OH. THANK YOU. WELCOME TO THE
ASSEMBLY INSURANCE COMMITTEE
INFORMATIONAL HEARING ON
PARAMETRIC INSURANCE. CALIFORNIA
CONTINUES TO FACE EXTREME
WEATHER, AND WE ARE UNDOUBTEDLY
FEELING THE EFFECTS OF CLIMATE
CHANGE. I THINK RIGHT NOW WE'RE
IN OCTOBER AND WE'VE SEEN 100
DEGREE TEMPERATURES ALREADY. SO
THIS IS KIND OF OUR NEW NORMAL.
RECOVERING FROM EXTREME WEATHER
EVENTS CAN BE COSTLY, EVEN IF
YOU HAVE INSURANCE, AND MORE
OFTEN THAN NOT, TRADITIONAL
INSURANCE POLICIES DON'T COVER
ALL OF THE COSTS ASSOCIATED WITH
THESE EXTREME EVENTS. AT THIS
HEARING, WE'RE GOING TO TAKE A
CLOSER LOOK AT PARAMETRIC
INSURANCE. PARAMETRIC INSURANCE
POLICIES OFFER AN INNOVATIVE
OPTION TO HELP ADDRESS THESE
PROTECTION GAPS IN DISASTER
COVERAGE, AND CAN ALSO PROVIDE
COVERAGE FOR MORE DIFFICULT TO
INSURE RISKS. TODAY, WE HOPE TO
LEARN MORE ABOUT WHAT PARAMETRIC
INSURANCE IS, HOW IT WORKS, AND
TO WHAT EXTENT IT IS ALREADY
AVAILABLE AND BEING USED, AND
HOW IT CAN SERVE AS AN
ADDITIONAL TOOL TO AID IN
DISASTER RECOVERY AND POSSIBLY
COMPLEMENT TRADITIONAL INSURANCE
POLICIES. INSURANCE COMMISSIONER
RICARDO LARA WILL ALSO BE
JOINING US TODAY. WELCOME. AND
HE'S GOING TO PROVIDE MORE
DETAILS ABOUT THE ROLE
PARAMETRIC INSURANCE CAN HAVE IN
CALIFORNIA. I'D LIKE TO THANK
THE MEMBERS THAT WILL BE HERE IN
ATTENDANCE WITH ME TODAY. AND
PROVIDE THEM AN OPPORTUNITY TO
MAKE OPENING REMARKS. AND
ADDITIONALLY, WE'RE GOING TO
HAVE AN OPPORTUNITY FOR MEMBERS
TO ASK QUESTIONS FOLLOWING EACH
OF OUR THREE PANELS. SO
INSURANCE COMMISSIONER LARA,
YOU'RE OUR FIRST PANELIST. AND I
KNOW THIS IS A SUBJECT OF GREAT
INTEREST TO YOU. AND I REALLY
APPRECIATE YOU FLYING UP TO BE
HERE TODAY. AND I JUST WANT TO
MAKE A QUICK Þ WE HAVE ANOTHER
MEMBER, I JUST WANT TO MAKE A
QUICK NOTE THAT MIKE PETERSON
WILL ALSO BE JOINING YOU TODAY.
HE'S YOUR DEPUTY COMMISSIONER AT
THE CALIFORNIA DEPARTMENT OF
INSURANCE, CLIMATE AND
SUSTAINABILITY BRANCH. WELCOME,
ASSEMBLYMEMBER VALENCIA. SO
WITHOUT FURTHER ADO, WHENEVER
YOU'RE READY, INSURANCE
COMMISSIONER, PLEASE GO AHEAD.
THANK YOU, MADAM CHAIR. MEMBERS,
THANK YOU FOR HOSTING THIS
INFORMATIONAL HEARING TODAY ON A
TOPIC THAT I FIND INCREDIBLY
INTERESTING AND DEMONSTRATES
THAT INSURANCE HAS THE
CAPABILITY OF BEING INNOVATIVE
AND ACTUALLY CUTTING EDGE.
UNDERSTANDING THE POTENTIAL OF
THESE PRODUCTS BY SHOWCASING HOW
THEY ARE BEING USED AROUND THE
WORLD TO CLOSE INSURANCE GAPS,
SAFEGUARD OUR MOST VULNERABLE
COMMUNITIES, AS WELL AS
PROTECTING OUR ENVIRONMENT, CAN
PROVIDE US WITH CLEAR EXAMPLES
OF HOW, HOW, HOW WE MAY
IMPLEMENT AND OVERSEE THESE
PRODUCTS. IN CALIFORNIA, ONE
DAY, AS WE FINALIZE THE REFORMS
IN MY SUSTAINABLE INSURANCE
STRATEGY TO ADDRESS OUR
INSURANCE CRISIS AND THE ONGOING
AVAILABILITY CHALLENGES, WE ALSO
NEED TO RECOGNIZE THAT CLIMATE
RISK IN CALIFORNIA GO WELL
BEYOND WILDFIRE. UNFORTUNATELY,
AT OUR DEPARTMENT, WE RECOGNIZE
THE SCOPE OF OUR PROTECTION GAPS
FOR FLOODING, SEA LEVEL RISE,
DROUGHT, EXTREME TEMPERATURES,
INCLUDING EXTREME HEAT. AND LET
ME SAY THAT THIS ON THE ONSET
PARAMETRIC INSURANCE IS NOT A
REPLACEMENT OF TRADITIONAL
INSURANCE PRODUCTS. TRADITIONAL
INSURANCE PRODUCTS REMAIN THE
BEST WAY CALIFORNIANS CAN
PROTECT THEIR ASSETS AND THEIR
FAMILIES. BUT WE'RE ALSO
REALISTIC, YOU KNOW, COST OF
LIVING, LACK OF HOUSING,
INFLATION, NEED FOR LIVABLE
WAGES. ALL OF THIS CONTRIBUTES
TO CONSUMERS EITHER FORGOING
COVERAGE OR OBTAINING MINIMAL
COVERAGE, LEAVING MANY EXTREMELY
VULNERABLE TO THE ELEMENTS
AROUND THE WORLD. WE SEE
EXAMPLES OF INSURANCE THAT IS
FOCUSED ON SPECIFIC LOCAL
THREATS. MANY ARE THE FIRST OF
THEIR KIND IN AND COUNTRIES ARE
OVERSEEING CREATIVE NEW
APPROACHES. THIS IS WHERE
PARAMETRIC PRODUCTS CAN PLAY A
PIVOTAL ROLE AND BECOME AN
ADDITIONAL TOOL TO EXPAND
COVERAGE TO VULNERABLE
COMMUNITIES IN VARIOUS REGIONS
THROUGHOUT OUR STATE. SOME ARE
ALSO NARROWLY TAILORED TO UNIQUE
CHALLENGES FACING ENDANGERED
WORKERS, FOR EXAMPLE, AND BEING
USED TO PROTECT CRITICAL
ECOSYSTEMS, PROVING THAT
INSURANCE CAN BE USED AS AN
IMPORTANT INSTRUMENT IN OUR
FIGHT AGAINST CLIMATE CHANGE.
UNDERSTANDING AND BUILDING
EXPERTISE IN THE VARIOUS PERILS
AND GAPS, AS WELL AS
UNDERSTANDING THE INNOVATIONS IN
THE INSURANCE INDUSTRY, WILL
ONLY BENEFIT CALIFORNIA'S
CONSUMERS THROUGH STRONGER
PROTECTIONS AND CAN ALSO HELP US
INCREASE THE TAKE UP IN COVERAGE
THAT CONTINUES TO LAG BEHIND.
AND LET ME BRING ONE OF THOSE
ISSUES TO POINT. IN FACT, LESS
THAN 2% OF HOUSEHOLDS IN
CALIFORNIA HAVE FLOOD INSURANCE
COVERAGE. THIS IS A COLOSSAL
PROBLEM. WE ARE TRYING TO SOLVE
NATIONALLY AS WELL, WHERE ONLY
4% OF AMERICANS, AMERICAN
HOUSEHOLDS HAVE FLOOD INSURANCE
POLICY. AS YOU KNOW, THIS LEAVES
THOUSANDS DEPENDENT ON STATE AND
FEDERAL GOVERNMENT ASSISTANCE TO
REBUILD, RECOVER, AND TO
ULTIMATELY SURVIVE EXTREME HEAT
EVENTS WHICH CONTINUE TO
INCREASE IN OUR STATE, PRODUCE
COSTS THAT ARE RARELY INSURED,
AND WE ARE BARELY IN THE
INCEPTION OF REALLY
UNDERSTANDING THE IMPACT TO OUR
HEALTH, LIFE AND PNC INSURANCE
MARKETS. EARLIER THIS SUMMER, MY
DEPARTMENT RELEASED THE FIRST
EVER EXTREME HEAT REPORT ON
UNINSURED AND UNINSURED LOSSES.
I THINK WE PROVIDED A COPY. WE
HAVE COPIES OF THOSE WITH US
TODAY AND FROM OUR RESEARCH, AND
THIS IS JUST A STUDY FROM RECENT
HEAT EVENTS PROVING CRITICAL,
PROVIDING CRITICAL INFORMATION
TO US AS REGULATORS ON THE
FINANCIAL RISK AND SOLVENCY THAT
CAN COME COME FROM EXTREME HEAT
EVENTS. SO WE NEED INNOVATIVE
SOLUTIONS TO CLOSE THESE GAPS AT
THE STATE, NATIONAL AND
INTERNATIONAL SCALE. AND THAT IS
WHERE I WANT TO START MY
PRESENTATION TODAY. AND
HOPEFULLY I GET THIS RIGHT,
BECAUSE I'M A GEN XER, SO OH,
SEE, I ALREADY SCREWED THAT UP.
OKAY. IN 2019, I LAUNCHED THE
FIRST OF ITS KIND, CALIFORNIA
INSURANCE WORKING GROUP,
JUMPSTARTING TWO YEARS OF
COLLABORATIVE WORK BY 18 GROUP
MEMBERS FROM ENVIRONMENTAL
INSURANCE AND PUBLIC POLICY
ORGANIZATIONS TO DEVELOP
RECOMMENDATIONS THAT IDENTIFIED
NEW STRATEGIES TO REDUCE THE
RISK OF CLIMATE IMPACTS FOR
CALIFORNIA COMMUNITIES. YOU'LL
BE HEARING FROM ONE OF OUR
AMAZING GROUP MEMBERS, LLOYD
DIXON, AT THIS HEARING. A LITTLE
LATER IN 2021, THE WORKING GROUP
PUBLISHED RECOMMENDATIONS IN OUR
CLIMATE INSURANCE REPORT TITLED
PROTECTING COMMUNITIES,
PRESERVING NATURE AND BUILDING
RESILIENCY THE REPORT RECOGNIZED
THE IMPORTANCE OF NATURE BASED
SOLUTIONS LIKE OUR WETLANDS TO
PROTECT COMMUNITIES FROM
FLOODING AND URBAN TREE CANOPIES
TO PROTECT NEIGHBORHOODS FROM
EXTREME HEAT. THE
RECOMMENDATIONS BREAK DOWN THE
ACCELERATING RISK THAT WE SEE IN
WILDFIRE FLOODING AND EXTREME
HEAT INTO FIVE CROSS-CUTTING
THEMES. HOW DO WE ASSESS THE
RISK THEN? HOW DO WE COMMUNICATE
THAT RISK BROADLY SO THAT PEOPLE
UNDERSTAND THE SEVERITY OF WHAT
WE'RE ABOUT TO FACE? AND THEN
HOW DO WE EXPAND RISK MITIGATION
TO INVEST IN NATURE BASED
SOLUTIONS AND INNOVATIVE
PRODUCTS? SO THAT WE DON'T
CONSTANTLY GO INTO THE GRAY
INFRASTRUCTURE, WHICH IS MUCH
MORE COSTLY, UNSIGHTLY, AND MUCH
MORE DIFFICULT TO REPAIR? THE
REPORT RECOMMENDED THAT
INNOVATIVE INSURANCE SOLUTIONS
COULD HELP CLOSE PROTECTION
GAPS, AND THE DEPARTMENT SHOULD
HELP CATALYZE NEW INSURANCE
CONCEPTS. THAT INNOVATION
INCLUDES PARAMETRIC INSURANCE
PRODUCTS, COMMUNITY INSURANCE
PRODUCTS AND INCLUSIVE INSURANCE
STRATEGIES THAT EXPAND INSURANCE
TO THE MOST VULNERABLE
POPULATIONS. PARAMETRIC
INSURANCE POLICIES ARE THOSE
WHERE FINANCIAL RISK AND
INSURANCE ARE TIED TO WIND
SPEED, FOR EXAMPLE, OR EXTREME
HEAT SEVERITY, OR A NUMBER OF
INCHES OF RAIN IN A SINGLE AREA.
COMMUNITY LEVEL INSURANCE
FOCUSES ON PROVIDING ADDITIONAL
INSURANCE FOR THE ENTIRE
COMMUNITY, WHICH NOT ONLY POOLS
THE SHARED RISK OF A CERTAIN
COMMUNITY, BUT IT CAN ALSO BE
USED TO PROVIDE FINANCIAL
INCENTIVES FOR COMMUNITY WIDE
RISK REDUCTION, ESPECIALLY
NATURE BASED SOLUTIONS. SO IN
THE NEXT SLIDE, YOU'LL SEE
REGULAR INSURANCE IS ABOUT
RESTORING PROPERTY TO ITS PRE
DAMAGED STATE. THAT'S AS WE ALL
KNOW THAT IS INDEMNITY INSURANCE
WITH PARAMETRIC INSURANCE THE
PAYOUT IS DETERMINED BY
MEASURING THE SEVERITY OF THE
DISASTER. SO EXTREME HEAT WAVE
DURATION OR INTENSITY FOR
EXAMPLE OR EARTHQUAKE RICHTER
SCALE MEASURE HEIGHT OF A RIVER,
FLOOD HEIGHT OF A RIVER ABOVE
FLOOD STAGE, FOR EXAMPLE, AND OF
COURSE DURING WILDFIRE. WE'RE
LOOKING AT MAYBE ACRES BURNED OR
THE AMOUNT OF STRUCTURE DAMAGE
IN A PARTICULAR WILDFIRE. AGAIN,
THIS IS NOT A REPLACEMENT FOR
INDEMNITY BASED HOMEOWNER'S
COVERAGE, BUT PARAMETRIC
PRODUCTS CAN BE FLEXIBLE WITH
WHAT I AM MORE EXCITED ABOUT IS
WITH DIRECT CASH PAYMENTS
WITHOUT A LENGTHY CLAIM PROCESS.
IT'S THE MONEY IS TRIGGERED TO
THE SPECIFIC METRIC WE ARE
USING. SO NO QUESTIONS ASKED, NO
CLAIM PROCESS. THE MONEY IS
GIVEN IF IT MEETS THE SCALE THAT
WE THE MEASURING THAT WE'RE
GOING TO USE. SO PARAMETRIC
INSURANCE CAN IMPROVE RESILIENCE
IN COMMUNITIES. PROVIDING A
STRATEGY FOR UNEXPECTED DISASTER
COSTS, FOR EXAMPLE, SUCH AS
EVACUATION. AND BY HELPING STATE
AND LOCAL GOVERNMENTS FUND THEIR
OWN RECOVERIES, INCLUDING
INFRASTRUCTURE REBUILDING THESE
POLICIES OFTEN COVER NON
PROPERTY LOSSES, SUCH AS HEALTH
IMPACTS FROM HEAT WAVES OR
FLOODS OR BUSINESS INTERRUPTION.
FOR EXAMPLE. DURING THAT WE
EXPERIENCED DURING COVID. IT CAN
HELP BUSINESSES AND GOVERNMENTS
PREPARE AND RESPOND. AND AGAIN,
THE IMMEDIATE IMMEDIATE PAYOUTS
CAN ASSIST WITH PRE-DISASTER
PREPARATION TO FORTIFY NATURAL
INFRASTRUCTURE AND ACTUALLY WORK
ON RAPID RECOVERY. SO TO IMPROVE
OUR OWN CAPACITY TO UNDERSTAND
AND OVERSEEING EMERGENCY
POLICIES, WE REALLY HAVE ENGAGED
REGULATORS ACROSS THE US WITH
INTERNATIONAL REGULATORS, FROM
EVERY CONTINENT, ENVIRONMENTAL
GROUPS LIKE THE ENVIRONMENTAL
DEFENSE FUND AND CLIMATE RESOLVE
TO BETTER UNDERSTAND HOW
INSURANCE POLICIES CAN BE USED
TO PROTECT VULNERABLE
COMMUNITIES. AND AT THE SAME
TIME PROTECT NATURE, WHICH IS
YOU'LL BE HEARING SOME OF THE
FIRST OF OUR KIND EXAMPLES OF
HOW THAT'S HAPPENING. INSURANCE
CAN NO LONGER BE AN AFTERTHOUGHT
IN OUR OVERALL CLIMATE STRATEGY.
AS WE ALL KNOW, THE INNOVATIVE
PRODUCTS YOU'LL HEAR ABOUT TODAY
ARE EXAMPLES OF HOW INSURANCE
CAN ACTUALLY BE AT THE FOREFRONT
OF HOW WE PLAN AND PREPARE FOR
CLIMATE CHANGE. AND THE
CHALLENGE FOR THIS COMMITTEE AND
FOR ITS MEMBERS IS TO FOR JUST
FOR THIS HEARING, BREAK AWAY
FROM THE TRADITIONAL WORK THAT
WE DO AROUND INSURANCE, FROM
BREAKING AWAY FROM THE PARADIGM
OF RATES. YOU KNOW, FILES AND
ALL THE TRADITIONAL WORK THAT WE
DO. THIS REALLY GETS US AT AN
INNOVATIVE SPACE WHERE I WANT
YOU TO BE A LITTLE BIT
UNCOMFORTABLE, ACTUALLY. SO THE
NEXT SLIDE, YOU'LL SEE, FIRST
AND FOREMOST, RECENT EXTREME
HEAT INCOME INSURANCE IN INDIA
THAT WE'VE SEEN IS THIS WAY.
OKAY, HERE WE GO. NO IT'S RARE
EXTREME HEAT INCOME IN INDIA. AS
AN EXAMPLE, YOU HAVE AN ARTICLE
ON YOUR PACKET THAT IS A GREAT
EXAMPLE OF A CREATIVE PROGRAM
THAT GOES BEYOND TRADITIONAL
MARKETS. THIS IS AN INCENTIVE,
AN INITIATIVE DEVELOPED BY A
GROUP CALLED CLIMATE RESILIENCE
FOR ALL, A GROUP THAT I WORK
WITH AS A MEMBER OF THE
INTERNATIONAL EXTREME HEAT
RESILIENCE ALLIANCE. SO IN
WESTERN INDIA, TEMPERATURES
CREATE DEADLY HOT WORKING
CONDITIONS FOR MANY WORKERS. I
KNOW THAT SOUNDS VERY FAMILIAR
FOR US HERE IN CALIFORNIA.
EXTREME INCOME AND EXTREME HEAT
INCOME INSURANCE WAS LAUNCHED IN
2023 TO HELP WOMEN IN INDIA
RECOVER LOST WAGES DUE TO
CLIMATE DRIVEN EXTREME HEAT
EVENTS. THE PROGRAM IS
ANTICIPATED IS ACTIVATED. I
SHOULD SAY, AT A THRESHOLD OF
EXTREME HEAT CONDITIONS ALIGNED
WITH TEMPERATURES EXPECTED TO
IMPACT HEALTH OUTCOMES. SO
THEY'VE BEEN ABLE TO LINK BOTH
THE HEALTH OUTCOME TO THE ACTUAL
GRAVITY OF THE HEAT. SO THIS
PAST JUNE, I'LL SHOW YOU SOME
HEADLINES. MORE THAN 46,000
WOMEN RECEIVED INCOME INSURANCE,
DIRECT PAYMENTS IMPROVING AND
PROVIDING IMPORTANT STABILITY
AND PROTECTION. SO HERE, HERE
ARE SOME OF THE ARTICLES ABOUT
THE IMPACT OF THE NEW INSURANCE
PROGRAM IN PROTECTING WOMEN
DURING RECENT HEAT EVENTS. THIS
IS THE TYPE OF INSURANCE
STRATEGY THAT IS GETTING MORE
ATTENTION WORLDWIDE AS CLIMATE
CONTINUES TO AS OUR GLOBE
CONTINUES TO HEAT. AND THAT IS
BECAUSE PEOPLE ARE BECOMING WE
ARE BEING PROTECTED. AND WHAT
WAS THAT OTHER WORD OF OTHER
OTHERWISE BEEN EXPOSED TO
EXTREME HEAT AND POTENTIALLY
DEATH BECAUSE THESE WOMEN HAD TO
WORK NO MATTER WHAT. SO NOW THE
QUESTION IS, HOW DO WE SCALE AND
IMPROVE THESE TYPE OF PROGRAMS
FOR CALIFORNIA? AND THAT'S WHAT
WE ARE CURRENTLY WORKING ON.
