Traditional Home Insurance is Falling. Here’s What Can Fill The Gap

Fortunately, a few months after the Mississippi River floods of 2019, Wellenkamp learned about a new, little-known insurance policy that is quietly growing in disaster-prone areas around the world — not just as a way to get a home but as a way to protect cities and the environment as a whole against disasters. It started to spread in eastern and southern Africa in early 2010, especially in Malawi and Ethiopia. It then began to spread to war zones and other places that were once considered unsafe.

It’s called parametric insurance, and it relies heavily on sensors, satellites, and AI. The idea is what it sounds like: When sensors confirm that certain parameters have been hit—a half-inch of rain falls in an hour, or a 100-mile-per-hour north wind persists for 60 seconds—any participating government or business in the eligible area can be paid. By creating information based on long-term forecasting of the weather rather than actual damage assessments, insurance companies are able to cope with changing demographics. And by processing claims with AI, they can get money into people’s hands in a matter of days. The money usually comes from a pool of payments from different parties: usually governments, non-profits, and businesses that have a financial stake in their environment.

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In 2018, some United Nations staff reached out to Wellenkamp’s non-profit to discuss disaster management, and parametric insurance was born. They have seen it work in other parts of the world and have given the opportunity to discuss between Wellnkamp and other insurance officials to see if a similar model can serve in the Mississippi River. Since then, he has been negotiating with one of the largest insurance companies in the world, Munich Re, trying to find a plan to prevent the 2019 flood.

Wellenkamp is in good company. As disasters multiply and the nature of home insurance crumples under the weight of global warmingthe parametric model has been slowly making inroads into major North American markets, creating a number of previously difficult-to-hide disasters. Last year, the Bay Area city of Fremont became the first state in the nation to create a flood insurance plan. A homeowners association near Lake Tahoe, California, has a fire insurance policy, and a New York non-profit group has partnered with the city to purchase a flood insurance policy that will cover very limited areas of New York City. Hoteliers and governments in Hawaii and Cancun, Mexico, have implemented measures to protect coral reefs from hurricane damage. Over the years, the governments of 16 countries in the Caribbean have paid for one hurricane plan; after the hurricane Beryl of 2024 met the established parameters, the plan quickly sent money, including about $ 44 million to Grenada alone. The money allowed hospitals and schools to reopen quickly, fixed roads and public water lines, and helped farmers and small businesses.