive director of the Wharton Risk Management and Decision Processes Center at the University of Pennsylvania; Peter Adams, senior policy adviser for Land Use and Buildings, New York City Mayor’s Office of Recovery and Resiliency; Helen Wiley, project manager at the Wharton Risk Center; Joseph Sant, general counsel and vice president of the Center for NYC Neighborhoods; Jessi Penkoff, staff attorney at the Center for NYC Neighborhoods; and Aaron Sturm, program manager at the Center for NYC Neighborhoods.
Elias Gbadamosi: Can you tell us what your project is about and what the motivation for it was?
Carolyn Kousky: Our project’s overarching goal is to increase the financial resilience of low- and moderate-income (LMI) households in New York City to escalating flood risk through the use of inclusive insurance. Currently, low- and moderate-income households in the U.S. struggle with access to the needed financial resources to recover after disaster events. Yet, financial resilience — the ability to recover from an economic shock — underpins other aspects of recovery and is a necessary condition for broader urban disaster resilience.
Peter Adams: Our project is about helping the neediest when they need help most. After a disaster, lower income New Yorkers often don’t have the savings or support network necessary to find safe shelter, get food and access needed supplies. Even though all levels of government and aid organizations scramble to start up response and recovery actions after a flood, vulnerable households have needs that cannot wait. That’s why we are piloting a parametric insurance policy program in New York City, to test and demonstrate how this type of speedy, ready-to-go insurance payout can get money to the people who need it most in the immediate aftermath of a disaster.
Kousky: We have structured our project activities into four components: (1) develop and deploy innovative insurance pilots, (2) create a community of practice for harnessing risk transfer for social recovery goals, (3) increase literacy and capacity of all partners, and (4) link research to actionable change. As Peter said, the key pilot will be the purchase, by the Center for New York City Neighborhoods, of a parametric flood insurance policy designed to rapidly provide emergency cash grants to low- and moderate-income households in the event of a flood.
Josh Schacht: Who are your project partners and what role do they play on the team?
Helen Wiley: This project is a joint effort between the Wharton Risk Management and Decision Processes Center at the University of Pennsylvania, the New York City Mayor’s Office of Climate Resiliency (MOCR), and the Center for New York City Neighborhoods (CNYCN). These partners have deep and extensive experience on topics of disaster resilience, insurance, and the recovery of low- and moderate-income households and communities from disasters. As a team, our three institutions are working closely together to ensure that all of our project components enhance one another. For instance, CNYCN coordinates a network of 30 housing counseling and legal services organizations that assist low- and moderate-income households in NYC. This network was activated during Hurricane Sandy to help households with recovery. Our project will provide this network of advisers with deeper training on disaster insurance and disaster finance.
Additionally, Guy Carpenter, one of the largest global reinsurance intermediaries with broad experience in disaster risk transfer, is providing consultant and brokerage services for the insurance purchase. They are helping design and structure this innovative insurance policy. The Risk Center is also undertaking research and development on a second promising parametric insurance model with the help of Global Parametrics, world leaders in inclusive insurance for poorer populations internationally. Our work also is informed by an advisory board of subject-matter experts.
Wharton Risk Center
Gbadamosi: What are some of the major impacts of flooding on the economy of low- and moderate-income households?
Joseph Sant: The financial burden caused by flood recovery is especially difficult for low- and moderate-income households. After a disaster, financial aid does not cover all needs and delays in payments hurt household finances. The immediate financial strain causes the least financially resourced households to pay the most for their recovery, especially those who do not have enough savings to cover the cost of repairing a flood damaged home or if the recovery process causes them to incur excessive debt. Furthermore, paying for unexpected disaster-related payments results in an inability to pay for other bills, and households can quickly fall behind on their rent, mortgage or other regular payments.
Middle- and working-class communities of color, who were literally marginalized by segregation and discrimination in housing, now reside along New York City’s coasts, and in many places these are now some of the last bastions of affordable housing in urban markets like ours. These groups can disproportionately suffer post-disaster. For example, research by the Urban Institute has found that after four years, a medium-sized disaster causes an average 31-point decline in credit scores for people living in communities of color, whereas people living in majority white communities experienced only a four-point decline.
Jessi Penkoff: Compared to the city as a whole, a disproportionately large number of flood zone residents live in owner-occupied one-to-four family homes. They are predominantly low-and moderate-income residents, and they suffered considerably following Hurricane Sandy — both in terms of financial setbacks and through the health risks that accompanied the flooding. These same households must now also contend with pandemic-related financial setbacks, higher flood insurance premiums and limited options for preparing the older housing stock against future storm damage.