LET'S TALK ABOUT DROUGHT.
DROUGHT CREATES FINANCIAL RISKS
TO FOOD SUPPLIES AND LOCAL
ECONOMIES. THIS INSURANCE POLICY
THAT I'M ABOUT TO TALK ABOUT IS
A BIPARTISAN, BIPARTISAN
PARTNERSHIP BETWEEN THE WORLD
BANK AND THE COUNTRIES OF
DJIBOUTI, ETHIOPIA, SOMALIA AND
KENYA. WHEN DROUGHTS OCCUR,
CATTLE DON'T HAVE GRASS TO EAT.
THIS POLICY PREVENTS THE DEATH
OF CATTLE HERDS BY DETECTING
DROUGHT CONDITIONS AND PROVIDING
FUNDS FOR HERDERS TO FEED CATTLE
THROUGH ALTERNATIVE FOOD
SOURCES, RATHER THAN GRAZING IN
THE FIELDS THAT HAVE DRIED OUT
AND CAN ACTUALLY KILL YOUR
CATTLE. SAVING THE CATTLE HERDS
PREVENTS COMMUNITIES FROM MAJOR
LOSS IN THERE, AND WHICH IS A
MAJOR SOURCE OF INCOME,
ESPECIALLY FOR SMALL FARMERS. SO
THESE, AGAIN, ARE IT'S A PREMIUM
THAT THE FARMER PAYS. AND IF THE
INSURANCE COMPANIES DETERMINES
THAT DROUGHT IS COMING, THEY
MEASURE IT. THEY DO DIRECT
PAYMENTS. SO THAT THE FARMERS
CAN ACTUALLY MOVE THEIR HERD AND
MOVE THEIR CATTLE SO THAT THEY
WON'T BE DEVASTATED. SO WE'RE
ALSO STARTING TO SEE OTHER US
STATES INNOVATE IN THIS SPACE BY
CREATING INCLUSIVE INSURANCE.
PILOTS IN PARTNERSHIP, AGAIN
WITH THE ENVIRONMENTAL DEFENSE
FUND AND A LOCAL AND LOCAL
COMMUNITY ORGANIZATIONS IN NEW
YORK CITY FOR EXAMPLE, THEY THEY
HAVE A FLOOD PROGRAM, A FLOOD
PARAMETRIC PROGRAM FOR LOW AND
MODERATE INCOME HOUSEHOLDS. THE
RAPID INFUSION OF FUNDS IS
INTENDED TO HELP ADDRESS GAPS
AND INCREASE EQUITY AND
RECOVERY. WHEN SEVERE FLOODING
TRIGGERS THE POLICY, PAYMENT
WILL QUICKLY BE SENT TO THE
CENTER FOR NYC NEIGHBORHOODS.
THEN THE CENTER WILL USE THOSE
FUNDS TO ACTIVATE AN ASSISTANCE
PROGRAM OF EMERGENCY CASH GRANTS
TO COVER IMMEDIATE POST FLOOD
NEEDS. WHILE HOUSEHOLDS WAIT FOR
OTHER FORMS OF ASSISTANCE THAT
TAKE LONGER. THIS IS CRUCIAL. WE
WANT TO MAKE SURE EVERYBODY HAS
A MINIMUM LEVEL OF COVERAGE AND
PEOPLE ARE NOT FORCED TO LIVE IN
THEIR INUNDATED HOME, WHICH
CREATE ADDITIONAL HEALTH HAZARDS
AND CONDITIONS FOR OUR MOST
VULNERABLE FOLKS. SO THE CASH
INFUSION HELPS EVERYBODY BE ABLE
TO EVACUATE QUICKLY. SO LET'S
TALK ABOUT THESE TYPES OF
POLICIES CAN ALSO HELP
GOVERNMENTS COLLABORATE ACROSS
JURISDICTIONS. AND THIS IS WHERE
WE'RE STARTING TO SEE INSURANCE
POLICIES BEING TAKEN UP TO
ACTUALLY PROTECT NATURAL
INFRASTRUCTURE IN THE CARIBBEAN,
WHERE HURRICANES AND EARTHQUAKES
CAN BE DEVASTATING TO THE HEALTH
AND THE ECONOMY, THE ECONOMIC
SECURITY OF LOCAL COMMUNITIES,
MULTIPLE COUNTRIES FACING
HURRICANE RISK IN THE CARIBBEAN
HAVE A PARAMETRIC STRATEGY FOR
AT LEAST FOR AT LEAST THE PAST
NINE YEARS, I WOULD SAY BASED ON
HURRICANE SEVERITY. THE PROGRAM
HAS BEEN TRIGGERED MULTIPLE
TIMES, PROVIDING MORE FINANCIAL
SECURITY TO THESE PRONE TO THESE
RISK PRONE AREAS, AGAIN ALLOWING
THEM TO ACCESS CAPITAL QUICKLY
TO AID IN THE RECOVERY MUCH
QUICKER. SO WE ALL KNOW THAT
NATURE BASED SOLUTIONS ARE
CRITICAL TO OUR CLIMATE
RESILIENCE TO PROTECT OUR MOST
VULNERABLE COMMUNITIES, WE NEED
WETLANDS AND FLOODPLAINS,
HEALTHY FORESTS AND URBAN GREEN
SPACES TO MITIGATE THE CLIMATE
IMPACTS WE ARE FACING. SO SORRY,
IN 2020 2018, LOCAL BUSINESSES
IN QUINTANA ROO, MEXICO INVESTED
IN THE FIRST OF ITS KIND
INSURANCE POLICY FOR THE LOCAL
CORAL REEFS. CORAL REEFS ACT AS
A NATURAL BUFFER, AS WE ALL
KNOW, TO THE WIND AND THE WAVES
FROM LARGE SEVERE STORMS LIKE
HURRICANES. SO THE CORAL REEFS
IN QUINTANA ROO ARE ALSO A MAJOR
COMPONENT OF THE LOCAL ECONOMY.
WHEN THE CORAL REEFS ARE
DAMAGED, THERE IS A LIMITED
AMOUNT OF TIME TO REPAIR THEM.
THE PARAMETRIC POLICY PROVIDES A
FAST INFUSION OF FUNDS TO
RESTORE THE CORAL REEF AND ALLOW
LOCAL COMMUNITIES AND BUSINESSES
TO ACTIVATE THEIR EVACUATION,
AND RECOVERY PLANS. SO WHAT ARE
WHAT ARE WE DOING HERE IN THE
US? WE'RE STARTING TO SEE NOW? A
COUPLE YEARS AGO, HAWAII BECAME
THE FIRST STATE TO ENSURE
SUBSTANTIAL PORTIONS OF THEIR
CORE REEF AGAIN PROVIDING QUICK
ACCESS TO FUNDS FOR REPAIRING
THE REEFS AFTER LARGE STORMS.
THIS TYPE OF STRATEGY, ENSURING
NATURAL INFRASTRUCTURE IS BEING
TESTED IN OTHER AREAS WITH CORAL
REEFS AND OTHER ENDANGERED
ECOSYSTEMS. PUERTO RICO NOW HAS
ALSO ENGAGED IN THIS TYPE OF
INSURANCE PRODUCT, AND WE ARE
EXAMINING THE PERFORMANCE AND
THE APPLICABILITY TO CALIFORNIA
NATURAL ASSETS HERE, LIKE OUR
SAND DUNES, URBAN FOREST, AS
WELL AS ENVISIONING THE
POTENTIAL OF COVERING COMMUNITY
WIDE MITIGATION ACTIONS, WHICH
ARE CRITICAL TO OUR ONGOING
CHALLENGES WITH WILDFIRES. SO
OUR GOAL HERE IS TO UNDERSTAND
THE RISKS, UNDERSTAND NEW
INSURANCE STRATEGIES, AND REDUCE
PROTECTION GAPS. WE WANT MORE
PEOPLE COVERED, OBVIOUSLY, NOT
LESS. PARAMETRIC INSURANCE IS
ONE TOOL IN THE TOOLBOX, AND IT
IS ONE THAT MY DEPARTMENT IS
LEARNING MORE ABOUT BUILDING OUR
EXPERTISE AS A REGULATOR SO THAT
WE CAN PURSUE THOUGHTFUL
OVERSIGHT, IMPLEMENTATION, AND
ACTUAL SCALE SCALABILITY. GIVEN
THAT WE ARE SUCH A LARGE MARKET
IN CALIFORNIA, THERE IS A
POTENTIAL FOR PARAMETRIC
INSURANCE COMMUNITY INSURANCE,
AND INCLUSIVE INSURANCE TO
PROTECT MORE PEOPLE. THIS
INCLUDES POTENTIALLY, YOU KNOW,
PROTECTING FARM WORKERS,
SIDEWALK VENDORS, WAREHOUSE
WORKERS, OUTDOOR WORKERS AND
EXTREME HEAT DURING EXTREME FROM
EXTREME HEAT THROUGH EXTREME
HEAT INCOME INSURANCE SIMILAR TO
WHAT WE SAW IN INDIA, IMPROVING
RESILIENCE IN VULNERABLE
COMMUNITIES FACING ATMOSPHERIC
RIVER FLOODING AND POSSIBLY
PROVIDING MINIMAL LEVERAGE OF
INSURANCE PROTECTION SO THAT THE
ENTIRE COMMUNITY CAN EVACUATE
AND HAVE ACCESS TO SHELTER. THIS
WOULD HAVE BEEN CRITICAL IN
PAJARO AND IN SAN DIEGO COUNTY
DURING THEIR MASSIVE FLOODS,
PROTECTING OUR COASTAL AREAS
FROM STORM SURGE IN CALIFORNIA,
WE DON'T HAVE EXTENSIVE REEFS
LIKE HAWAII OR PUERTO RICO, AND
WE BUT WE DO HAVE AND WE DON'T
HAVE MANGROVES, BUT WE HAVE
COASTAL MARSHES AND FLOODPLAINS
THAT HELP PROTECT OUR
COMMUNITIES. THERE ARE
OPPORTUNITIES TO THINK
CREATIVELY, TO BETTER PROTECT
CALIFORNIANS AND COMMUNITIES
LIKE IMPERIAL BEACH IN SAN DIEGO,
WHICH CONTINUES TO FLOOD
REPEATEDLY DURING KING TIDES. SO
WE ARE ENGAGING WITH SCIENTISTS
WITH OTHER INSURANCE
COMMISSIONERS AND REGULATORS
FROM AROUND THE WORLD TO BETTER
OVERSEE AND UNDERSTAND THE USE
OF AND PRACTICALITY OF THESE
PRODUCTS. SO AS I CLOSE, I WANT
TO AGAIN EMPHASIZE THIS IS A
GROWING AREA WHERE INSURANCE CAN
GO FURTHER TO CLOSE THESE GAPS
HELP FIGHT AGAINST CLIMATE
DEGRADATION, PROVIDE MORE
INCLUSIVE RECOVERY OPTIONS, AND
OF COURSE, HELP GOVERNMENTS
BETTER MANAGE OUR GROWING RISKS.
AND AS WE WORK TO DEVELOP THESE
NEW INSURANCE INSTRUMENTS AND
CONTINUE TO WORK WITH
ENVIRONMENTAL GROUPS, INSURANCE
INDUSTRY AND MITIGATION
INNOVATORS, THESE NEW INSURANCE
TOOLS CAN ASSIST US IN
ADDRESSING THE COSTLIEST AND
LIFE THREATENING PERILS THAT WE
ARE CURRENTLY FACING AND WILL
UNDOUBTEDLY FACE IN THE FUTURE.
LOOK, CALIFORNIA'S RENOWNED, A
RENOWNED INNOVATOR IN COMBATING
CLIMATE CHANGE. WE ALL KNOW THAT
WE'RE ALL VERY PROUD OF THAT AND
LEADING ON ENVIRONMENTAL POLICY.
WE NOW SEE HOW INSURANCE TOUCHES
EVERY ASPECT OF OUR LIVES, AND
IT'S TIME FOR US TO START
WORKING ON ALL THESE INNOVATIONS
THAT WE SHOULD BE LEADING ON,
AND NOT ALLOWING OTHER
JURISDICTIONS TO LEAD. GIVEN THE
FACT THAT WE ARE THE LARGEST
MARKET IN THE COUNTRY, FOURTH IN
THE WORLD. AND AGAIN, YOU KNOW,
RETHINK HOW WE LOOK AT
TRADITIONAL INSURANCE PRODUCTS.
AND I HOPE YOU ENJOY THIS
PRESENTATION. AS THE CHAIRWOMAN
KNOWS, THIS IS AN ISSUE THAT I'M
VERY PASSIONATE ABOUT. AND I
APPRECIATE YOUR TIME. AND YOU'RE
GOING TO HEAR FROM GREAT, GREAT
FOLKS THAT ARE AT THE CUTTING
EDGE OF DEVELOPING THESE
PRODUCTS. SO THANK YOU FOR YOUR
TIME. THANK YOU. INSURANCE
COMMISSIONER. I KNOW HOW
PASSIONATE YOU ARE ABOUT THIS.
HOW LARGE IS THE PARAMETRIC
INSURANCE MARKET IN CALIFORNIA
RIGHT NOW? SO CURRENTLY WE DON'T
HAVE PARAMETRIC PRODUCTS. WE ARE
LOOKING AT AS WE'RE LOOKING AT
INVESTIGATING HOW WE CAN CREATE
THESE PRODUCTS AND LOOKING AT
WHAT REGULATIONS WE WOULD NEED
TO ALLOW FOR THESE PRODUCTS TO
GROW. THESE ARE THIS IS JUST AT
THE INCEPTION OF OUR WORK, AND
WE HOPE TO BE ABLE TO WORK ON A
REGULATION THAT WILL GET US TO
ALLOW FOR THESE PRODUCTS TO
FLOURISH IN CALIFORNIA. WE'VE.
YEAH, YOU'RE CORRECT. THERE ARE
SOME THERE'S SOME SMALL
PRODUCTS, BUT THEY'RE ALL IN THE
SURPLUS LINES, WHICH WE KNOW WE
DON'T WE DON'T REGULATE. SO THE
GOAL HERE IS TO INCENTIVIZE OUR
DOMESTICS TO START LOOKING AT
THESE INSURANCE PRODUCTS, WHICH
EVEN DURING THE CONVERSATIONS
WE'VE HAD, ARE STARTING TO ALSO
LOOK AT HOW CAN WE BE
INNOVATIVE. BECAUSE NOT BEING
ABLE TO ACCESS INSURANCE OR NOT
HAVING AN INSURABLE MARKETPLACE
IS NOT AN OPTION. BUT WE ALSO
NEED TO ASSIST THEM WITH
ADDITIONAL TOOLS LIKE PARAMETRIC
TO HELP US PROVIDE PROTECTION
FOR OUR MOST VULNERABLE AND FOR
THE HOMES THAT ARE MOST LIKELY
NOT GOING TO BE ABLE TO FIND IN
THE TRADITIONAL MARKET INSURANCE
BECAUSE OF, YOU KNOW, WHERE
THEY'RE LOCATED AND THE SEVERITY
OF THESE STORMS AND CLIMATE
EVENTS THAT WE'RE LIVING IN.
OKAY, GREAT. AND AS THESE
PRODUCTS BECOME MORE AVAILABLE
IN CALIFORNIA, DO YOU SEE THEM
AS HELPING TO CLOSE THAT
PROTECTION GAP AND ACTUALLY HELP
WITH THE INSURANCE CRISIS?
ABSOLUTELY. YOU KNOW, AGAIN, THE
GOAL HERE IS TO GET AS MANY
PEOPLE AS POSSIBLE INSURED. AND
ONE OF THE WAYS WE THINK AND THE
WAY WE'RE LOOKING AT THESE
PARAMETRIC PRODUCTS IS NOT
SELLING CALIFORNIANS. ANOTHER
POLICY OR ANOTHER PRODUCT IS
WORKING WITH LOCAL COMMUNITIES,
WITH COUNTY GOVERNMENTS, WITH
THE STATE LEGISLATURE TO ENTER
INTO THESE PARAMETRIC PRODUCTS
SO THAT THEY PLAN ACCORDINGLY TO
MAKE SURE THAT IF A FLOODING
EVENT HAPPENS IN THEIR COMMUNITY,
THEY CAN GET QUICK ACCESS TO
CASH AND THEN MAKE SURE THAT
THEIR EVACUATION IS FUNDED, THAT
THERE'S ENOUGH FOOD, THERE'S
ENOUGH SHELTER. SOME STATES,
LIKE OREGON, FOR EXAMPLE, HAS A
PARAMETRIC PRODUCT FOR THEIR
THEIR WILDFIRE. SO BE ON
TRADITIONAL HOMEOWNERS. IF THE
WILDFIRE BURNS A CERTAIN AMOUNT
OF ACRES, THEY DON'T JUST SIT ON
A POT OF MONEY WAITING FOR THE
WILDFIRE TO DO. AND THEN WE DUMP
IT AND THEN WE PUT IT. WE, THE
LEGISLATURE COME IN, COMES IN
AND PUTS MORE MONEY. THEY
ACTUALLY BOUGHT A STATEWIDE
POLICY THAT IS TRIGGERED THROUGH
A PARAMETRIC PRODUCT, WHERE
THEY'RE ACTUALLY ABLE TO GET NOT
ONLY MORE MONEY THAN WHAT THEY
HAVE IN THEIR POT. AND THE
PAYOUTS IN OREGON, THEY'VE HAD
SEVERAL PAYOUTS ALREADY, RIGHT?
THEY'VE HAD THE THEY'VE HAD THE
POLICY FOR ABOUT 40 YEARS. SO
THEY'VE BEEN THEY'VE BEEN
WORKING AND IT'S GOTTEN MORE
REFINED OVER TIME. SO THIS IS
AGAIN, ANOTHER EXAMPLE OF US
JUST NOT SITTING IN THE MONEY,
MAKING THE MONEY WORK FOR US BY
BEING ABLE TO DRAW FROM A
PARAMETRIC PRODUCT WHERE AGAIN,
NO QUESTIONS ASKED, IT MEETS THE
METRIC. THE MONEY IS RELEASED,
WHICH IS THE BEAUTY ABOUT THESE
PRODUCTS? YEAH. SO THAT BRINGS
ME TO MY NEXT QUESTION. HOW DO
YOU HOW DO YOU MEASURE RISK
BEFORE SOMETHING HAPPENS, LIKE
FOR A DROUGHT OR EXTREME HEAT?
THERE IS SO MUCH NEW AMAZING
TECHNOLOGY AROUND HERE. AND THIS
IS WHERE THESE THE WAY THESE ARE
THESE PRODUCTS ARE I THINK WILL
FIRST BE ESTABLISHED IN
CALIFORNIA ARE GOING TO BE HOW
THEY'VE BEEN BEING ESTABLISHED
ALL OVER THE WORLD, WORKING WITH
NON-PROFITS, ENVIRONMENTAL
GROUPS, GOVERNMENT AGENCIES
SIMILAR TO WHAT I RECALL WHEN I
WAS HERE IN THE LEGISLATURE,
WHEN WE WERE BARELY TALKING
ABOUT THE SOLAR INDUSTRY AND
CREATING INCENTIVES TO GET THIS
DONE UNTIL THE POLICY WOULD
MATURE AND THEN BE ABLE TO BE
ABLE TO BE SOLD ON ITS OWN. AND
SOME OF THESE COMPANIES, SOME OF
THESE PARTS OF THE WORLD ARE
ALREADY GETTING TO THAT POINT.
SO IT ALL DEPENDS. IT ALL
DEPENDS ON THE GRAVITY OF THE
ISSUE AND HOW WE SET UP THE
PARAMETRIC PRODUCT. IT CAN BE
AGAIN WITH WILDFIRE. IT COULD BE
ACRES BURNED OR IT COULD BE
AMOUNT OF STRUCTURE DAMAGE. SO
IT ALL DEPENDS ON HOW WE
STRUCTURE IT, WHICH IS WHY WE
HAVE VERY SMART PEOPLE AT THE
DEPARTMENT NOW. CLIMATE
SCIENTISTS THAT ARE WORKING ON
WHAT POTENTIAL TRIGGERS, YOU
KNOW, FOR EXAMPLE, SEA LEVEL
RISE. RIGHT. WHAT WOULD BE AN
APPROPRIATE TRIGGER IN
CALIFORNIA OR EXTREME DROUGHT?
HOW DO WE MEASURE HOW MANY
DROUGHT DAYS OR HOW MANY EXTREME
HEAT DAYS? BY WHEN WE START?
