Community-based catastrophe insurance: a model for closing the disaster protection gap

The focus of this report is on addressing the questions of a wide range of stakeholders, including community officials, members of the insurance industry, and others interested in efforts to promote resilience through risk transfer. The report offers an in-depth introduction to the delivery models so that community officials and risk managers can begin to explore and implement community-based catastrophe insurance (CBCI) as part of an integrated risk management strategy. Although the report’s focus is on the United States, the models are broad and could be extended to many other regulatory contexts.

This report conlcudes that closing the disaster protection gap will require innovation. CBCI, a new model for disaster coverage, has the potential to be one important tool for improving community resilience to disaster events. Ensuring widespread coverage for residents can lead to faster and stronger recoveries. There is the potential in some communities for CBCI to help offer that coverage at a more affordable price point or to provide supplementary or base coverage for residents. One of the benefits of CBCI is that the structure of the policy is highly flexible, able to be tailored for various types of communities and to meet a range of needs. In all cases, however, CBCI would be enhanced by being part of a comprehensive risk management program and not an isolated risk transfer solution divorced from other risk management activities. This can help create a culture of risk management. Outreach and education around disaster risk, as well as financial literacy, will support risk-related decision-making. Investments in risk reduction at the property and community level can both improve insurability and lower prices.