Adams: Floods come in all shapes and sizes, sometimes from coastal surge or extreme rain, sometimes spread out across an entire city or other times limited to a single block. But whatever the source or scale of the flood, if it is your home that is flooded, that flood was a disaster for you and your household. This is especially true if your household is low income and has a limited safety net. A flood-damaged home can mean loss of possessions, structural damage, injury, and even loss of life. Mold and rot can set in, creating hazardous conditions, and if the floodwaters were saline, corrosion causes further problems. In the best case, occupants are forced to live elsewhere until their home is mucked out, cleaned and passes safety inspections; in the worst case, they may not be able to return to their home for a very long time. Meanwhile, low- and moderate-income households typically have to wait months or even years for insurance payouts or federal relief. The disruption to home, work, school, health and safety can be profound and lasting.
Gbadamosi: How would you explain inclusive/innovative insurance and why is it an important economic development tool for post-disaster recovery?
Kousky: Inclusive insurance refers to any program or policy that makes insurance coverage available to those previously locked out of the insurance market. Internationally, there has been a growing movement to identify low-cost insurance designs and establish public-private partnerships that can guarantee a more equitable recovery; however, these innovations have yet to be widely adopted in the U.S.
Our pilot will be parametric. That means the insurance policy will pay a set amount based on an observable measure of the disaster, such as the height of flood waters or wind speed in a certain location. This is different from standard indemnity insurance, which typically requires a time-consuming loss adjustment process after a disaster. Parametric insurance provides two important benefits for our project. First, payouts can be made extremely rapidly. This is important as we have found that many households do not have sufficient resources in the immediate aftermath of a severe flood. Second, parametric insurance also provides important flexibility to the insured in how the funds are used.
Adams: We call parametric insurance innovative because it goes beyond typical insurance to provide a level of coverage that is clear to the beneficiary and fast to pay out. There is no extensive documentation required or other red tape after a disaster — instead, there’s money in the pockets of people who need it most and need it fast.
Center for New York City Neighborhoods
Schacht: Can you tell us briefly about some of the policy-informed research projects that your team plans to deliver for New York City residents?
Kousky: The challenge of low- and moderate-income household recovery and escalating climate risks cannot be solved by one field or the public or private sector alone, but only through new partnerships informed by interdisciplinary research. Therefore, the research activities for this project are designed to directly inform on-the-ground policy and practice.
Wiley: We will be undertaking several research projects. First, we are conducting a survey to quantify the length of delays in various sources of disaster recovery dollars and the costs from these delays. The results will be combined into a comprehensive framework linking the delays households experience in obtaining the necessary financial resources for recovery and ultimate financial and non-financial costs to households. Second, we are constructing a typology of the community-level benefits of widespread insurance purchase. And third, we are doing a replicability and generalizability analysis of the project’s insurance pilots. If the pilot is successful, scaling will involve not just expanded use within NYC, but also transferring the approach and insights to other communities.
Gbadamosi: What key considerations would you recommend that other disaster-prone communities pursue when building inclusive insurance options?
Adams: Work with your local, on-the-ground partners to understand which parts of your community are most at risk, what their needs are and how best to address those needs. Study past disasters and talk to the people who experienced them firsthand. Also, think through the different impacts of different disasters. For example, smaller disasters may cause less or more limited damage overall, but if they are focused on a low-income community, the need may still be great. Likewise, a smaller disaster may not get a federal disaster declaration (and subsequent federal aid) or generate as much charitable support as a larger disaster, despite the fact that severe impacts are still being felt by low-income households. Find where the recovery gaps are in your community and then determine if parametric insurance is the right tool to help fill them.
Sturm: Flood insurance is a key component to recovering more quickly post-disaster and reducing financial harm. It is not just for homeowners and communities living along a coast; a large majority of claims come from outside of high-risk coastal flood zones. Community members need access to up-to-date information so they can understand their individual risk and know what options are available to mitigate the impact of the next flooding event.
While in some situations, households may be able to turn to friends or family for assistance, in a flood, entire neighborhoods may be hit simultaneously. As such, resilience typically requires that disaster risks be transferred out of the community. Most disaster relief programs are designed for long-term recovery and hazard mitigation, not the financial needs in the weeks and months following a disaster. Thus, considering these other approaches can be beneficial in helping households with a faster and stronger recovery.