THEN, YOU KNOW, FOR POTENTIALLY
ONE OF THE THINGS WE'RE LOOKING
AT IN L.A, FOR EXAMPLE, IS AT
WHAT POINT IN HOW MANY DAYS OF
EXTREME HEAT DO WE START? DO WE
CREATE A POLICY WHERE MAYBE WE
PAY OUT SO THAT SENIORS CAN TURN
ON THEIR AIR CONDITIONING? I
MEAN, LOW INCOME SENIORS DON'T
TURN ON THEIR AIR CONDITIONING
BECAUSE THEY CAN'T AFFORD IT.
AND SO CAN THE CITY OF SAN
FERNANDO, FOR EXAMPLE, WE CREATE
A PILOT PROJECT WHERE WE RELEASE
MONEY SO THAT THEIR SENIORS CAN
ACTUALLY KEEP THE KEEP THE AIR
CONDITIONING RUNNING SO THAT
THEY CAN KEEP THEMSELVES SAFE.
SO IT ALL DEPENDS ON HOW
CREATIVE WE WANT TO BE. IT ALL
DEPENDS HOW WHAT KIND OF
TRIGGERS WE WORK ON. BUT IT'S
REALLY WORKING WITH EXPERTS AND
SCIENTISTS ON OUR PARTICULAR
PERILS HERE IN CALIFORNIA THAT
WILL HELP DICTATE WHAT WOULD BE
THE TRIGGERS AND WHAT WOULD BE
THE APPROPRIATE MEASURES, AND
WHAT WOULD BE AN APPROPRIATE
PAYOUT. AGAIN, THIS IS JUST
ANOTHER TOOL THAT WE CAN USE.
AND SO WE'RE WE'RE BARELY IN THE
INCEPTION OF ALL THIS KIND OF
INNOVATION. THANK YOU. I'M GOING
TO TURN IT OVER TO MY
COLLEAGUES. DO YOU HAVE ANY
QUESTIONS. GO AHEAD. THANK YOU
VERY MUCH INSURANCE
COMMISSIONER. FOR ONE AVAILING
YOURSELF AND BEING A PART OF
THIS CONVERSATION, I THINK IT'S
ABSOLUTELY IMPORTANT BECAUSE
CERTAINLY A LOT OF CALIFORNIANS
ARE CONCERNED ABOUT THE
INSURANCE THAT THEY HAVE, AND AN
INSURANCE THAT THEY'RE LOSING
WITH. WHAT IS A CRITERIA, WOULD
YOU SAY THAT FOR THIS, THIS NEW
PRODUCT, WHAT IS THE CRITERIA
THAT PEOPLE HAVE TO MEET IN
ORDER TO EVEN LEVERAGE IT? WELL,
IT WOULD BE MORE A CRITERIA
BASED ON THE ACTUAL CATASTROPHIC
EVENT. SO THE WHAT WE'VE SEEN
IS, YOU KNOW, SO IF WIND SPEEDS
GET TO A CERTAIN AMOUNT, A
COMMUNITY GETS, YOU KNOW, A
PERCENTAGE OF MONEY, IF IT THEN
IT CROSSES TO A NEXT NGUYEN
LEVEL, YOU GET ANOTHER POT OF
MONEY. SO YOU COULD DO IT. IT'S
ALL BASED ON THE ON THE
CATASTROPHE, ON THE EARTHQUAKE,
ON THE FLOOD EVENT. SO IT'S NOT
THE COMMUNITY THAT HAS TO MEET.
IT'S WHAT THE, THE CATASTROPHE
IS. AND USUALLY THESE PRODUCTS
AND YOU'LL HEAR YOU'LL HEAR SOME
MORE EXAMPLES IS I ENVISION IT
AS A PRODUCT THAT THE CITY OF
CARSON CAN ENTER INTO THE CITY
OF LOS ANGELES COULD ENTER. SO
IT'S LARGE MUNICIPALITIES, LARGE
MUNICIPALITIES TO CREATE
COMMUNITY WIDE PROTECTION
PROGRAM INSURANCE PROTECTION
PROGRAMS BECAUSE WE ALL BECAUSE
WHAT WE'VE SEEN IS, AGAIN, LIKE
I SAID EARLIER, I DON'T WANT TO
REPLACE TRADITIONAL INSURANCE.
INDEMNITY INSURANCE REMAINS THE
BEST OPTION FOR YOU AND YOUR
FAMILY TO PROTECT YOURSELF FROM
FLOOD, FROM FIRE, FROM
EARTHQUAKE. BUT WE STILL SEE
THAT THE TAKE UP IN SOME OF
THESE PRODUCTS GIVEN, YOU KNOW,
PEOPLE'S CIRCUMSTANCES, THE COST
OF LIVING, INFLATION, ONLY 2% OF
CALIFORNIANS HAVE FLOOD
INSURANCE. SO WHAT ABOUT WHAT
ABOUT IF WE'VE HAD A PARAMETRIC
PRODUCT FOR THE COMMUNITY OF
PAJARO, FOR EXAMPLE, WHERE IF
THE WATER REACHED A CERTAIN
LEVEL, THAT COMMUNITY WOULD HAVE
GOTTEN A PAYOUT IMMEDIATELY AND
THEN EVERYBODY, THAT COMMUNITY,
THAT CITY, TOWN OR COUNTY CAN
THEN EVACUATE EVERYBODY. SO IT'S
NOT ONLY THOSE WITH AN INSURANCE
PRODUCT OR THOSE THAT CAN AFFORD
TO MOVE OUT, MOVE OUT, BUT
EVERYBODY, YOU KNOW, IT'S KIND
OF GUARANTEEING A MINIMAL
BASELINE OF COVERAGE FOR
EVERYBODY THAT THAT THE LOCAL
TOWN HALL, THE LOCAL COMMUNITY
MUNICIPALITY CAN ENTER INTO.
THAT'S HOW I ENVISION IT,
BECAUSE I WHAT I DON'T WANT TO
DO IS SELL ANOTHER PRODUCT TO
SOMEBODY THAT'S NOT GOING TO BE
ABLE TO AFFORD IT, BUT IT'S
BEING SMARTER WITH THE MONEY
THAT WE DO HAVE AND THAT CITIES
HAVE TO ENTER INTO THESE
POLICIES. ONE OF THE YOU JUST
REMINDED ME OF ONE OF THE THINGS
IN TALKING TO SOME OF THE CITY
COUNCILS IS, WELL, HOW ABOUT IF
THE POLICY NEVER TRIGGERS RIGHT.
AND WE'RE PAYING A PREMIUM ONE?
WELL THAT'S WHAT THAT'S THE RISK
WE'RE COVERING. AND HOPEFULLY WE
NEVER HAVE TO PAY IT OUT. RIGHT.
BUT THE WAY THE TRENDS THAT
WE'RE SEEING IT AND NARROWING IT
TO THE PERILS THAT WE SEE
CONTINUE TO HAPPEN, RIGHT.
EXTREME HEAT FLOODING AND
WILDFIRE ARE SOME. AND COASTAL
AND SEA LEVEL RISE ARE THINGS
THAT WE'RE LOOKING AT THAT WE
KNOW ARE HAPPENING. OUR
SCIENTISTS ARE CONFIRMING THAT
THIS IS HAPPENING. SO THAT WE'RE
BETTER BE ABLE TO ADDRESS AND
NOT JUST BURDEN COMPLETELY THE
STATE GOVERNMENT AND FEDERAL
GOVERNMENT ON ON THE COST OF
THIS. AND YOU'LL GET AND YOU GET
UNLIKE WAITING FOR FEMA TO COME
OR WAITING FOR TRADITIONAL HELP
TO COME THAT TAKES TIME. THIS
GIVES YOU IMMEDIATE CASH
ADVANCES. SO HOW WOULD SO I KNOW
YOU'RE THIS IS A PLAN THAT YOU
HAVE. WHEN DO YOU LOOK AT. THERE
ARE SOME OF THIS PRODUCT THAT
EXISTS. BUT TO THIS LEVEL IT
DOESN'T EXIST. SO WHAT IS YOUR
PLAN OR YOUR GOAL TO TRY TO
UNVEIL IT TO THE ENTIRE
POPULATION OF CALIFORNIA? WHAT
DOES THAT LOOK LIKE? WELL, I
THINK WE'RE WE'RE NOT THAT CLOSE
YET, BUT WE ARE INVESTIGATING ON
POTENTIAL PILOT PROGRAMS THAT WE
COULD FUND THROUGH WITH OTHER
WITH NONPROFITS AND OTHER FOLKS
ABOUT HOW CAN WE SCALE UP A
WILDFIRE PARAMETRIC PROGRAM FOR
EXAMPLE. SO WE'VE WE'VE
IDENTIFIED DIFFERENT PLACES
AROUND THE STATE, YOU KNOW, FOR
LA IN PARTICULAR, IN OUR AREA,
EXTREME HEAT IS SOMETHING THAT'S
CRITICAL. AND SO HOW CAN WE
CREATE A PILOT PROJECT? WE WERE
THINKING ABOUT THE CITY OF SAN
FERNANDO SPECIFICALLY, GIVEN
THAT THEY'VE HAD THE HIGHEST
RECORD HEAT TEMPERATURE RECORDED
IN RECENT HISTORY OUTSIDE OF
DEATH VALLEY. BUT PEOPLE ARE
LIVING THERE, RIGHT? AND SO
WE'RE LOOKING AT WHAT ARE OUR
OUR SCIENTISTS IN THE DEPARTMENT
ARE LOOKING AT WHAT ARE
DIFFERENT WAYS WE CAN TACKLE
EXTREME HEAT FOR OUR LOWEST
INCOME FOLKS. RIGHT. HOW DO WE
ALLOW THEM? YOU KNOW, SOME
PEOPLE WE'VE HEARD FOREGO
TURNING ON THE AIR CONDITIONING
BECAUSE THEY CAN'T AFFORD THE
BILL OR OR THE ENERGY BILL. HOW
ABOUT IF WE CREATE SOME SORT OF
PROGRAM WHERE THE CITY OF SAN
FERNANDO SAYS, IF THE HEAT GETS
TO A CERTAIN AMOUNT FOR CERTAIN
DAYS AND IT TRIGGERS, YOU COULD
USE THIS MONEY TO PAY YOUR
BILLS. SO THAT YOU COULD KEEP
THE LIGHTS ON, KEEP YOUR
REFRIGERATION, YOUR MEDS, AND
YOUR AIR CONDITIONING TO SAVE
YOUR LIFE. SO THESE SO THE
POSSIBILITIES ARE ENDLESS. I CAN
NOW CREATE AN INSURANCE POLICY
ON PARAMETRIC FOR ANYTHING IT
SEEMS LIKE. BUT THIS IS WHAT THE
WORLD IS DOING ALREADY AND
INNOVATING. AND IF YOU'VE TOLD
ME THAT YOU KNOW AFRICAN
COUNTRIES CAN NOW SCIENTIFICALLY
DETERMINE WHEN A DROUGHT IS
COMING AND BE ABLE TO MOVE THEIR
LARGE HERD OF CATTLE WITH THE
INSURANCE PAYOUT, I THOUGHT THAT
WAS AMAZING. AND SO TECHNOLOGY
AND SCIENCE IS ALLOWING US NOW
TO PREDICT THESE MUCH MORE
ACCURATELY WHICH INSURANCE
COMPANIES ARE NOW ALSO
RECOGNIZING, BECAUSE THEY DON'T
WANT TO PAY OUT THE LARGE
PAYOUTS AND THEY WANT TO BE ABLE
TO HELP IN THE MITIGATION OF
THESE PROJECTS. SO THAT WE WE'RE
NOT ONLY CONTROLLING THE, YOU
KNOW, CONTROLLING THE IMPACT OF
THE EVENT, BUT ALSO SAVING
LIVES. AND NOW, YOU KNOW,
WONDERFUL THOUGHT USING
INSURANCE TO SAVE ACTUAL NATURAL
INFRASTRUCTURE. THAT'S CRITICAL
FOR OUR PLANET. SO WE'RE
STARTING TO SEE ALL THIS DEVELOP
AROUND THE WORLD. AND I WANT TO
START SEEING HOW WE CAN GET THAT
DONE HERE. WE'RE THE INNOVATORS,
RIGHT? RIGHT. HOW MUCH OF THIS
AND I'LL TRY TO BE VERY BRIEF.
HOW MUCH IS THIS? IS AI DRIVEN?
IT'S AI HAS ANYTHING TO DO WITH
THE TERMINATION AND THE
PREDICTABILITY. I'M SURE THERE'S
AN AI COMPONENT. I MEAN,
OBVIOUSLY THE NEW BUZZWORD IS
SOMETHING THAT I'M SURE WE'RE
LOOKING AT, BUT I'M SURE THERE'S
GOING TO BE A ROLE FOR AI TO
PLAY IN HERE AS WELL. I MEAN, IT
MAKES SENSE. YEAH. OKAY. THAT'S
ALL I HAVE. THANK YOU VERY MUCH.
ALL RIGHT. THANK YOU. ALL RIGHT.
WELL THANK YOU SO MUCH.
INSURANCE COMMISSIONER. WE
GREATLY APPRECIATE YOU BEING
HERE. THIS IS I COULD LISTEN TO
THIS ALL DAY. THIS IS
FASCINATING. I KNOW YOU AND I
BOTH. YEAH. SO WE USED TO BE
FUN, BUT NOW WE TALK ABOUT
PARAMETRIC INSURANCE. AND THIS
IS A FUN HEARING. SO WE'RE GOING
TO TAKE THAT NGUYEN. BUT THANK
YOU SO MUCH FOR BEING HERE. AND
THANK YOU, MR. PETERSON FOR
BEING HERE. WE APPRECIATE YOUR
PARTICIPATION. THANK YOU. THANK
YOU, CHAIRWOMAN, AND I HOPE YOU
GET A LOT FROM THIS BECAUSE I
THINK THERE'S A LOT OF
OPPORTUNITY FOR US TO REALLY BE
INNOVATORS IN THIS SPACE. AND AS
YOU AND I CONSTANTLY TALK, AS
WE'RE INCREASING THE
PARTICIPATION OF INSURANCE
COMPANIES AND THE INDUSTRY AT
COP AND AT ALL OF THESE CLIMATE
CONFERENCES, WE ARE REALIZING
THAT INSURANCE HAS TO BE AT THE
FOREFRONT OF THESE DISCUSSIONS.
IF WE'RE GOING TO CONTINUE TO
BUILD AND ADDRESS THE CLIMATE
CHALLENGES. THIS IS ONE TOOL AND
ONE OPPORTUNITY FOR US TO KIND
OF THINK OF THINK OUTSIDE OF THE
TRADITIONAL FRAME OF INDEMNITY
INSURANCE WITH SOME OF THE BEST
LEADERS THAT WE HAVE WORKING ON
THESE ISSUES. SO I APPRECIATE
YOU CREATING A SPACE FOR YOU ALL
TO HAVE THIS DISCUSSION. AND
THANK YOU FOR YOUR TIME. YOU'RE
WELCOME. THANK YOU. THANK YOU.
OKAY. OUR NEXT PANEL IS FOCUSED
ON PROVIDING MORE DETAILS ABOUT
WHAT PARAMETRIC INSURANCE IS AND
ISN'T, AND HOW IT GENERALLY
WORKS ON THE PANEL TODAY WE HAVE
LLOYD DIXON, THE DIRECTOR OF THE
RAND, KENNETH R FEINBERG CENTER
FOR CATASTROPHIC RISK MANAGEMENT
AND COMPENSATION, SENIOR
ECONOMIST AT RAND CORPORATION
AND PROFESSOR OF POLICY ANALYSIS
AT THE PARDEE RAND GRADUATE
SCHOOL. THANK YOU, AND FOR BEING
HERE TODAY. MR. DIXON, WELCOME.
A PLEASURE TO BE HERE, MADAM
CHAIR, AND MEMBERS OF THE
COMMITTEE. THANKS FOR INVITING
ME TO BE AT THIS HEARING TODAY.
SO JUST BACKGROUND RUNS A
NONPROFIT, NONPARTISAN RESEARCH
ORGANIZATION HEADQUARTERED IN
SANTA MONICA. AND MY ROLE TODAY
IS TO PROVIDE SOME BACKGROUND ON
PARAMETRIC INSURANCE AND TALK
ABOUT ITS ADVANTAGES AND
DISADVANTAGES TO, YOU KNOW, SET
THE STAGE FOR THE MORE DETAILED
DISCUSSIONS YOU'RE GOING TO HEAR
LATER, AND SOME OF THE
INFORMATION YOU ALREADY HEARD
FROM COMMISSIONER LARA. SO LET
ME START WITH, CAN YOU. OKAY.
YEAH. LET ME START WITH IF YOU
LOOK AT THE SCREEN HERE, I'LL
START WITH KIND OF THE, YOU
KNOW, JUST THE OVERVIEW OF WHAT
TRADITIONAL INDEMNITY POLICY IS.
SO FIRST, YOU KNOW, A PURCHASE
OF THE POLICY CHOOSES THE PERIL
COVERED, CHOOSES THE DEDUCTIBLE
AND POLICY LIMIT AND PAYS A
PREMIUM. A LOSS OCCURS IF A LOSS
OCCURS. AND THEN THERE'S A CLAIM
ADJUSTING PROCESS. AND THEN
THERE'S A CLAIM PAYMENT BASED ON
THE LOSS ON THAT PROPERTY. NOW
THAT CLAIM CLAIM PAYMENT COULD
HAPPEN IN WEEKS OR MONTHS OR
EVEN YEARS, DEPENDING ON IF
THERE'S COVERAGE LITIGATION AND
THAT KIND OF THING. IN CONTRAST,
WE HAVE THE PARAMETRIC POLICY.
THE POLICYHOLDER CHOOSES OR
NEGOTIATES A TRIGGER, WHICH
WE'LL TALK ABOUT MORE IN A
MINUTE, CHOOSES THE AMOUNT PAID,
AND WHEN THE POLICY IS TRIGGERED
AND PAYS A PREMIUM FOR THAT. AND
SO IN THIS CASE, WHEN THERE'S AN
EVENT, USUALLY THERE'S AN
INDEPENDENT PARTY THAT
DETERMINES WHETHER THE TRIGGER
IS MET. AND IF THE TRIGGER IS
MET, THEN THERE COULD BE A
REQUIREMENT TO HAVE THE
POLICYHOLDER PROVIDE WHAT'S
CALLED A PROOF OF LOSS, THAT THE
POLICYHOLDER DID INCUR SOME KIND
OF LOSS. AND THE REASON FOR THAT
IS SO THAT THIS POLICY, THIS
THIS PRODUCT IS CONSIDERED AN
INSURANCE PRODUCT AS OPPOSED TO
A FINANCIAL DERIVATIVE. SO
SOMETIMES THAT'S CALLED A SECOND
TRIGGER. AND, YOU KNOW, IF, IF,
IF THAT POLICY, IF A POLICY WAS
OFFERED THE ADMITTED MARKET IN
CALIFORNIA, IT'S LIKELY THAT
CDI, THE CALIFORNIA DEPARTMENT
OF INSURANCE, WOULD REQUIRE SOME
KIND OF PROOF OF LOSS. SO THAT'S
AN OVERVIEW. AND, YOU KNOW,
YOU'VE HEARD COMMISSIONER LARA
TALK ABOUT SOME OF THE POTENTIAL
USES. AND I'LL JUST TICK DOWN
SOME OF THESE JUST TO PROVIDE
SOME, YOU KNOW, KIND OF CONCRETE
EXAMPLES OF POLICYHOLDERS PERILS
AND TRIGGERS. SO, YOU KNOW, YOU
CAN HAVE A CITY OR COUNTY BY A
PARAMETRIC POLICY FOR HEAT. THAT
WOULD BE TRIGGERED IF THE
TEMPERATURE EXCEEDED 105 DEGREES
FOR FOUR DAYS, FOR EXAMPLE, AND
THEN THE PAYOUT COULD BE USED TO
PROVIDE BUS SERVICES TO COOLING
CENTERS, TO PAY FOR THE BUS
SERVICE, TO COOLING CENTERS FOR
EXAMPLE, A LOCAL GOVERNMENT SUCH
AS THE COMMISSIONER MENTIONED IN
NEW YORK CITY COULD BUY A
PARAMETRIC POLICY FOR FLOOD THAT
WOULD TRIGGER WHEN THE WATER
DEPTH INCREASED ON STREET, CITY
STREETS INCREASED TO EXCEEDED
TWO FEET AND PROVIDE LIKE $1,000
TO VULNERABLE RESIDENTS. AFTER A
DISASTERS WILD FOR EXAMPLE, THE
TRIGGER COULD BE BASED ON THE
NUMBER OF ACRES BURNED, A NUMBER
OF STRUCTURES BURNED, AND COULD
PAY FOR SHELTERS OR EMERGENCY
RESPONSES NOT COVERED BY FEMA.
AND THEN I'LL SKIP TO THE LAST
ONE THERE AN EARTHQUAKE
SITUATION. YOU COULD HAVE A
HOMEOWNER BUY A POLICY THAT
TRIGGERED IF THE GROUND VELOCITY
DURING AN EARTHQUAKE EXCEEDED,
LIKE SOMETHING LIKE 30 30CM PER
SECOND, AND THAT COULD COVER
SOME OF THE EARTHQUAKE
DEDUCTIBLE. NOW JUST TIMELINE ON
THESE. SO REALLY THEY'VE CREATED
THE PARAMETRIC POLICIES OF
RECEIVED INCREASING ATTENTION
OVER THE LAST 10 OR 15 YEARS.
2007 WAS THE CARIBBEAN
CATASTROPHIC RISK INSURANCE
FACILITY THAT COMMISSIONER LARA
MENTIONED. IN 2010, ALABAMA
BECAME THE FIRST STATE TO
PURCHASE PURCHASE PARAMETRIC
COVERAGE WITH A POLICY FOR STATE
PROPERTIES, INCLUDING
UNIVERSITIES AND SCHOOLS. IN
2017, THE POLICY FOR THAT CORAL
REEF AND QUINTANA ROO, MEXICO
WAS WAS FIRST PURCHASED AND
TODAY, YOU KNOW, JUST FOR
EXAMPLE, THERE'S A INSURTECH
STARTUP CALLED JUMPSTART IN
CALIFORNIA, WHICH OFFERS A
PARAMETRIC POLICY THAT OFFERS 10
OR $20,000 PAYMENT IF THE GROUND
MOVEMENT, GROUND MOVEMENT DURING
AN EARTHQUAKE EXCEEDS 30CM PER
SECOND. NOW, AT THE BOTTOM THERE
OF THAT SLIDE, I THINK THERE'S
NUMEROUS EXAMPLES OF THESE
POLICIES. AND WE'LL HEAR MORE
LATER ABOUT HOW MANY OF THOSE
THERE ARE IN THE STATE. BUT, YOU
KNOW, OVERALL, I THINK THE PACE
OF ADOPTION HAS BEEN, YOU KNOW,
SLOWER THAN MANY HAD HOPED. AND
THIS THIS, THESE PRODUCTS ARE
STILL, YOU KNOW, AT THE EARLY AT
THE EARLY STAGES. SO NOW, YOU
KNOW, I'LL SORT OF GO THROUGH
KIND OF FROM A, YOU KNOW, A
CONCEPTUAL LEVEL, THE ADVANTAGES
OF PARAMETRIC POLICIES. AND SO
WE'LL SORT OF TICK THROUGH LIKE
SEVEN DIFFERENT, DIFFERENT
ADVANTAGES OF THESE. SO FIRST IS
PAYOUT SPEEDS. SO AS AS WE'VE
DISCUSSED, YOU KNOW PAYMENTS CAN
BE MADE, YOU KNOW 3 OR 4 WEEKS
AFTER AN EVENT, YOU KNOW, THE
TRIGGERS GOT TO BE VERIFIED THAT
THE TRIGGER WAS SUCCEEDED. BUT
YOU KNOW, QUICK. AND IT COULD
HAVE EVEN QUICKER THAN THAT. IN
CONTRAST TO AN INDEMNITY POLICY
WHERE THE PAYOUTS CAN CAN TAKE
MUCH LONGER AND ARE USUALLY TIED
TO RECONSTRUCTION OF A OF A
PROPERTY, THE ALSO THE
EFFICIENCY PARAMETRIC POLICIES
OFFER A THE ADVANTAGE OF
EFFICIENCY IN THE CLAIM
ADJUSTING PROCESS. SO IN A
TYPICAL INDEMNITY POLICY,
SOMETHING LIKE 10 OR 15% OF THE
LOSS AMOUNT IS THE COST OF
ADJUSTING. AND SO FOR A
PARAMETRIC POLICY YOU DON'T YOU
CAN SAVE A LOT OF THAT 10 OR
15%. SO THAT'S A IT GIVES YOU A
MORE A MORE, YOU KNOW, EFFICIENT
KIND OF PRODUCT. A THIRD THIRD
ADVANTAGE IS FLEXIBILITY IN HOW
THE PAYMENTS ARE USED FOR. SO
FOR A PARAMETRIC POLICY, THE
PAYMENTS AREN'T TIED TO A
PARTICULAR USE. YOU DON'T HAVE
TO USE THEM TO REPAIR YOUR HOME.
YOU CAN USE THEM FOR ANY
PARTICULAR PROCESS SO THAT
PROVIDES THE POLICYHOLDER A LOT
OF FLEXIBILITY TO USE THOSE
FUNDS FOR THEIR THEIR BEST AND
HIGHEST HIGHEST USE. A FOURTH
ADVANTAGE IS, IS, YOU KNOW, I
THINK IS INCREASING THE SCOPE OF
WHAT CAN BE INSURED. SO, YOU
KNOW, INDEMNITY POLICIES ARE
WELL SUITED TO THINGS THAT CAN
BE, YOU KNOW, EASILY MEASURED.
YOU CAN MEASURE THE LOSS. YOU
CAN I SHOULDN'T SAY EASILY. YOU
CAN MEASURE THE LOSS, FIGURE OUT
WHAT THE LOSS WAS. WHEREAS
PARAMETRIC POLICY SORT OF
EXPANDS THE LIMITS OF
INSURABILITY. IT ALLOWS COVERAGE
FOR THINGS THAT CAN'T READILY BE
MEASURED. SO FOR EXAMPLE, YOU
CAN BUY A PARAMETRIC POLICY FOR,
YOU KNOW, THE WETLAND SERVICES
THAT ARE DISRUPTED BECAUSE OF A
FLOOD. AND, YOU KNOW, VERY HARD
TO MEASURE WHAT THOSE WETLAND
SERVICES ARE AND HOW MUCH THEY
WERE DIMINISHED, BE HARD FOR AN
INDEMNITY POLICY TO COVER THAT.
BUT IN ONE OF THE ADVANTAGES OF
PARAMETRIC EXPANDS, THE KIND OF
THINGS THAT CAN BE INSURED. IT
EXPANDS THE, THE, THE, THE
INSURABILITY OF THINGS. SO THE
COUPLE MORE HERE. ANOTHER
ADVANTAGE IS THAT IT ALLOWS A
LARGE NUMBER OF CLAIMS TO BE
PROCESSED SIMULTANEOUSLY,
SIMULTANEOUSLY. SO IF YOU HAVE A
REALLY LARGE EVENT AND YOU HAVE
A TRADITIONAL POLICIES, YOU NEED
LOTS OF INSURANCE CLAIMS
ADJUSTERS OUT THERE TO GO OUT
AND ADJUST THEM. PARAMETRIC
POLICIES. BECAUSE THEY DON'T
HAVE TO ACTUALLY GO OUT AND
INSPECT THE PROPERTY, CAN
PROVIDE PAYMENTS TO A LARGE
NUMBER OF PEOPLE AT THE SAME
TIME. SO AN EXAMPLE OF THIS CAME
UP IN THE PROPOSALS FOR A
FEDERAL PANDEMIC RISK INSURANCE
PROGRAM THAT WOULD PROVIDE
COVERAGE DURING A PANDEMIC, AND
PARAMETRIC POLICIES WERE
PROPOSED FOR SMALL BUSINESSES
BECAUSE, YOU KNOW, YOU COULD
HAVE HUNDREDS OF THOUSANDS OF
BUSINESSES AFFECTED BY SHUTDOWN
ORDERS. AND THIS WOULD THE
PARAMETRIC PRODUCT WOULD ALLOW
YOU TO GET MONEY OUT TO A LARGE
NUMBER OF PEOPLE AT QUICKLY, AS
OPPOSED TO, YOU KNOW, HAVING A
BIG BOTTLENECK OF ADJUSTERS TO
FIGURE OUT WHAT THE CLAIMS
PAYMENT SHOULD BE. PARAMETRIC
POLICIES CAN REDUCE WHAT I CALL
LOSS ESCALATION. SO THE RAPID
PAYMENT AND FLEXIBILITY IN HOW
THOSE PAYMENTS CAN BE USED CAN
LIMIT THE DOWNWARD ECONOMIC
SPIRAL AFTER AN EVENT. SO AFTER
A DISASTER, YOU KNOW, IF
BUSINESSES CLOSE THAT CAN JUST,
YOU KNOW, FEED ON ITSELF AND
CAUSE IN THE EXTREME POPULATION
LOSS TAX REVENUE LOSS. SO THIS
THE PARAMETRIC POLICIES OFFER
SOME HOPE FOR THAT. AND THEN
FINALLY ADVANTAGE IS, YOU KNOW
ENABLES IT ENABLES MICRO
INSURANCE. SO MICRO INSURANCE IS
A TYPE OF INSURANCE WHERE YOU
HAVE SMALL SMALL PAYMENTS TO A
LARGE NUMBER OF PEOPLE. BUT YOU
CAN IMAGINE IF YOU HAVE A BIG
LOSS ADJUSTMENT COSTS, YOU KNOW,
THAT WOULD JUST BE IMPRACTICAL
TO DO THAT. SO THE FACT THAT YOU
HAVE THIS PARAMETRIC PRODUCT CAN
CAN ALLOW THOSE KIND OF MICRO
KIND OF MICRO THAT KIND OF MICRO
INSURANCE, WHICH YOU SEE
EXAMPLES OF IN THE REST OF THE
REST OF THE COUNTRY AND THE REST
OF THE WORLD. SO THOSE ARE SOME
OF THE REAL ATTRACTIVE FEATURES
OF PARAMETRIC POLICIES. AND NOW
I WANT TO TALK ABOUT SOME OF THE
CHALLENGES OF PARAMETRIC
POLICIES. SO FIRST YOU KNOW, IT
REQUIRES SOME SOPHISTICATION ON
THE PARTY BUYING THE PRODUCT
BECAUSE THEY'LL HAVE TO
UNDERSTAND, YOU KNOW, WHAT
TRIGGERS APPROPRIATE. YOU KNOW,
I'M BUYING THIS PRODUCT. WHAT AM
I GETTING FOR THIS PRODUCT. AND
IT DEPENDS ON A VERY JUDICIOUS
CHOICE OF THE OF THE TRIGGER,
WHICH, YOU KNOW, REQUIRES
MODELING, UNDERSTANDING THE
SCIENCE, UNDERSTANDING THE
PHYSICAL RELATIONSHIP BETWEEN
THE TRIGGER AND THE UNDERLYING
HAZARDS. SO, YOU KNOW, THERE'S A
NEED FOR SOME SOPHISTICATION
THERE. AND, YOU KNOW, INSURANCE
BROKERS CAN HELP WITH THAT. THE
LARGE INSURANCE BROKERS PROVIDE
THOSE MODELING SERVICES. BUT,
YOU KNOW, THAT'S IN PART WHY,
FOR THE MOST PART, THESE
PRODUCTS ARE NOT SO MUCH
TARGETED INDIVIDUALS, BUT AT
ORGANIZATIONS OR ORGANIZATIONS,
THEY MAY BUY THEM ON BEHALF OF
INDIVIDUALS. SO THAT'S I THINK
THAT'S IN PART WHY YOU SEE THEM
TARGETED AT NOT SO MUCH AT
INDIVIDUALS. NOW. ALSO,
PARAMETRIC APPROACHES CAN BE
AGNOSTIC ABOUT THE AMOUNT OF
MITIGATION THAT HAS BEEN DONE.
SO REGULAR INSURANCE, YOU KNOW,
IF YOU MITIGATE YOUR PROPERTY
YOU REDUCE THE RISK. PRESUMABLY
THAT RESULTS IN A REDUCTION IN
YOUR PREMIUM. IN THIS CASE, YOU
KNOW, THE PROBABILITY OF AN
EARTHQUAKE OR A HURRICANE, WIND
SPEED, YOU KNOW, THAT DOESN'T
HAVE ANYTHING TO DO WITH HOW
MUCH PEOPLE HAVE MITIGATED. SO
THERE'S NOT THAT CLEAR LINK. NOW
FOR SOME FOR SOME HAZARDS, YOU
KNOW, YOU COULD SEE SOME KIND OF
LINK BUT NOT I THINK IT'S WEAKER
FOR PARAMETRIC AND FINALLY A
RISK IS, YOU KNOW, THERE'S A
POTENTIAL MISMATCH BETWEEN THE
POLICY PAYMENT AND THE AMOUNT OF
DAMAGE. SO IN AN INDEMNITY
POLICY YOU KNOW, YOU GET YOU
KNOW, YOUR PAYMENT IS BASED ON
THE LOSS YOU OCCURRED. WHEREAS
HERE IT MAY NOT BE WELL MATCHED.
AND THE TERM FOR THAT IS A BASIS
RISK. SO YOU MAY HEAR A LOT OF
THAT. THAT'S A KIND OF AN
INSURANCE INDUSTRY JARGON FOR
THIS MISMATCH BETWEEN POLICY
PAYOUT AND THE AMOUNT OF DAMAGE
THAT'S CALLED CALLED BASIS RISK.
AND TO ILLUSTRATE THAT, YOU
KNOW, JUST GO THROUGH A COUPLE
OF EXAMPLES OF BASIS RISKS. SO
FIRST CONSIDER A SITUATION WHERE
THAT YOU HAVE A LOSS WHAT A TYPE
OF MISMATCH. THERE'S A LOSS BUT
THERE'S NO PAYMENT TO THE
POLICYHOLDER. SO YOU KNOW AN
INDEMNITY POLICY THAT CAN OCCUR.
SO THERE'S A TYPE OF BASIS RISK
THERE BECAUSE YOU COULD HAVE A
LOSS. BUT YOU HAVE A REALLY HIGH
DEDUCTIBLE OR YOU KNOW, OR YOU
HAVE UNDERPAYMENT. YOU KNOW THAT
YOUR POLICY LIMIT WAS LOW. SO
THERE IS A KIND OF BASIS RISK.
BUT I THINK IT'S MAGNIFIED FOR
PARAMETRIC POLICIES WHERE, YOU
KNOW, SORT OF AN AUGMENTED OR
ADDITIONAL RISK FOR THE
POLICYHOLDER. AND THAT CAN OCCUR
IF THERE IS A LOSS. BUT YOU
KNOW, FOR WHATEVER REASON, THE
TRIGGER WASN'T THE THRESHOLD
WASN'T MET. SO FOR EXAMPLE,
MIAMI-DADE COUNTY BOUGHT A
POLICY TO COVER ITS SCHOOLS A
NUMBER OF YEARS AGO. THE TRIGGER
WAS WIND SPEEDS OF 87MPH. A
STORM HIT, CAUSING $19 MILLION
OF DAMAGE TO SCHOOL BUILDINGS.
BUT THE POLICY DIDN'T TRIGGER
BECAUSE THE WIND SPEED WAS 73.
SO, YOU KNOW, THAT WAS AN
EXAMPLE WHERE, YOU KNOW, THEY
PAID FOR THIS POLICY. DAMAGE
HAPPENED, BUT THERE WAS NO NØ
PAYOUT. NOW, YOU KNOW, MIAMI
DADE DID NOT RENEW THEIR POLICY
IN THE SUBSEQUENT YEARS. SO, YOU
KNOW, THERE'S, YOU KNOW, THERE'S
DOWNSIDE. AND IF YOU WERE THE
RISK MANAGER PURCHASED THIS
POLICY, I'M SURE YOU HAD A LOT
OF EMBARRASSING MOMENTS WHEN
EXPLAINING WHY YOU DIDN'T
RECEIVE REINSURANCE COVERAGE IN
THAT KIND OF. SITUATION. NOW, IN
THE, IN THE SORT OF IN THE
OPPOSITE SITUATION WHERE YOU CAN
HAVE PAYOUTS, PAYMENT TO THE
POLICYHOLDER, BUT NO LOSS. SO
NOW THAT'S NOT POSSIBLE IN
INDEMNITY POLICY. YOU KNOW, YOU
DON'T GET A PAYMENT. YOU HAVE A
LOSS. BUT YOU KNOW, YOU COULD
YOU COULD IF THE IF THERE WAS A
TRIGGER, THE POLICY TRIGGERED.
BUT FOR WHATEVER REASON, YOUR
PARTICULAR PROPERTY OR YOUR
PARTICULAR SITUATION WAS NOT NOT
HARMED. NOW THE SECOND, THE
SECOND TRIGGER, I TALKED ABOUT,
YOU KNOW, COULD GUARD AGAINST
SOME OF THAT. BUT, YOU KNOW,
THAT'S A THAT'S AN EXAMPLE OF
WHAT I'D CALL A SORT OF A
TARGETING PROBLEM. SO THERE'S A
POLICY, BUT THE MONEY ENDS UP
GOING TO PEOPLE WHO DON'T NEED
IT. AND SO, YOU KNOW, I THINK
THAT, YOU KNOW, INCREASES THE
COST OF THE OVERALL POLICY.
YOU'RE SORT OF IMPERFECTLY
TARGETING THE, THE, IN EFFECT,
THE PREMIUM TO, TO PEOPLE WHO
DIDN'T HAVE A LOSS. SO THERE'S
SOME, YOU KNOW, DOWNSIDES OF
THESE. THAT'S THE SORT OF BASIS
RISK IS THE DOWNSIDE. AND I
THINK, YOU KNOW, THE INDUSTRY
IS, YOU KNOW, INNOVATING
UNDERSTANDING BETTER HOW TO DEAL
WITH THIS BASIS. RISK AND
CERTAINLY BETTER MODELING AND
BETTER UNDERSTANDING OF THE
RELATIONSHIP BETWEEN THE TRIGGER
AND THE DAMAGE, YOU KNOW, SORT
OF STARTS TO REDUCE THIS THIS
BASIS RISK. SO, YOU KNOW, I'VE
TALKED A LOT ABOUT BASIS RISK,
BUT, YOU KNOW, I WOULDN'T VIEW
IT AS A DEAL BREAKER. BUT, YOU
KNOW, AS IT'S SORT OF PROVIDES A
KIND OF I THINK THE WAY TO
INTERPRET IT, YOU KNOW,
PARAMETRIC POLICIES ARE BETTER
SUITED TO SOME CIRCUMSTANCES
THAN OTHERS. YOU KNOW, THIS IS
ONE WAY TO THINK ABOUT IT. AND
THEY'RE LESS WELL SUITED TO
SITUATIONS WHERE THE
POLICYHOLDERS, YOU KNOW, VERY
SENSITIVE TO THE PROBABILITY OR
THE POSSIBILITY THAT THERE'S A
LARGE LOSS MIGHT OCCUR, BUT
THERE'S NO PAYMENT. YOU KNOW,
VERY RISK AVERSE OR WANTS TO
AVOID THAT KIND OF SITUATION.
PARAMETRIC POLICIES MAY NOT BE
VERY GOOD IN THAT SITUATION. OR
THERE'S A POSSIBILITY THAT
THERE'S A PAYOUT THAT WOULD BE
SUBSTANTIALLY LARGER THAN THE
LOSS. AND, YOU KNOW, IF YOU GOT
INTO THAT SITUATION, THEN, YOU
KNOW, YOU'D HAVE TO YOU KNOW,
THERE'D BE SORT OF THESE PROOF
OF LOSS ISSUES AND THEY'D BE
MORE SCRUTINIZED, MAYBE
EXPENSIVE. AND THAT WOULD SORT
OF UNDERCUT SOME OF THE VERY
ADVANTAGES OF PARAMETRIC
INSURANCE IN THE FIRST PLACE. SO
PARAMETRIC POLICIES ARE BETTER
SUITED TO SITUATIONS WHERE, YOU
KNOW, THERE'S SMALL OR MODEST
PAYOUTS TO INDIVIDUALS. WHEN THE
BENEFITS OF SPEED AND EFFICIENCY
OUTWEIGH OUTWEIGH THESE
TARGETING ERRORS. OR, YOU KNOW,
WHERE THERE'S GOOD INFORMATION
ON POST EVENT NEEDS OR THE
OVERALL DAMAGE WILL ALMOST
CLEARLY BE BETTER THAN THE THAN
THE POLICY PAYOUT. SO, YOU KNOW,
LET ME JUST CONCLUDE WITH A
COUPLE OF COMMENTS. YOU KNOW,
PARAMETRIC POLICIES SHOW A LOT
OF PROMISE. THEY CAN HELP COVER
PROTECTION CLASS GAPS THAT ARE
LEFT BEHIND OR THAT ARE LEFT BY
A TRADITIONAL INDEMNITY POLICIES.
BUT, YOU KNOW, I WANT TO
UNDERSCORE THEY'RE REALLY NOT A
SOLUTION THEMSELVES OR A SILVER
OR SILVER BULLET TO THE
CHALLENGES CURRENTLY FACING THE
CALIFORNIA RESIDENTIAL INSURANCE
MARKET. AND ALSO, YOU KNOW,
WHETHER IT MAKES SENSE FOR
SOMEONE TO BUY A PARAMETRIC
POLICY, YOU KNOW, A STATE LOCAL
OR FEDERAL GOVERNMENT REALLY
DEPENDS ON, YOU KNOW, THEIR
ABILITY TO BEAR THE RISKS
THEMSELVES. AND, YOU KNOW, HOW
MUCH THEY'RE WILLING TO PAY TO
TRANSFER THAT RISK TO, TO, TO
ANOTHER PARTY. THANK YOU. THANK
YOU. THIS IS REALLY, REALLY
INTERESTING. DOES A WOULD A
PARAMETRIC POLICY HAVE TO BE
RENEWED EVERY YEAR OR IS IT ARE
THEY FOR A CERTAIN PERIOD OF
TIME? AND WHAT IF THE TRIGGER IS
MET. YEAH. NO. TYPICALLY THEY'RE
THEY'RE A ONE YEAR POLICY I
THINK IS TYPICAL. AND SO AND THE
QUESTION WAS IF WHAT IF THE
TRIGGERS IF THE TRIGGER IS MET.
YEAH. SO THEN THE POLICY WOULD
PAY OUT. AND THE INSURANCE, THE
INSURER HAS DONE A LOT OF
MODELING TO SET ITS PREMIUM, YOU
KNOW, TO ACCOUNT FOR THAT. AND A
LOT OF THESE POLICIES HAVE PAID
OUT AND THEN IT WOULD BE UP TO
THE PARTIES THE NEXT YEAR TO,
YOU KNOW, RENEW IT AT, AT A
SIMILAR POLICY OR A DIFFERENT
POLICY. SOMETIMES, YOU KNOW,
WE'RE ALWAYS LEARNING. SO IF
THERE'S A LOT OF POLICIES THAT
ARE TRIGGERED THAT MAY LEAD THE
INSURER TO WANT TO INCREASE
THEIR PREMIUM MOVING FORWARD TO
ACCOUNT FOR THAT, THAT THAT THAT
LIKELIHOOD, OKAY. AND I THINK I
UNDERSTAND THIS, BUT THIS
PARAMETRIC POLICY WOULD NOT MEET
A MORTGAGE REQUIREMENT. CORRECT.
OR WOULD IT COULD IT
POTENTIALLY. I DON'T REALLY KNOW
THE ANSWER TO THAT. THAT'S A
GOOD QUESTION. YEAH, I AM NOT.
YEAH I DON'T KNOW OKAY. THAT'S
OKAY. NO I DON'T KNOW EITHER. SO
BUT YEAH THAT'S YOU KNOW THAT'S
A GOOD QUESTION. I SUSPECT THAT
IT WOULD I KNOW IN THE CONTEXT
OF PUERTO RICO, PUERTO RICO,
THIS WAS MENTIONED EARLIER, WAS
CONSIDERING PARAMETRIC POLICY TO
MEET ITS FEMA REQUIREMENTS FOR
INSURANCE. AFTER WHEN FEMA PAYS
TO HAVE A BUILDING REBUILT, IT
REQUIRES THAT PARTY TO BUY
INSURANCE SIMILAR TO A BANK
WOULD. AND FEMA WENT THROUGH 2
OR 3 YEARS OF DECIDING WHETHER
IT WOULD ALLOW A PARAMETRIC
POLICY, AND ULTIMATELY DID. BUT
IT WAS A, YOU KNOW, A WHOLE
PROCESS TO GET TO THAT POINT.
AND MAYBE THE HOME INSURERS
WOULD HAVE TO HAVE A SIMILAR, A
SIMILAR KIND OF DECISION MAKING.
INTERESTING. I DO THINK, THOUGH,
PARAMETRIC WORKS WHEN YOU HAVE
PORTFOLIOS OF PRODUCTS. AND SO
IF YOU'RE TALKING ABOUT ONE, YOU
KNOW, ONE PRODUCT AND WHETHER A
WILDFIRE COVERS A DAMAGE ON A
PARTICULAR STRUCTURE, I WOULD
THINK THE HOME INSURER WOULD
THINK THERE'S TOO MUCH RISK THAT
THERE. THE TRIGGER WASN'T THE
TRIGGER THAT THE PROPERTY WAS
DAMAGED, BUT THE TRIGGER WASN'T
WASN'T MET. THE THRESHOLD WASN'T
MET FOR THAT PARTICULAR PRODUCT.
SO I WOULD THINK IT WOULD CAUSE
HOME INSURERS HEARTBURN. OKAY, I
DON'T REALLY KNOW. THANK YOU.
ASSEMBLYMAN GIBSON. YES, DOCTOR.
THANK YOU VERY MUCH. YOU
CERTAINLY EXPANDED MY KNOWLEDGE
OF THIS PRODUCT, BUT I WANT TO
ASK A FEW QUESTIONS ON YOUR
SLIDE. SLIDE TWO. WE REFER TO
INDEPENDENT GROUP WHO MAKE A
DECISION. CAN YOU TALK ABOUT WHO
THAT INDEPENDENT GROUP WOULD BE
AND WOULD IT BE MADE OF. YEAH.
SO USUALLY IT'S SOMETHING LIKE
THE USGS OR IT'S, YOU KNOW, WHO
MIGHT MEASURE GROUND MOVEMENTS
OR THE NATIONAL HURRICANE CENTER
OR, YOU KNOW, IT'S A IT'S A
RESPECTED, ESTABLISHED EXPERT
ORGANIZATION WITH THE SKILLS TO
DO THAT. AND, YOU KNOW, I THINK,
YOU KNOW, YOU'LL HEAR A LITTLE,
A LITTLE LATER TODAY FROM SOME
OF THE INDUSTRY REPRESENTATIVES
OF, YOU KNOW, MORE EXAMPLES OF
THAT, BUT IT'S A IT'S, YOU KNOW,
IT SHOULD BE A IT IS SOME KIND
OF INDEPENDENT ORGANIZATION WITH
KNOWN EXPERTISE IN THE, IN THE
AREA. AND THEY WILL MAKE A
DETERMINATION AND THEY WILL SET
UP THE GROUND RULES, IF YOU
WILL. YEAH. SO FOR INSTANCE, SO
BECAUSE I WANT TO THE OTHER
QUESTION I WAS GOING TO ASK YOU,
I WAS TRYING TO FIND THE SLIDE
IN TERMS OF TRIGGERS. RIGHT. I
KNOW MY COLLEAGUE ASKED ABOUT
PAYOUT RIGHT. BUT WHAT I THOUGHT
I HEARD YOU SAY THAT IF YOU
THINK YOU GAVE AN EXAMPLE THAT
OF A CATASTROPHE, TAKING PLACE
BUT DIDN'T MEET A PARTICULAR
OUTCOME RIGHT IN TERMS OF LOSS,
BUT THE POLICYHOLDER ARE JUST
BUYING THE POLICY IN CASE IT'S
NOT. I MEAN, IT'S LIKE
INSURANCE. I ALWAYS SAY THIS,
YOU BETTER NEED IT TO NOT HAVE
IT THAN NOT THAN HAVE IT TO NOT
NEED IT SO THAT INSURANCE POLICY
PERSON GETS THE INSURANCE. THEY
DON'T HAVE THE EXPERTISE OF THE
EDUCATION TO SET THE LEVEL. AND
SOMETHING HAPPEN. AND IT'S ONE
DECIMAL OR ONE PERCENTAGE OFF
RIGHT? RIGHT. SO CAN YOU
ELABORATE? BECAUSE IT SEEMS LIKE
THERE'S A GAMBLE. YEAH. NO
THAT'S RIGHT. THAT'S YOU KNOW
BECAUSE WE DON'T KNOW RIGHT.
WE'RE YOU KNOW, WE'RE AUTO
MECHANICS. WE DO WHATEVER. WE'RE
TEACHERS. WE'RE WE DON'T KNOW IN
THAT DEPTH. AND YOU'RE GOING TO
TELL ME THAT Þ DIDN'T MEET THIS
DECIBEL AND SORRY, WE'RE NOT
GOING TO PAY IT OFF BECAUSE IT
DIDN'T MEET THE TRIGGER. THAT'S
RIGHT. WE BUY INSURANCE TO COVER
THE LOSS THAT WE HAVE OCCURRED.
AND SO THAT'S THE THAT WOULD BE
THE. YEAH. SO IN THE IN THE
NEGOTIATION PROCESS OR THE
PURCHASE PROCESS THERE WOULD BE
OKAY, HERE'S THE TRIGGER. AND
THAT WOULD BE AGREED TO BY THE
POLICYHOLDER OR THE INSURER. BUT
AS YOU SAY, YOU KNOW, DOES THE
POLICYHOLDER REALLY HAVE THE
ABILITY TO UNDERSTAND, YOU KNOW,
LIKE THE JUMPSTART TRIGGER IS
30CM PER SECOND OF GROUND
VELOCITY? WELL, YOU KNOW, WHAT
DOES THAT MEAN? YEAH, EXACTLY.
THAT PROBABLY IS A BIG
EARTHQUAKE. BUT A BIG MAGNITUDE.
BUT YOU KNOW, IT'S THAT'S A, YOU
KNOW, A DIFFICULT THING. BUT MY
WALL BUT MY WALL OF MY HOUSE IS
NOW ON THE CONCRETE ON THE
SIDEWALK. RIGHT, RIGHT. BUT IT
DIDN'T MEET A DECIBEL. RIGHT,
RIGHT. AND SO, SO THAT WAS THE
EXAMPLE OF THE MIAMI-DADE COUNTY
WHERE, YOU KNOW, THE WIND SPEED
WAS 73, BUT THE TRIGGER WAS 87.
AND SO, YOU KNOW, IT JUST DIDN'T
GET PAID. NOW, ONE WAY TO DEAL
WITH THAT IS TO HAVE SORT OF A
TIERED THRESHOLD. SO, YOU KNOW,
ABOVE 87, YOU GET ONE THING, YOU
KNOW, ABOVE 75 YOU GET ANOTHER.
SO YOU COULD TEAR THEM SO THAT
THERE'S DIFFERENT PAYOUTS
DEPENDING ON THE INTENSITY OF
THE EVENT. AND THAT, YOU KNOW,
COULD REDUCE THAT. SO YOU'D GET
100%. LET'S SAY THE PAYOUT WAS
10,000. YOU GET 100% OF THAT. IF
IT'S IF IT'S SEATED, YOU KNOW,
87 OR WHATEVER I SAID. AND BUT
IF IT WAS 75, YOU GET, YOU KNOW,
40% OF IT. YOU KNOW, YOU COULD
YOU COULD TIER IT. AND THAT
HAPPENS. YOU KNOW, THERE ARE
TIERED TRIGGERS LIKE THAT THAT
CAN, YOU KNOW, SORT OF ADDRESS,
YOU KNOW, DIFFERENT. BUT BUT THE
POINT IS THERE'S THESE THRESHOLD
EFFECTS WHERE, YOU KNOW, YOU
DIDN'T MEET THE THRESHOLD, SO
YOU DIDN'T GET THE PAYMENT THAT,
THAT YOU THOUGHT YOU WERE GOING
TO GET. WHEN THE WHEN THE EVENT
HAPPENS, HAVE IN YOUR IN YOUR
OPINION, IS THERE A MECHANISM
FOR AN APPEAL IN CASE SOMETHING
IS DISAGREED ON? BECAUSE AGAIN,
WE'RE NOT THESE KIND OF
PRACTITIONERS WHO STUDY THIS
STUFF. SO WE HAVE TO RELY ON
PEOPLE WHO ARE PERCEIVED TO BE
EXPERTS. AND I'M JUST TRYING TO
FIGURE OUT IF SOMEONE HAS A GOOD
QUESTION. SO THAT WOULD TRIGGER.
YEAH. SO THAT WOULD BE THE, YOU
KNOW, THE ADVANTAGE OF THIS IS
THERE SHOULDN'T BE YOU KNOW,
THIS IS, YOU KNOW, A MEASUREMENT
WE'VE AGREED IN ADVANCE HOW TO
MEASURE IT. THIS ORGANIZATION
WILL DETERMINE WHAT THE
MEASUREMENT IS. AND THEN IT'S
DONE. NOW WHETHER THERE'S ROOM
FOR OR GROUNDS FOR APPEAL. WELL,
THERE WAS AN ERROR. THAT
ORGANIZATION DID SOMETHING
WRONG. I HAVEN'T LOOKED INTO,
YOU KNOW, HOW OFTEN THAT OCCURS
OR HOW THAT OR OR, YOU KNOW,
WHAT WOULD HAPPEN IF SOMEONE
SAID, WELL, THAT WAS AN
INCORRECT MEASUREMENT. AND SO
BUT THE POINT, YOU KNOW, THE
POINT IS THAT THAT'S, THAT'S THE
PARAMETRIC IS THAT'S NOT
SUPPOSED TO HAPPEN. AND YOU TRY
TO PUT IN OR THE IDEA IS TO PUT
IN A MECHANISM WHERE IT'S VERY
CUT AND DRY, WHO MEASURES IT,
HOW THEY MEASURE IT, AND THERE'S
NO DISPUTE ABOUT THAT, BUT
THERE'S PROBABLY CAN BE DISPUTE
ABOUT ANYTHING. PROBABLY.
PRECISELY. YEAH. YEAH. THANK
YOU. YEAH. ONE FINAL QUESTION.
DO YOU KNOW HOW PARAMETRIC WOULD
WORK UNDER PROP 103? GOOD
QUESTION. WELL, YEAH. THE AS THE
COMMISSIONER SAID THERE, I DON'T
THINK THERE'S BEEN ANY ADMITTED
PARAMETRIC POLICIES IN THE STATE
OF CALIFORNIA SO FAR. I'M, I
HAVEN'T REALLY LOOKED AT THAT.
BUT IF THERE HAS BEEN VERY FEW
AND IF IT'S ADMITTED THEN THE
DEPARTMENT OF INSURANCE WOULD
HAVE TO APPROVE THE RATE OF
THAT. AND APPROVE THE, THE
POLICY CONDITIONS AND TERMS AND
PRESUMABLY THE DEPARTMENT WOULD
REQUIRE A LOT OF MODELING TO SAY
THAT THE TRIGGER, YOU KNOW,
THERE'S A HIGH CORRELATION
BETWEEN THE TRIGGER AND THE AND
THE PAYOUT OR THE TRIGGER AND
THE LOSS THAT WOULD OCCUR. SO
THERE'D BE, YOU KNOW, THERE'D BE
SOME RELATION BETWEEN IF A
TRIGGER HAPPENS, WE EXPECT THIS
KIND OF LOSS. SO I EXPECT THE
DEPARTMENT WOULD DO A LOT OF
MODELING OF WHETHER THAT TRIGGER
WAS APPROPRIATE. SO TO SORT OF
ADDRESS SOME OF THE ISSUES. SO
THAT WOULD BE PART OF THE
REGULATORY STRUCTURE IN THE
ADMITTED MARKET. AND THEN ALSO I
SUSPECT THEY'D REQUIRE THIS,
THIS SECOND TRIGGER THAT I'M
TALKING ABOUT, THAT THIS SORT OF
PROOF OF LOSS TO, TO INSURE TO
MAKE SURE THE DEPARTMENT HAD
REGULATORY AUTHORITY THAT IT WAS
CONSIDERED AN INSURANCE PRODUCT
AS OPPOSED TO A FINANCIAL,
FINANCIAL DERIVATIVE. AND SO BUT
NOW, YOU KNOW, AS WE'LL HEAR,
THE PARAMETRIC POLICIES ARE ON
THE SURPLUS LINES MARKET AND THE
DEPARTMENT DOESN'T HAVE RATE
AUTHORITY ON IT OR, YOU KNOW,
DOESN'T REALLY APPROVE THE
STRUCTURE OF THE, OF THE
PRODUCT. SO WE HAVE THEM, BUT
THEY'RE, YOU KNOW, NOT REGULATED
UNDER PROP 103. AND SO DON'T
HAVE TO GO THROUGH THAT PROCESS,
BUT THEN ALSO DON'T HAVE THE NOT
SUBJECT TO THE GUARANTY
ASSOCIATION AND THAT KIND OF
THING THAT THE ADMITTED MARKET
ADMITTED MARKET HAS. OKAY. THANK
YOU. IF THERE ARE NO FURTHER
QUESTIONS FROM MY COLLEAGUES.
ALL RIGHT. THANK YOU SO MUCH FOR
BEING HERE TODAY. WE APPRECIATE
THIS INFORMATION. IT'S VERY
INTERESTING. THANK YOU. YOU'RE
WELCOME. OKAY. OUR FINAL PANEL
IS GOING TO FOCUS ON EXAMINING
PARAMETRIC INSURANCE IN PRACTICE
TODAY AND HOW IT IS CURRENTLY
BEING USED BY INSURERS AND
CONSUMERS. ON THIS PANEL. WE
HAVE KRISTEN BROWN, VICE
PRESIDENT OF PUBLIC AFFAIRS AT
THE SURPLUS LINES ASSOCIATION OF
CALIFORNIA. KAREN COLLINS, VICE
PRESIDENT OF PROPERTY AND
ENVIRONMENTAL AT THE AMERICAN
PROPERTY CASUALTY INSURANCE
ASSOCIATION. AND AMY BACH,
EXECUTIVE DIRECTOR OF UNITED
POLICYHOLDERS. WELCOME, AND
THANK YOU ALL FOR BEING HERE
TODAY. THANKS. WHENEVER YOU'RE
READY. THANK YOU. IS MY
MICROPHONE ON? THANK YOU. GOOD
MORNING. MY NAME IS CLIFTON
BROWN AND I AM THE VICE
PRESIDENT FOR PUBLIC AFFAIRS
WITH THE SURPLUS LINE
ASSOCIATION OF CALIFORNIA. I
WOULD LIKE TO THANK CHAIR
CALDERON, THE MEMBERS OF THE
COMMITTEE AND THE COMMITTEE
STAFF FOR GIVING ME THIS
OPPORTUNITY TODAY TO BRIEF YOU
ON THIS IMPORTANT TOPIC TODAY.
MY PURPOSE IS TO GIVE YOU AN
OVERVIEW OF HOW AND WHERE
PARAMETRIC INSURANCE POLICIES
ARE UTILIZED IN THESE SURPLUS
LINES. MARKETPLACE IN
CALIFORNIA. TO BRIEFLY TOUCH ON
THE NATURE OF SURPLUS LINES, THE
TERM REFERS TO INSURANCE THAT IS
OBTAINED FROM A CARRIER THAT
OPERATES OUTSIDE THE STATE OF
CALIFORNIA. THOSE INSURERS WHO
ARE IN WHO ARE AFFORDED RATE AND
FORM FREEDOM SERVE CALIFORNIA
CONSUMERS AND BUSINESSES. WHEN
NO ADEQUATE ADMITTED INSURANCE
MARKET EXISTS TO MEET THEIR
INSURANCE NEEDS. CALIFORNIA
LICENSED SURPLUS LINES BROKERS
FACILITATE THE PLACEMENT OF THIS
COVERAGE WITH CALIFORNIA
CONSUMERS AND BUSINESSES, AND
THOSE BROKERS ARE RESPONSIBLE
UNDER STATE LAW FOR ENSURING
THAT ALL PERTINENT LAWS AND
REGULATIONS ARE FOLLOWED. THE
SURPLUS LINE ASSOCIATION OF
CALIFORNIA, AS THE APPOINTED
ADVISORY ORGANIZATION TO THE
CALIFORNIA DEPARTMENT OF
INSURANCE FOR SURPLUS LINES AND
UNDER THE CDI'S DELEGATED
AUTHORITY, REVIEWS MORE THAN 1.2
MILLION SURPLUS LINES FILINGS
PER YEAR TO INSURE 100%
COMPLIANCE. IT IS BECAUSE OF
THIS REVIEW FUNCTION THAT WE
HAVE EXTENSIVE DATA ON ALL
SURPLUS LINES TRANSACTIONS IN
CALIFORNIA, INCLUDING PARAMETRIC
INSURANCE PRODUCTS THAT ARE
OFFERED TO CALIFORNIA CONSUMERS
AND BUSINESSES. I WILL NOW SHARE
WITH YOU THE DATA WE HAVE ON
PARAMETRIC SURPLUS LINES
TRANSACTIONS FOR THE ENTIRE
CALENDAR YEAR OF 2023, AS WELL
AS TRANSACTIONS THROUGH
SEPTEMBER 17TH, 2024. IN 2023,
57, PARAMETRIC INSURANCE
TRANSACTIONS TOOK PLACE IN THE
CALIFORNIA SURPLUS LINES
MARKETPLACE. OF THOSE 57
TRANSACTIONS, 41 WERE NEW
BUSINESS, INCLUDING 26
COMMERCIAL WILDFIRE POLICIES AND
15 EARTHQUAKE POLICIES, AND 16
WERE RENEWALS, INCLUDING SEVEN
COMMERCIAL WILDFIRE POLICIES AND
NINE EARTHQUAKE POLICIES. TOTAL
PREMIUMS FOR ALL POLICIES IN
CALENDAR YEAR 2023 TOTALED ABOUT
$14.8 MILLION. IN 2024 THROUGH
SEPTEMBER 17TH, 67 PARAMETRIC
TRANSACTIONS TOOK PLACE IN THE
CALIFORNIA SURPLUS LINES
MARKETPLACE. OF THOSE, 67
TRANSACTIONS, 47 WERE NEW
BUSINESS, INCLUDING 26
COMMERCIAL WILDFIRE POLICIES AND
21 EARTHQUAKE POLICIES, AND 20
WERE RENEWALS, INCLUDING SIX
COMMERCIAL WILDFIRE POLICIES AND
14 EARTHQUAKE POLICIES. TOTAL
PREMIUMS FOR ALL POLICIES
TOTALED APPROXIMATELY $6.7
MILLION. WE ALSO HAVE DATA ON
WHERE THE INSURED RISKS ARE
SITED FOR PARAMETRIC EARTHQUAKE.
NEW BUSINESS. THE BULK OF THE
BUSINESS WAS SITED IN STOCKTON,
MONTEREY AND OAKLAND, AND FOR
RENEWALS, ALMOST HALF OF THE
BUSINESS WAS SITED IN OAKLAND,
WITH THE GENERAL FOOTPRINT
RANGING FROM THE BAY AREA DOWN
TO SAN DIEGO COUNTY AND EASTERN
RIVERSIDE. FOR COMMERCIAL
WILDFIRE NEW BUSINESS, THESE
SITES OF THE RISK ARE SCATTERED
TO 39 COMMUNITIES THROUGHOUT THE
STATE, WITH GLENDALE AND SAN
DIEGO HAVING THE MOST
TRANSACTIONS. FOR THE SMALL
NUMBER OF PARAMETRIC COMMERCIAL
WILDFIRE RENEWALS PLACED ON THE
SURPLUS LINES MARKETPLACE SINCE
JANUARY 1ST, 2023, SIX WERE IN
SAN MATEO, SIX IN SAN LUIS
OBISPO AND ONE IN OAKLAND. AS
YOU CAN TELL FROM THE DATA I
HAVE PROVIDED, THIS RELATIVELY
NEW PRODUCT HAS BEEN TAKEN UP
ONLY IN VERY SMALL NUMBERS IN
THE SURPLUS LINES INSURANCE
MARKETPLACE. AT THE CURRENT TAKE
UP RATE, WE MIGHT EXPECT TO SEE
APPROXIMATELY 94 TOTAL
PARAMETRIC NEW BUSINESS RENEWAL
TRANSACTIONS IN THE CALIFORNIA
SURPLUS LINES MARKETPLACE BY THE
END OF 2024, WHICH WOULD ACCOUNT
FOR JUST UNDER 8/1000 OF A
PERCENT OF CALIFORNIA'S TOTAL
SURPLUS LINES. TRANSACTIONS
EXPECTED BY YEAR END. IN TERMS
OF PREMIUMS AT THE CURRENT RATE,
WE MIGHT EXPECT TO SEE
APPROXIMATELY $9.5 MILLION IN
TOTAL PREMIUMS BY THE END OF
2024, WHICH WOULD ACCOUNT FOR
ABOUT 5/100 OF A PERCENT OF
TOTAL CALIFORNIA SURPLUS LINES
PREMIUMS EXPECTED BY YEAR'S END.
WE CANNOT PREDICT THE FUTURE OF
PARAMETRIC PRODUCTS IN THESE
SURPLUS LINES UNIVERSE, BUT AT
THE MOMENT WE CAN SAFELY SAY
THAT THEY ARE NOT A WIDELY
UTILIZED SOLUTION. THANK YOU
AGAIN FOR THE OPPORTUNITY TO
TESTIFY HERE TODAY. THIS
CONCLUDES MY TESTIMONY, AND I
WOULD BE GLAD TO ANSWER ANY
QUESTIONS YOU MAY HAVE. THANK.
THANK YOU. GO. OKAY. DO WE HAVE
THE CLICKER FOR THE. I HAVE A
SLIDE PRESENTATION. WILL IT COME
UP OR DO I NEED TO HIT SOME?
OKAY. THANK YOU. I'M KAREN
COLLINS WITH THE AMERICAN
PROPERTY CASUALTY AND INSURANCE
ASSOCIATION. I SERVE AS VICE
PRESIDENT OF PROPERTY AND
ENVIRONMENTAL ISSUES. FOR THOSE
THAT MAY NOT BE FAMILIAR, WE
REPRESENT HOME, AUTO AND
BUSINESS INSURERS WITH A
PRESENCE IN EVERY COMMUNITY
ACROSS THE US. AND OUR MISSION
IS TO PROTECT PEOPLE AND HELP
THEM RECOVER FROM CATASTROPHIC
LOSSES. FOR THOSE NOT FAMILIAR
WITH MYSELF, I PROVIDE THOUGHT
LEADERSHIP ON PROPERTY AND
CATASTROPHE ISSUES WITH A
SPECIFIC EMPHASIS ON RISK
MITIGATION, RESILIENCE TO THESE
PARTICULAR EVENTS. I ALSO
PROVIDE POLICY EXPERTISE ON
LEGISLATIVE AND REGULATORY
ISSUES, NOT JUST AT THE STATE
LEVEL, BUT ALSO AT NATIONAL AND
INTERNATIONAL LEVEL. FOR OUR
MEMBERSHIP. MY INSIGHTS TODAY
ARE GOING TO HIGHLIGHT WHY THE
PARAMETRIC MARKET IS GROWING. A
HANDFUL OF EXAMPLES OF
PARAMETRIC PRODUCTS THAT ARE
CURRENTLY AVAILABLE, AND ALSO
SOME OF THE CONSIDERATIONS FOR
INSURERS AS WELL AS CONSUMERS.
SO FIRST OFF, WHY PURCHASE
INSURANCE? AND THIS IS A LITTLE
FURTHER OKAY. Ó. AND WE WENT
ONE TOO FAR. ALL RIGHT. SO WHY
PURCHASE INSURANCE OR A
PARAMETRIC. SO AS MENTIONED THE
PRIMARY FUNCTION OF INSURANCE IS
TO PROVIDE A FINANCIAL SAFETY
NET TO HELP RECOVER AFTER
SOMETHING BAD HAPPENS. WHETHER
IT BE A NATURAL DISASTER OR ANY
OTHER LOSS. PARAMETRIC INSURANCE
IS A RAPIDLY GROWING MARKET THAT
OFFERS A UNIQUELY DIFFERENT
APPROACH TO RECOVERY THAN
TRADITIONAL INDEMNITY PRODUCTS,
AS WAS MENTIONED EARLIER. THE
GENERAL IDEA OF PARAMETRIC
INSURANCE HAS ACTUALLY BEEN IN
USE FOR DECADES THROUGH THE
APPLICATION OF LARGE SCALE
TRANSACTIONS, SUCH AS
CATASTROPHE BONDS. BUT
PARAMETRIC OPTIONS FOR CONSUMERS
HAVE REALLY ONLY BEEN POSSIBLE
RECENTLY TO GREATER AVAILABILITY
OF DATA AT AN INCREASINGLY
GRANULAR SCALE. THINGS LIKE
SATELLITES, MORE POWERFUL RADAR,
AND ADVANCEMENTS IN SONAR, AND
EVEN CAMERAS, AND ALSO THE
EVOLUTION OF TECHNOLOGIES AS WAS
MENTIONED, WE HAVE REMOTE
SENSING, MACHINE LEARNING, AI
THAT HAVE ALL EXPANDED THE
POTENTIAL APPLICATIONS. FOR
PARAMETRICS THAT HAVE GROWN IN
POPULARITY. WE HAVE NOTED THAT
IT'S REALLY THE ABILITY TO
STREAMLINE THE CLAIMS PROCESS
FOR BOTH CUSTOMERS AND INSURERS,
PARTICULARLY THE FASTER PAYMENTS
AFTER NATURAL DISASTERS AND
ABILITY TO FILL PROTECTION GAPS.
AND WE'RE SEEING A LOT OF THAT
IN RETAIL, AGRICULTURAL, AND
ALSO TRAVEL SECTORS. PARAMETRICS
CAN BE USED BY BUSINESSES TO
PROVIDE FINANCIAL PROTECTION
FROM DISASTERS OR EVENTS THAT
COULD INTERRUPT THEIR BUSINESS
OPERATIONS. WE'VE SEEN THAT
THERE'S ALSO POTENTIAL USES FOR
CYBER TERRORISM PANDEMIC, WHICH
WAS MENTIONED, WARFARE, ECONOMIC
DOWNTURNS AND A VARIETY OF OTHER
EVENTS. I'M GOING TO
SPECIFICALLY FOCUS ON A HANDFUL
OF EXAMPLES OF PRODUCTS THAT ARE
CURRENTLY IN THE MARKET TODAY
FOR NATURAL CATASTROPHE PERILS.
SO STARTING WITH EARTHQUAKES AND
HURRICANES. FOR EARTHQUAKES AS
REAL TIME SEISMIC SENSORS HAVE
BECOME INCREASINGLY UBIQUITOUS,
DATA DERIVED IS ALLOWING
PROVIDERS TO CONSTRUCT
EARTHQUAKE PARAMETRIC TRIGGERS
AND SOURCE CALCULATION INPUTS
FOR MORE ACCURATE AND TIGHTLY
CALIBRATED PARAMETRIC INSURANCE,
AS WELL AS REINSURANCE PRODUCTS.
SO, FOR EXAMPLE, EARTHQUAKES OF
A CERTAIN MAGNITUDE CAN BE
VERIFIED BY THE USGS. THE US
GEOLOGICAL SURVEY, WHICH WAS
MENTIONED EARLIER, THE
PARAMETRICS THAT WE'VE SEEN
AVAILABLE TODAY INCLUDE PRODUCTS
FROM MID-SIZE CORPORATES AND
ALSO MUNICIPALITIES THAT MIGHT
PROVIDE NON DAMAGE BUSINESS
INTERRUPTION. THIS YEAR ACTUALLY
FOR CALIFORNIA, THERE WAS A NEW
PARAMETRIC THAT WAS ANNOUNCED
THAT COVERS ALL LOCATIONS WITHIN
THE UNIVERSITY OF CALIFORNIA
SYSTEM. FOR HURRICANES. TRIGGERS
AGAIN AS MENTIONED, CAN LEVERAGE
HURRICANE WIND SPEED THRESHOLDS,
WHICH WOULD THEN BE VALIDATED AT
THE TIME BY THE NATIONAL
HURRICANE CENTER. WE HAVE ALSO
SEEN PARAMETRIC COVERS DEVELOPED
FOR REEFS FROM STORMS, AS WELL
AS A FIRST OF ITS KIND
PARAMETRIC DESIGN TO HELP A
GOVERNMENT MEET THE FEMA'S
OBTAIN AND MAINTAIN INSURANCE
REQUIREMENT. THIS WAS MENTIONED,
BUT IT'S REALLY IMPORTANT TO
UNDERSTAND THAT THIS IS A
REQUIREMENT THAT HAS TO BE MET
FOR A DECLARATION, DISASTER
DECLARATION FOR FEDERAL AID AND
WE'VE SEEN SOME CHALLENGES WITH
THAT, INCLUDING THE STATE OF
UTAH THAT'S USED QUITE A BIT FOR
EARTHQUAKE RELATED COVERAGE.
MOVING ON TO FLOODING
PARAMETRICS FOR FLOODING INCLUDE
COMMERCIAL FLOOD COVERAGE THAT
CAN BE A STANDALONE POLICY, OR
ALSO A COMBINATION POLICY WITH A
MORE TRADITIONAL COVERAGE
AVAILABLE THROUGH THE NFIP. THE
NATIONAL FLOOD INSURANCE
PROGRAM. WE'VE ALSO SEEN
COVERAGE FOR PROPERTY AND
BUSINESS INTERRUPTION THAT CAN
BE A DIVERSIFICATION TOOL FOR
THOSE WITH EXISTING LARGE
PORTFOLIOS OF COVERAGE, MEANING
INSURERS, REINSURERS,
CORPORATIONS AND CERTAINLY
PUBLIC ENTITIES. THERE HAVE ALSO
BEEN SOME UNIQUE COMMUNITY FLOOD
PARAMETRIC PROGRAMS DESIGNED TO
SUPPORT LOW AND MODERATE INCOME
COMMUNITIES, AS WELL AS SMALLER
FARM OWNERS IN COLOMBIA. I DON'T
KNOW IF THIS ONE WAS MENTIONED,
BUT THERE'S BEEN A FARM OWNERS
PARAMETRIC STRUCTURED AS A
NATIONAL PROGRAM TO BETTER
ASSIST THOSE RURAL COMMUNITIES
BECAUSE OF THE UNIQUE CHALLENGES
THAT YOU SEE IN DEVELOPING
COUNTRIES. MOVING TO HALE, THIS
IS A PERIL THAT CAUSES A LOT OF
DAMAGE ACROSS THE US, INCLUDING
FOR CAR DEALERSHIPS THAT HAVE
NUMEROUS VEHICLES EXPOSED ON
UNCOVERED LOTS. IN AUSTRALIA,
THEY DEVELOPED A PARAMETRIC FOR
A CAR DEALERSHIP SPECIFICALLY,
WHICH RELIES ON NEAR REAL TIME
HAIL MEASUREMENTS VIA A UNIT
THAT GOT INSTALLED DIRECTLY ON
THE ROOF OF CAR DEALERSHIPS.
AFTER MEASURING THE ACTUAL SIZE
OF HAILSTONES, THE PAYOUT
AMOUNTS ARE DETERMINED BASED ON
A PREVIOUSLY DETERMINED NUMBER
OF VEHICLES ON THE LOT, AND
THERE'S BEEN INTEREST EXPRESSED
FOR THIS PRODUCT TO EXPAND TO
OTHER AREAS, SUCH AS
AGRICULTURAL VINEYARDS, STONE,
FRUIT, AND SOLAR PANELS.
WILDFIRE, WHICH IS A HOT TOPIC
IN CALIFORNIA. PUBLICLY
AVAILABLE REMOTE SENSING DATA,
SUCH AS NASA'S FIRE INFORMATION
FOR RESOURCE MANAGEMENT SYSTEM,
CAN DELIVER NEAR REAL TIME
WILDFIRE LOCATION DATA USING
SATELLITE OBSERVATIONS AND THE
AVAILABILITY OF HIGHER
RESOLUTION IMAGERY AND OTHER
DATA SOURCES IS IMPROVING THE
CONFIDENCE AND DESIGN OF
TRIGGERS AND NEW INDICES, SUCH
AS THE PERCENTAGE BURNED OF AN
ASSET BASE, FOR EXAMPLE, OF A
FORESTRY OPERATION. SO WE'VE
SEEN FORESTRY OPERATIONS AND
WINERIES THAT HAVE BEEN ABLE TO
USE PARAMETRIC WILDFIRE AS A
STANDALONE POLICY OR AS AN
ADDITIONAL COVERAGE IN ORDER TO
FILL GAPS IN COVERAGE,
SPECIFICALLY THINGS LIKE
NON-DAMAGED, BUSINESS
INTERRUPTIONS, OR ALSO AS A
DEDUCTIBLE BUYDOWN. NOW,
PARAMETRICS PROVIDE BENEFITS FOR
BOTH THE CUSTOMER AND THE
INSURER. SO STARTING WITH THE
CUSTOMER, ONE OF THE BIGGEST
ADVANTAGES AS MENTIONED, THE
STREAMLINED CLAIMS PROCESS AND
SPEED OF PAYOUTS FOLLOWING AN
EVENT. OFTEN THAT CAN BE WITHIN
DAYS OR WEEKS IN THE EXAMPLE OF
THE HALE PARAMETRIC FOR CAR
DEALERSHIPS, THE ADMINISTRATIVE
CLAIMS SIDE OF THINGS WAS
SIGNIFICANTLY REDUCED. YOU DON'T
HAVE AN INSURER NEEDING TO SEND
SOMEBODY OUT TO INSPECT VEHICLES
TO DETERMINE THE EXTENT OF
DAMAGE FOR THOSE VEHICLES,
DETERMINE IF IT'S REPAIRABLE,
AND THEN IF SO, WHAT IS THAT
COST GOING TO BE? THIS IS A VERY
TIME CONSUMING PROCESS, AND IT'S
ESSENTIALLY ELIMINATED IN FULL
FOLLOWING NATURAL DISASTERS.
SPEEDING UP THAT PAYMENT PROCESS
CAN ALSO ACCELERATE THAT
DISASTER RESPONSE AND RECOVERY
AND REDUCE POSSIBLE FOLLOW ON
LOSSES, WHICH WAS KIND OF
ALLUDED TO EARLIER. AND
CONSUMERS ALSO BENEFIT FROM THE
TRANSPARENCY OF WHAT THE
TRIGGERING EVENT IS AND HAVING
CERTAINTY ON THE AMOUNT OF
PAYMENT THAT THEY WOULD
OTHERWISE EXPECT TO RECEIVE. FOR
INSURERS, PARAMETRICS CAN
INCREASE THE CERTAINTY BY
CAPPING THE TOTAL AMOUNT OF
LIABILITY, SINCE THAT PAYMENT IS
BASED ON A TRIGGER BEING MET
RATHER THAN THE ACTUAL LOSSES
YOU ALSO CAN SEE A BENEFIT THAT
THE INSURERS MAY HAVE AN
INCENTIVE TO MINIMIZE THEIR
LOSSES THAT ULTIMATELY CAN HELP
REDUCE AN INSURANCE COMPANY
EXPOSURE TO MORAL HAZARD IN
REDUCING RESOURCES NEEDED TO
SUPPORT BOTH UNDERWRITING AND
THE CLAIMS ADJUSTMENT PROCESS,
YOU WOULD ALSO SEE INSURERS
BENEFIT THAT THEY CAN RESPOND TO
THEIR CUSTOMER NEEDS MORE
QUICKLY, AND THEN CERTAINLY WITH
FEWER ADMINISTRATIVE HURDLES,
POLICYHOLDER SATISFACTION COULD
POTENTIALLY IMPROVE, LEADING TO
BETTER CUSTOMER RETENTION FOR
THE INSURER. IF YOU BROADEN THIS
TO MORE SOCIETY WIDE BENEFITS,
THERE ARE SOME THERE AS WELL.
THIS INCLUDES REDUCED INSURANCE
FRAUD SINCE THE TRIGGERS ARE
INDEPENDENTLY VERIFIED AND THE
PAYMENT AMOUNT IS FIXED, IT
REDUCES THOSE INSURANCE GAPS.
EXPANDS COVERAGE IN DEVELOPING
MARKETS WHERE TRADITIONAL
INSURANCE MIGHT NOT BE
AVAILABLE, OR IS PROHIBITIVELY
EXPENSIVE, AND ALSO THE
STANDARDIZATION OF PARAMETRIC
CONTRACTS CAN ALSO MAKE IT
POSSIBLE TO EFFECTIVELY TRANSFER
A POLICY TO CAPITAL MARKETS VIA
THE GROWING MARKET FOR INSURANCE
LINKED SECURITIES. MOVING TO
SOME OF THE DRAWBACKS OF
PARAMETRIC INSURANCE, THE
BIGGEST ONE NOTED IS BASIS RISK,
WHICH WAS TOUCHED ON EARLIER.
THAT'S WHETHER THE AMOUNT OF
COVERAGE DIFFERS FROM THE ACTUAL
LOSS, SUSTAINED OR POSSIBILITY
OF INCURRED LOSSES. WITHOUT THAT
TRIGGER BEING MET. BUT AS
MENTIONED, THAT DOES EXIST IN
TRADITIONAL INSURANCE WHERE
THERE CAN BE THE POTENTIAL FOR
COVERAGE SHORTFALLS. AND WHAT IT
MEANS FOR PARAMETRIC IS IT
REALLY JUST UNDERSCORES THE
IMPORTANCE OF HAVING AN
APPROPRIATE PARAMETER OR INDEX
FOR THOSE EXPOSURES, AND
ENSURING THAT METRICS DO GET
ADJUSTED AS NEEDED TO ACCOUNT
FOR FUTURE CHANGES OVER TIME,
SUCH AS MAYBE THE IMPACTS OF
CLIMATE CHANGE. AND ONE OTHER
POTENTIAL COMPLICATION IS FROM
REGULATORY HURDLES. THERE ARE A
FEW REGULATIONS SPECIFIC TO
PARAMETRIC INSURANCE POLICIES,
AND THESE TYPES OF POLICIES
GENERALLY EXIST UNDER THE SAME
REGULATORY FRAMEWORK AS
TRADITIONAL INSURANCE. IN SOME
JURISDICTIONS, THE REGULATORY
FRAMEWORK COULD ACTUALLY BE A
HURDLE TO RECEIVING A TIMELY
PARAMETRIC PAYOUT IF THAT
JURISDICTION REQUIRES EXTENSIVE
PROOF OF LOSS. DOCUMENTATION.
NOW, IN THE US, REGULATORS HAVE
GENERALLY ACCEPTED DRONE IMAGES
AND EVEN TEXT MESSAGES AS A
PROOF OF LOSS, WHICH CAN
POTENTIALLY REMOVE THE POTENTIAL
BARRIERS TO DELAYED PAYMENTS.
AND LASTLY, SOME EXPERTS ALSO
ARGUE THAT PARAMETRIC COVERAGE
MAY FALL OUTSIDE THE LEGAL
DEFINITION OF INSURANCE SINCE IT
DOES NOT INVOLVE INDEMNITY FOR A
LOSS INCURRED. CERTAINLY, THAT
SECOND THRESHOLD TRIGGER OF
PROOF OF LOSS CAN HELP ADDRESS
THAT. BUT SINCE PARAMETRICS DO
NOT INDEMNIFY AN ACTUAL LOSS
INCURRED WITHOUT THAT TRIGGER,
THERE COULD BE ACTUALLY TAX
IMPLICATIONS FOR A SETTLEMENT
UNDER A PARAMETRIC OR OTHER
FINANCIAL CONSIDERATIONS BASED
ON HOW THEY ULTIMATELY GET
CLASSIFIED AS FINANCIAL
INSTRUMENTS. SO IN CLOSING, A
RAPIDLY GROWING MARKET THAT
OFFERS SOLUTIONS THAT CAN
COMPLEMENT OTHER RISK STRATEGIES
AS OTHERS HAVE MENTIONED, THE
STREAMLINED CLAIMS PROCESS AND
ACCELERATED PAYMENTS FOR BOTH
CUSTOMERS AND INSURERS IS REALLY
THE BIGGEST THING THAT'S ADDING
TO THE POPULARITY AND GROWTH.
AND WE DO CERTAINLY ANTICIPATE
FURTHER INTEREST AND GROWTH AS
MORE BECOME AWARE OF THE
POTENTIAL APPLICATIONS. AND I
INCLUDED IN THE LAST SLIDE JUST
A FLURRY OF OTHER RESOURCES,
WHICH I THINK A LOT OF US ALL
HAVE SIMILAR INSIGHTS FROM. SO
YOU'RE HEARING PROBABLY SOME
SOME OVERLAP TODAY ON THESE.
THANK YOU. HI, AMY. HI. GOOD
MORNING. IS IT STILL MORNING? I
THINK IT IS. I'M SO PLEASED TO
BE WITH YOU TODAY. LET ME JUST
GET MY SLIDES GOING HERE ON THE
REMOTE, OKAY. IS IT THE RIGHT
ONE? THE BOTTOM ONE PUSH. REALLY?
FIR. THERE WE GO. OKAY. THANK
YOU SO MUCH. CHAIR CALDERON AND
MEMBERS OF THE COMMITTEE AND
ALSO THE STAFF FOR INITIATING
THIS HEARING. OBVIOUSLY, I THINK
I SPEAK FOR EVERYONE THAT WE'RE
ALL HOPING THAT THE SUSTAINABLE
INSURANCE STRATEGY ACHIEVES ITS
OBJECTIVES IN THE NEW YEAR, AND
THAT WE SEE SOME RELIEF FROM THE
CRISIS. BUT I THINK IT'S SAFE TO
ASSUME THAT WE'RE NOT GOING TO
REALLY SEE THE MARKET EVER QUITE
REBOUNDING TO WHERE IT HAD BEEN
BECAUSE OF THE ADVENT OF AI
DRONE IMAGES, RISK SCORING AND
ALL THE TECHNOLOGY THAT'S KIND
OF COLLIDED WITH CLIMATE CHANGE
TO REALLY SHIFT INSURANCE
INVESTORS APPETITE FOR RISK. SO
GREAT THAT WE'RE HAVING THIS
CONVERSATION. VERY, VERY
INTERESTING TO HEAR WHAT A LOW,
YOU KNOW, RELATIVELY LOW TAKE UP
RATE THERE IS FOR THESE PRODUCTS
RIGHT NOW. BUT YOU'RE HEARING, I
THINK, FROM ALL THE SPEAKERS,
SOME OPTIMISM THAT THIS IS A
COULD BE A CONTRIBUTING PART OF
THE SOLUTIONS THAT WE ARE GOING
TO BE NEEDING TO BRING. SO A
LITTLE BIT ABOUT MY
ORGANIZATION, IF YOU ARE NOT
FAMILIAR WITH US OR YOU DIDN'T
SIT NEXT TO ME AT LUNCH AT THE
NCOIL MEETING RECENTLY, WE ARE
WE'VE BEEN AROUND FOR THREE
DECADES. WE'RE BASED HERE IN
CALIFORNIA, BUT WE WORK ACROSS
THE COUNTRY. WE'RE A 500 AND
1C3, AND OUR FOCUS IS TO ASSIST
IN DISASTER PREPAREDNESS AND
RECOVERY, ADVOCATE FOR FAIR
INSURANCE PRACTICES, AND HELP
SOLVE PROBLEMS THAT IMPEDE LOSS.
VICTIMS ABILITY TO BE
INDEMNIFIED THROUGH INSURANCE
PRODUCTS. SO AND A LITTLE BIT
YOU CAN YOU CAN AT YOUR LEISURE.
GEEZ. READ UP ON ME. BUT THIS IS
A TOPIC THAT THAT I HAVE BEEN
LOOKING AT. WE'VE BEEN A LOT OF
US HAVE BEEN LOOKING AT THIS
BECAUSE THROUGH THE THROUGH THE
WORK THAT I DO AT THE NATIONAL
LEVEL WITH THE FEDERAL INSURANCE
OFFICE AND THEN THE WORK THAT
I'VE DONE OVER THE YEARS WITH
THE CALIFORNIA EARTHQUAKE
AUTHORITY. AND NOW LOOKING A LOT
AT LOOKING AT OUR FAIR PLAN.
I'VE BEEN DOING A LOT OF LOOKING
AT THE FLORIDA CITIZENS PROGRAM,
THEIR VERSION OF THE FAIR PLAN,
AND WHAT ARE THEY DOING
DIFFERENTLY, AND CAT BONDS AND
ALL THE DIFFERENT THINGS THAT
MIGHT KIND OF HELP US KEEP
MOVING FORWARD HERE TO KEEP
HOMES INSURED. AND THAT THAT
WORK IS GOES ACROSS THE THREE
PROGRAMS THAT OUR ORGANIZATION
RUNS, WHICH IS THE ROADMAP TO
RECOVERY, THE ROADMAP TO
PREPAREDNESS, AND OUR ADVOCACY
WORK. SO THE BOTTOM LINE, AS
YOU'VE ALREADY HEARD, PARAMETRIC
PRODUCTS ARE ALREADY BEING USED
INTERNATIONALLY. MICRO-INSURANCE
DROUGHT INDUCED CROP FAILURE.
AND BY COMMERCIAL AND
GOVERNMENTAL ENTITIES. AND IN IN
LITTLE, LITTLE, LITTLE GREEN
SHOOTS COMING UP IN THE
RESIDENTIAL FIELD, PARAMETRIC
PRODUCTS CAN DEFINITELY HELP
SOLVE SOME COVERAGE GAPS AND
HOME INSURANCE MARKETPLACE
PROBLEMS, BUT THEY'RE DEFINITELY
NOT A PANACEA. I THINK WE ALL
HAVE TO RECOGNIZE THAT THEY'RE
NOT REALLY INSURANCE. AND YOU'VE
HEARD SORT OF THIS DISCUSSION
ABOUT HOW DO WE CLASSIFY THEM SO
THAT THEY ARE PROPERLY OVERSEEN
BY REGULATORS. THEY REALLY ONLY
PARTIALLY INDEMNIFY. SO
PARAMETRIC PRODUCTS HAVE BEEN IN
DEVELOPMENT FOR MANY YEARS. THIS
IS A ABSTRACT FROM 2021. CAN
PARAMETRIC MICROINSURANCE
IMPROVE THE FINANCIAL RESILIENCE
OF LOW INCOME HOUSEHOLDS IN THE
UNITED STATES, THINKING, WELL,
IF PEOPLE CANNOT AFFORD A FULL
INSURANCE POLICY, MAYBE THEY
COULD AFFORD A PARAMETRIC AND AT
LEAST THEY WOULD GET SOMETHING
RIGHT. WHICH I HAVE TO SAY,
INCREASINGLY, SINCE MY
ORGANIZATION IS WORKING IN THE
HURRICANE AREAS WE WORK IN,
WE'RE ON MAUI, WE'RE IN, YOU
KNOW, THE 2024 WILDFIRE AREAS
HERE. INCREASINGLY, OUR CONCERN
IS THAT MORE AND MORE PEOPLE
HAVE NO INSURANCE, WITH
DEDUCTIBLES BEING SO MUCH HIGHER
IN THE GULF STATES THAT PEOPLE
ARE JUST NOT SEEING THE DOLLARS,
ANY DOLLARS AT ALL. YOU KNOW
THAT THEIR CLAIMS ARE FALLING
BELOW THE DEDUCTIBLE. AND SO
THEY'RE THEY'RE REALLY HAVING TO
TURN TO FEMA. AND OBVIOUSLY, YOU
PROBABLY SAW SOME OF THE
HEADLINES THIS WEEK. YOU KNOW, I
GUESS FEMA RUNS OUT OF MONEY
EVERY YEAR, I'VE BEEN TOLD. BUT
THAT WAS IN THE HEADLINES THIS
YEAR IN CONGRESS IS GOING TO
HAVE TO DO ANOTHER
APPROPRIATION. AND YOU ALL KNOW,
BECAUSE OF YOUR INSURANCE
EXPERTISE THAT GIVING AWAY, YOU
KNOW, GOVERNMENT MONEY IS NOT AS
IT'S NOT AS SOUND AS HAVING AN
INSURANCE POOL WHERE MONEY WAS
POOLED, INVESTED AND, AND IT'S
JUST A LOT MORE HEALTHY ALL
AROUND FINANCIALLY. SO WE WANT
TO TRY TO, YOU KNOW, MAINTAIN
THAT WHOLE POOLING RISK
SPREADING SYSTEM. SO EXAMPLES OF
THE TRIGGERS. AGAIN YOU'VE
ALREADY HEARD SOME OF THIS WIND
SPEED DISTANCE BETWEEN PROPERTY
AND AN EARTHQUAKE EPICENTER. THE
WATER LEVEL RISE PRECIPITATION
FALL. THOSE ARE SOME OF THE
TRIGGERS. THE PRODUCT I'M MOST
FAMILIAR WITH IS THE JUMPSTART
RECOVERY EARTHQUAKE PRODUCT.
ACTUALLY, THE FOUNDER OF THAT IS
HERE, SO YOU PROBABLY WILL HEAR
FROM HER DURING THE PUBLIC
PERIOD. SO I HAVE BEEN IN TOUCH
WITH HER FOR YEARS AS SHE WAS
DEVELOPING THAT PRODUCT AND
LOOKED AT IT MYSELF BECAUSE I
HAVE EARTHQUAKE, I'M ONE OF
THOSE, YOU KNOW, WHATEVER IT IS,
TINY LITTLE 8% OF CALIFORNIANS
THAT HAVE IT. BUT BECAUSE MY
DEDUCTIBLE IS LIKE 100 AND SOME
THOUSAND, I DEFINITELY WAS
INTERESTED IN IN THE PRODUCT. I
HAVEN'T GOTTEN AROUND TO BUYING
IT. SO KATE CAN TELL US MAYBE
THAT MORE ABOUT THAT. WHAT ARE
SOME OF THE POTENTIAL BENEFITS
TO CONSUMERS? OR YOU JUST HEARD
ONE, RIGHT, THAT IT WOULD IT
WOULD FILL A GAP DUE TO A HIGH
DEDUCTIBLE FASTER PAYOUTS,
UNDISPUTED PAYOUTS. RIGHT. WE
DON'T HAVE THE PUBLIC ADJUSTER
OR THE LAWYER OR THE ADJUSTER.
THE INDEPENDENT, YOU KNOW, THE
FIGHTING OVER ALL THE ALL THE
FIGHTING THAT CAN GO ON IN, IN
THE CLAIM PROCESS AND THAT
CAUSES DELAYS AND MONEY,
AFFORDABLE, SIMPLER AND CAN FILL
PROTECTION GAPS FROM EXCLUDED
PERILS. SO WE'RE SEEING MORE AND
MORE LIMITS ON WATER DAMAGE,
MORE AND MORE LIMITS ON MOLD
DAMAGE. WE'RE SEEING MORE LIMITS
ON HAIL. SO AGAIN, WANTING
PEOPLE TO BE ABLE TO GET SOME
DOLLARS FROM SOMEWHERE TO PAY
FOR REPAIRS REMAINS OUR
PARAMOUNT GOAL. PARAMETRICS HAVE
SOME POTENTIAL THERE. AND THEN
IMPORTANTLY, I THINK FOR ALL OF
US HERE, THEY CAN BE THE BOTTOM
LAYER OF A CAT RECOVERY FUNDING
LAYER CAKE. SUCH AS WHAT? YOU
KNOW, YOU MAY BE FAMILIAR WITH
THE SIA'S STRUCTURE, RIGHT? WITH
THE PREMIUMS AND THEN THE
REINSURANCE. THE INDUSTRY
ASSESSMENT LAYER, YOU KNOW,
SOMEWHERE DOWN THERE ON THE
BOTTOM, HAVING PEOPLE BUY
PARAMETRIC COULD BE VERY HELPFUL
TO MAKING IT MORE SORT OF WHOLE
CLOTH BENEFITS TO INSURERS COST
CONTROL, PREDICTABLE PAYOUTS,
PRODUCT DESIGN FLEXIBILITY.
RIGHT. I GAVE THE EXAMPLE OF,
YOU KNOW, IF YOU COULD HAVE A IN
THE EVENT OF A CAT FIVE STILL
PRAYING THAT MILTON GOES DOWN
BELOW 100% OF LIMITS COULD BE
PAID OUT OR 75. IT'S A CAP FOR
50%. IF IT'S A CAT. THREE
POTENTIAL BENEFITS TO GOVERNMENT
BASE LAYER OF THE LAYER CAKE
FINANCING FOR A QUASI PUBLIC
PRIVATE PROGRAM. AND THIS
CONCEPT OF POSSIBLY PAYING
PREMIUMS FOR LOW INCOME
HOUSEHOLDS. YOU KNOW, YOU'RE
HEARING MORE AND MORE TALK
ABOUT, SHOULD WE SHOULD WE USE
PUBLIC MONEY TO BUY RENTERS
INSURANCE FOR LOW INCOME
HOUSEHOLDS OR TO OR TO BUY SOME,
SOME SORT OF PROTECTION FOR
HOUSEHOLDS SO THAT THEY HAVE A
SAFETY NET? IT CERTAINLY IS.
LEVERAGES TAX DOLLARS BETTER
THAN PAYING DIRECT AID.
POST-DISASTER DOWNSIDES, NOT
INDEMNIFICATION, DOESN'T MAKE
YOU WHOLE. SUITABLE FOR LOW TO
MODERATE LOSSES. ONLY COVERS A
PORTION ONE PAYMENT, MEANING
SOMEBODY GETS THAT CHECK AND
THEY BETTER BE RESPONSIBLE AND
NOT TAKE IT AND GO AND BUY, YOU
KNOW, THE BIG SCREEN TV OR
WHATEVER. WE DON'T WANT A NANNY
HERE, BUT WE ALSO HAVE TO BE
REALISTIC THAT THE RECOVERY IS
LONG, AND GIVING PEOPLE A QUICK
SHOT OF CASH MAY NOT GET THEM
WHERE WE WANT THEM. CONSUMER
MISCONCEPTIONS, YOU KNOW ABOUT
WHAT THEY ACTUALLY HAVE IN THE
WAY OF PROTECTION IS A IS A
POTENTIAL DOWNSIDE. AND THEN
UNTESTED STARTUPS. YOU KNOW NO
OFFENSE TO KATE. SHE'S BEEN IN
THERE PLUGGING AWAY. NOT THAT'S
NOT AN INSULT TO HER. EXAMPLES
ALREADY UNDERWAY. JUMPSTART
SOMETHING CALLED RAINCOAT IN IN
PUERTO RICO, SOMETHING CALLED
STORM PEACE. SOMETHING CALLED
FIRST TRACK HURRICANE. SO VERY
VERY NASCENT MARKET IN THE
HOMEOWNERS SPACE. THIS IS A JUMP
FROM JUMPSTART'S WEBSITE. YOU
CAN SEE HOW THEY'RE PITCHING IT.
NO PAPERWORK, NO ADJUSTERS, NO
STRINGS ATTACHED. RIGHT. 10-K,
IMMEDIATE PAYOUT FOR
INDIVIDUALS, 20 K FOR SMALL
BUSINESSES. IT'S QUITE
AFFORDABLE, RELATIVELY SPEAKING.
NOW YOU SEE WHAT'S WHAT IS STORM
PIECES PITCH ELIMINATE YOUR
HURRICANE DEDUCTIBLE ZERO
DEDUCTIBLE FAST PAYMENT WITHIN
72 HOURS. AVERAGE COST 300 BUCKS
ANNUALLY. NO INSPECTIONS. SO NO
UNDERWRITING HERE. RIGHT. THIS
IS AND YOU KNOW, SO THIS IS JUST
THESE ARE THINGS TO BE TO BE
NOTICING. SAME THING WITH FAST
TRACK FIRST INSURANCE COMPANY OF
HAWAII PRICES STARTING AT JUST
45 BUCKS A YEAR. SO YOU KNOW WE
LIKE THOSE THINGS RIGHT. SO
THAT'S THAT'S KIND OF WHAT I
WANTED TO SHARE. AND I JUST
REALLY APPRECIATE THAT YOU'RE ON
THIS ON THIS JOURNEY THAT WE ALL
HAVE TO BE ON RIGHT NOW TO TURN
OVER EVERY ROCK AND SEE WHAT WE
CAN FIND THAT HAS PROMISE. THANK
YOU. THANK YOU. I GREATLY
APPRECIATE ALL OF YOU BEING
HERE. SO I HAVE A QUESTION FOR
YOU, AMY. HOW CAN INDIVIDUAL
CONSUMERS FIND PARAMETRIC
POLICIES IF THEY'RE INTERESTED?
I MEAN, YOU JUST MENTIONED 3 OR
4, BUT THE AVERAGE CONSUMER
DOESN'T KNOW WHAT. THAT'S A
GREAT QUESTION. YEAH. AND I
THINK THAT THAT BECAUSE IT'S
SUCH A NASCENT MARKET, YOU'D
HAVE TO KNOW ABOUT IT BECAUSE
AGENTS ARE NOT GOING TO BE
SELLING IT, YOU KNOW. SO YOU
REALLY WOULD HAVE TO SOMEBODY
WOULD HAVE TO TELL YOU ABOUT IT.
RIGHT? I DON'T KNOW WHAT THOSE
FOUR EXAMPLES KIND OF
ADVERTISING BUDGETS ARE. YOU
KNOW, BUT I, I THINK IT'S, IT
WOULD SORT OF AGAIN, AN
OPPORTUNITY MAYBE IF THERE IS A
PRODUCT THAT, THAT, THAT, YOU
KNOW, THE STATE ALWAYS FEELS
LIKE THEY COULD BLAST THAT MAYBE
THERE'D BE A ROLE OR THE FAIR
PLAN OR SOMETHING, SOME KNOWN
ENTITY THAT WOULD PROMOTE THE
PRODUCT. I DID WANT TO TOUCH ON
ONE THING THAT YOU ASKED ABOUT
FANNIE MAE OR WHETHER WHETHER A
LENDER, YOU KNOW, NO WAY IS MY
ANSWER. NO WAY. I MEAN, IN FACT,
YOU KNOW, WE'RE MEETING WITH
SOME OF THEIR FOLKS LATER THIS
WEEK. THEY'RE, YOU KNOW, FANNIE
MAE AND FREDDIE MAC RIGHT NOW
ARE SORT OF THEY'RE GETTING
LOBBIED VERY HARD BY INSURERS TO
NOT ENFORCE THEIR REQUIREMENT
THAT THAT THE INSURANCE THAT'S
IN PLACE ON A LOAN ON A HOME
THAT HAS A FEDERALLY BACKED
MORTGAGE SHOULD BE REPLACEMENT
VALUE INSURANCE INSURERS ARE
TRYING TO WATER THAT DOWN AND
SAY NO, ACV IS OKAY. DEPRECIATED
COVERAGE IS OKAY. IT'S A HUGE
FIGHT THAT'S GOING ON. SO I
WOULD SAY, YOU KNOW, THE IDEA
THAT THAT THAT THAT LENDERS
WOULD BE COMFORTABLE WITH
SOMETHING LIKE THIS IS, IS NOT
VERY LIKELY. SO ALL RIGHT. THANK
YOU. AND THANK YOU FOR THAT
EXTRA INFORMATION. DO YOU HAVE A
QUESTION? I WAS WELL, THANK YOU
VERY MUCH AND CERTAINLY
APPRECIATE I WOULD HAVE
ADDITIONAL QUESTIONS. I'M JUST
TRYING TO WRAP MY MIND AROUND
THIS NEW PRODUCT AND HOW IT
WORKS FOR POOR PEOPLE AND HOW
THE PAYOUT AND HOW THE
DETERMINATION IS GIVEN BY
SCIENTISTS OR EXPERTS IN TERMS
OF PAYING OUT. RIGHT. SAME
QUESTION I ASKED BEFORE. IF IT
DOESN'T MEET IT AND I BOUGHT IT,
I BOUGHT THE INSURANCE. WHY
SHOULDN'T YOU COVER IT? RIGHT?
AND THEN WHO DOES FACT CHECKING
WITH THEIR SCIENCE AND MAKING
SURE IT'S ACCURATE AND IT'S ON
POINT. RIGHT. AND WHERE IS THE
OVERSIGHT THAT'S NECESSARY TO
MAKING SURE THAT PEOPLE ARE NOT
BEING TAKEN ADVANTAGE OF? SO,
YOU KNOW, I JUST HAVE THOSE
QUESTIONS. DON'T KNOW. YOU KNOW,
VERY SPECIFIC. I JUST HAVE SOME
SOME RESERVATION UNTIL I
UNDERSTAND IT FULLY AND MAY WANT
TO REACH OUT TO YOU PERSONALLY
AND HAVE A CONVERSATION IN MY
OFFICE AND MY TEAM, BECAUSE THIS
IS A NEW PRODUCT, I SEE ITS
BENEFIT. YEAH, BUT THE AVERAGE
PERSON BUYS INSURANCE, AND IF
SOMETHING HAPPENS, THE
EXPECTATION OF INSURANCE IS
GOING TO PAY OUT. IF I GET INTO
A CAR ACCIDENT, WHETHER THE
PERSON HAVE INSURANCE OR NOT, I
HAVE KNOWN LIABILITY. BUT
UNINSURED MOTORISTS THEN I'M
GOING TO GET MY I'M GOING TO BE
MADE WHOLE, RIGHT. AND THIS
PARTICULAR PRODUCT, IT'S JUST A
GAMBLE BECAUSE IT'S BASED ON
PEOPLE I DON'T HAVE A
RELATIONSHIP WITH. I DON'T KNOW
THEIR MOM OR THEIR DADDY WHERE
THEY LIVE, AND IT'S BASED ON
SCIENCE. YEAH. AND IF SOMETHING
HAPPENS TO MY PROPERTY, I JUST
WANT TO MAKE SURE BECAUSE I'VE
PAID INTO IT, THAT IT'S TAKEN
CARE OF. AND THIS GAMBLE, IT HAS
TO MEET AGAIN A RICHTER SCALE,
A, YOU KNOW, A DECIMAL, AND IT'S
ALL NEW, RIGHT? RIGHT. I MEAN,
MY UNDERSTANDING IS LIKE, YOU
KNOW, YOU THEY HAVE YOUR BANK
ACCOUNT NUMBER. AND IF THERE'S
A, YOU KNOW, IF THERE'S A 6.0
AND YOU'RE IN THAT CIRCLE AROUND
WHERE THE 6.0 HIT, THAT MONEY
GETS SENT TO YOUR BANK ACCOUNT.
THAT WAS THAT'S HOW I UNDERSTOOD
IT. WHICH OF COURSE RAISES THAT
ISSUE OF LIKE, WELL, WHAT IF I
DIDN'T HAVE ANY DAMAGE? BUT
THAT'S NOT THAT'S, THAT'S THAT'S
NOT RIGHT. THAT'S NOT AN ISSUE.
YEAH. YEAH. SO AND I THINK
PREEXISTING I'M SORRY,
PREEXISTING STUFF. YOU KNOW THAT
MAY ALREADY EXIST. THAT CAUSES A
HOUSE TO CRUMBLE. YOU KNOW. AND
YOU KNOW HOW BECAUSE YOU SAID NO
ONE IS GOING OUT. NO ONE IS
DOING AN EVALUATION. NO ONE IS
DOING AN INSPECTION. SO AGAIN,
I'M USED TO SOMEONE'S COMING
OUT, SOMEONE DOING INSPECTIONS.
IN THIS CASE, I'M PAYING FOR AN
INSURANCE AND THEN I HAVE TO IT
HAS TO MEET A PARTICULAR
CRITERIA. AND IF IT DOESN'T BUT
I STILL HAVE THE DAMAGE I'M
ASKED OUT. I WAS JUST GOING TO
ADD THAT I THINK THIS IS WHY
YOU'RE SEEING A LOT OF THE
PRODUCTS THAT ARE AVAILABLE
TODAY ARE PROBABLY CATERING TO
MORE OR DEVELOP MORE FOR
SOPHISTICATED PURCHASERS. YOU
AREN'T SEEING IT REALLY
WIDESPREAD AT A CONSUMER LEVEL
AS FAR AS A PERSONAL LINE SORT
OF SOLUTION, A HOMEOWNER'S OR AN
AUTO PRODUCT OR RENTERS PRODUCT,
THAT'S CERTAINLY THERE'S
TREMENDOUS POTENTIAL AND
APPLICATION DOWN THE ROAD. WHEN
YOU LOOK AT THE BUSINESS
POLICIES THAT ARE BEING SOLD
WITH BUSINESS INTERRUPTION,
WHICH IS ESSENTIALLY LOSS OF
INCOME OR THE FOOT TRAFFIC,
THAT'S COMING THROUGH, THAT
COULD MAYBE TRANSLATE TO
ADDITIONAL LIVING EXPENSES, THE
COST THAT YOU INCUR WHEN YOU'RE
OUT OF YOUR HOME, YOU'RE ABLE TO
STAY IN A RENTAL PROPERTY OR A
HOTEL. IT'S LIKE THERE'S A
CONCEPTUAL, PROBABLY LINEAR TIE
THAT YOU COULD ENVISION THAT FOR
A PERSONAL LINES OR SOME OTHER
IMMEDIATE PAYOUT FOR EXPENSES
THAT FALL BELOW YOUR DEDUCTIBLE
FOR PERSONAL LINES. AND SO DOWN
THE ROAD IT COULD EVOLVE AND
GIVE YOU MORE OF THAT. PROBABLY.
BUT IT'S NOT TODAY KIND OF
WIDESPREAD AND WOULD THIS BE
SUPPLEMENTAL INSURANCE. IT WOULD
VERY MUCH PROBABLY BE SOMETHING
THAT YOU WOULD SUPPLEMENT. IT'S
NOT MEANT TO REPLACE AN
INDEMNITY PRODUCT, BUT WHAT YOU
ARE SEEING FROM A HOMEOWNER
STANDPOINT IS THAT THE COST TO
REBUILD IS GONE UP SO MUCH
BECAUSE OF MATERIALS AND LABOR,
AND SO THE LIMITS OF COVERAGE
HAVE HAD TO GO UP. AND THE COST
OF THE PREMIUMS FOR THOSE HIGHER
LIMITS ARE HIGHER. AND SO THEN
YOU SEE THE DEDUCTIBLES THAT
HAVE TO INCREMENTALLY INCREASE
TO KIND OF KEEP THAT SAME SHARE
OF RISK. AND SO IF YOU HAVE THIS
HIGHER EXPOSURE FROM A
DEDUCTIBLE, THIS COULD BE THAT
SUPPLEMENTAL THAT COVERS MAYBE
THAT LOWER DEDUCTIBLE FOR PEOPLE
THAT MAYBE CAN'T ABSORB THAT.
AND SO THEY'RE KIND OF THE WAY
IT ALL HAS TO START FITTING
TOGETHER, PIECING TOGETHER. AND
IF THEY CAN'T AFFORD THIS, THEN
MAYBE A COMMUNITY OR A
GOVERNMENT CAN HELP WITH SOME OF
THAT. FOR THOSE THAT ARE MOST
ECONOMICALLY VULNERABLE AND SO
AGAIN, ONE OF MANY OF THE TOOLS
IN THE TOOLBOX IS BUT THESE ARE
KIND OF WHERE YOU COULD SEE IT
GOING FROM A PERSONAL LENS, BUT
THOSE DON'T REALLY EXIST
WIDESPREAD TODAY. AND THEY'RE
GOING TO HAVE TO TEST THAT OUT
PROBABLY MORE SO IN THE OTHER
PRODUCTS THAT ARE AVAILABLE.
ASSEMBLYMEMBER'S VALENCIA. THANK
YOU, MADAM CHAIR, AND I REALLY
APPRECIATE THE INFORMATION
YOU'VE ALL PROVIDED TODAY TO
PIGGYBACK ON THE GOOD
ASSEMBLYMEMBERS POINT, WHAT
DEGREE OF EDUCATION DOES THE
INDUSTRY HAVE IN EDUCATING THE
POLICYHOLDER? THE POTENTIAL
POLICYHOLDER OF WHAT THE
REALISTIC SITUATION CAN BE RIGHT?
THEY WERE TALKING ABOUT 85 MILE
PER HOUR WINDS. THESE SEVERE
CASES. DOES THE INDUSTRY COME IN
AND SAY, HEY, YOU KNOW WHAT,
THERE'S LIKE A 3% CHANCE OF THIS
HAPPENING, BUT YOU'RE GOING TO
BE PAYING THIS MONTHLY. DOES
THAT REALLY MAKE SENSE TO YOU OR
IS IT MORE OF A PONZI SCHEME
TYPE THAT YOU COME IN AND YOU
GO, HEY, WE GOT THIS INSURANCE
PRODUCT FOR YOU. GO AHEAD, PAY
THIS. AND YOU KNOW, YOU'RE GOING
TO BE COVERED. WOULD APPRECIATE
SOME INFORMATION ON THAT. YEAH,
I WOULD SAY THAT THESE ARE VERY
SOPHISTICATED TRANSACTIONS WHERE
A LOT OF THAT IS PROBABLY A
DISCUSSION BACK AND FORTH ON
WHAT THE RISK TOLERANCE IS AND
STRUCTURING THESE, THESE ARE
BEING DEVELOPED AS A VERY
INDIVIDUALIZED PRODUCT. SO IT'S
NOT A HERE'S ONE PRODUCT THAT'S
GOING TO FIT EVERYBODY. IT'S
KIND OF WHAT ARE YOUR NEEDS?
WHAT ARE YOUR EXPOSURES? WHAT IS
YOUR RISK TOLERANCE. AND LET'S
CRAFT THIS INDIVIDUALLY. SO I
WOULD SAY THERE'S PROBABLY QUITE
A BIT OF DISCLOSURE IN THAT
BECAUSE THAT'S PART OF AN
ONGOING CONVERSATION. AS THEY'RE
DEVELOPING THESE FOR VERY
INDIVIDUALIZED PURCHASES. YEAH.
AND IF I CAN JUST ADD I YOU
KNOW, MANY YEARS AGO I WAS ON A
PRODUCT ENHANCEMENT ADVISORY
COMMITTEE FOR THE CALIFORNIA
EARTHQUAKE AUTHORITY, AND I KEPT
SAYING, CAN'T, CAN'T WE CAN'T
YOU DEVELOP A SOME PIECE OF THIS
PRODUCT THAT HAS SOME FIRST
DOLLAR COVERAGE? SO LIKE FOR
EXAMPLE, LIKE YOU WANT TO MAKE
SURE THAT PEOPLE HAVE ENOUGH TO
PAY SOMEBODY TO COME AND DO A
PROPER INSPECTION, A STRUCTURAL
ENGINEER. SO YOU KNOW WHAT
HAPPENED HERE. IF THEY IF THEY
NEED THAT AND YOU KNOW, WHAT I
GOT BACK WAS, WELL, YOU KNOW,
ACTUALLY WE THAT'S REALLY THAT'S
I THINK A LOT OF INSURERS, THEY
JUST DON'T THEY'RE TRYING TO
AVOID PAYING THAT FIRST, THAT
FIRST TRANCHE. THAT'S WHY THEY
HAVE THE DEDUCTIBLES. YOU KNOW.
AND A LOT OF THE LOSSES FALL
BELOW THE DEDUCTIBLES. AND THAT
WORKS FOR THEM. SO IT'S YOU KNOW
WE HAVE SORT OF COMPETING GOALS
HERE. LIKE FOR ME AS A CONSUMER
ADVOCATE I WANT PEOPLE TO SEE
SOME DOLLARS. RIGHT. AND YOU
KNOW FOR INSURERS THEY WANT
PEOPLE TO HOLD THOSE PRODUCTS AS
EMERGENCY PRODUCTS MOSTLY. AND
YOU ONLY USE IT WHEN YOU HAVE A
REALLY BIG LOSS. AND THAT'S WHAT
IT'S FOR. SO THAT'S WHY I THINK
I'M KIND OF EXCITED ABOUT THESE.
IF THEY COULD DEVELOP BECAUSE
LIKE YOU SAY, YOU KNOW WHO
CAN'T? I MEAN, 45 BUCKS, YOU
KNOW, STARTING AT WHATEVER. LIKE
THAT SOUNDS GOOD. SURE. AND THEN
I GUESS IT WOULD JUST COME DOWN
TO WHETHER OR NOT IT PAYS. IT
PAYS, RIGHT, BASED ON THE
DAMAGE. RIGHT. OR THAT $45 IS
GONE. AND I THINK IT'S SOMETHING
THAT WE SHOULD TRACK AND MONITOR
MOVING FORWARD. IT SOUNDS LIKE,
BASED ON WHAT THE INSURANCE
COMMISSIONER PROVIDED, ALTHOUGH
THESE PRODUCTS AREN'T AVAILABLE
HERE NOW, IN SOME SPECIFIC CASES,
IN SOME SPECIFIC CASES, TO YOUR
POINT, MORE SOPHISTICATED
SCENARIOS. BUT IF WE INTEND ON
MOVING INTO THE RESIDENTIAL
SPACE OR JUST THE REGULAR
AVERAGE PUBLIC SPACE, I THINK WE
NEED TO BE MINDFUL OF THOSE
DYNAMICS AND FIGURE OUT HOW WE
CAN BEST EDUCATE CALIFORNIANS AS
WELL. ASSEMBLYMAN PATTERSON,
GREAT, THANKS. JUST COMMENT IF
OBVIOUSLY THERE'S ANY RESPONSE
TO THIS, I'D LOVE TO HEAR IT. SO
I REPRESENT AN AREA OR AT LEAST
BORDER AREAS THAT THAT PEOPLE
CAN'T GET INSURANCE, YOU KNOW,
AND THEY'RE GOING TO THE FAIR
PLAN. AND THINGS LIKE THAT. AND
PAYING OBSCENE, YOU KNOW,
LITERALLY OBSCENE AMOUNTS OF
MONEY. AND I MYSELF HAVE MY
INSURERS LIVE IN CALIFORNIA. SO
IT'S BEEN HARD TO FIND INSURANCE
FOR ME. BUT BUT I RECENTLY WENT
TO AN AREA WHERE THE CALDOR
FIRE, YOU KNOW, OBVIOUSLY
DEVASTATED, YOU KNOW, A FEW
YEARS AGO AND THIS ENTIRE
COMMUNITY, GRIZZLY FLATS, HAD
BURNED DOWN. RIGHT. AND SO
INDIVIDUALS THERE FOR, YOU KNOW,
THERE WAS NO INDIVIDUAL
ASSISTANCE GIVEN AT THAT TIME
FOR I THINK, INEXPLICABLE
REASONS. EVERYBODY IN CALIFORNIA
WAS KIND OF HOPING FOR THAT,
FROM THE GOVERNOR TO THE US
SENATORS. AND FOR SOME STRANGE
REASON THAT WASN'T GRANTED,
UNLIKE OTHER DISASTERS. BUT BUT
IN ANY CASE, THERE ARE PEOPLE
WITHOUT INSURANCE AND DON'T HAVE
MORTGAGES THAT LIVE IN THE
FOOTHILLS AND THINGS LIKE THAT.
AND PART OF THE REASON IS
BECAUSE OF OBVIOUSLY THE COST OF
INSURANCE. AND SO I WONDER IF
THERE COULD POTENTIALLY BE A
PRODUCT WHERE AN INDIVIDUAL,
AFTER THEIR HOUSE BURNED DOWN
THAT I HAD VISITED, THEY BOUGHT
A TRAILER AND WERE BASICALLY
LIVING ON THEIR PROPERTY THAT
THEY'VE OWNED FOR BAZILLION
YEARS, YOU KNOW, BUT I WONDER IF
THIS COULD BE A PRODUCT. FOR
EXAMPLE, I WAS LOOKING AT THAT
ONE $10,000 ONE OR SOMETHING,
RIGHT? WHERE YOU'VE LOST
EVERYTHING, BUT AT LEAST YOU
HAVE SOMETHING TO BE ABLE TO GO.
MAYBE GET A TRAILER TO LIVE IN
WHILE YOU SORT OF FIGURE
EVERYTHING ELSE OUT, AND WHETHER
OR NOT EVEN REBUILDING IS AN
OPTION FOR YOU. AND IS THAT
SOMETHING THAT IS HAPPENING WITH
THESE KINDS OF POLICIES OR COULD
HAPPEN? ARE THERE REQUIREMENTS
THAT YOU HAVE TO HAVE SORT OF
PRIMARY INSURANCE, YOU KNOW, IN
ORDER TO GET ONE OF THESE
POLICIES? THINGS LIKE THAT? I'M
JUST CURIOUS. WELL, I'LL, I'LL,
I CAN START. SO ONE THING I CAN
SAY THAT I HAVE SEEN SOME
PROGRESS IN IS, IS INSURERS
BEING A LITTLE MORE FLEXIBLE
WITH LETTING PEOPLE USE THEIR
ADDITIONAL LIVING EXPENSE
BENEFITS TO BUY A TINY HOME OR A
FIFTH WHEEL, OR SOME SORT OF
LIVABLE TRAILER. RIGHT? WHICH IS
GOOD, BECAUSE THAT THAT'S BEEN A
LITTLE BIT OF A POSITIVE
EVOLUTION. IT'S SMALL, BUT IT IS
STARTING. IT IS HAPPENING. I
KNOW IN THE SANTA CRUZ
MOUNTAINS, THERE'S BEEN QUITE A
BIT OF THAT OF PEOPLE, YOU KNOW,
BUYING A TINY HOME WITH THEIR
TEMPORARY RENT MONEY, BUT I
DON'T EVEN KNOW IF THEY'RE I
DON'T THINK THEY'RE THERE'S NOT
A PARAMETRIC WILDFIRE PRODUCT. I
DON'T BELIEVE THERE IS. AND I
THINK THERE'S A VERY SERIOUS
QUESTION WHETHER ANY ANYONE
WOULD SELL ONE. ALTHOUGH AGAIN,
IT SEEMS LIKE, YOU KNOW, THERE'S
INVESTORS YOU COULD GET AN
INVESTOR FOR SOMETHING IF IT'S
IF IT'S VERY BITE SIZED. YOU
KNOW, THE PROBLEM IS IF THE AI
SAYS IT'S NOT, IF IT'S WHEN IT'S
GOING TO BURN, IT'S PRETTY
TRICKY TO FIND AN INVESTOR WHO'S
GOING TO WANT TO GAMBLE ON THAT.
YEAH. NO, I THINK WHAT YOU
DESCRIBE IS THAT THERE'S A LOT
OF DIFFERENT WAYS AND APPROACHES
TO RECOVERY. IT'S NOT A ONE SIZE
FITS ALL. THERE ARE CLEARLY MANY
WHO ARE GOING TO WANT TO REBUILD
AND REBUILD EXACTLY AS IT WAS.
IF THEY DON'T HAVE ENOUGH, MAYBE
THEY REBUILD TO A SMALLER, YOU
KNOW, SQUARE FOOTAGE. IF THEY
DON'T HAVE A MORTGAGE, THAT
WOULD REQUIRE THAT IN SOME CASES
YOU HAVE A LOT OF HOMES ACROSS
THE US THAT ARE HOMES THAT HAVE
BEEN AROUND FOR 100 YEARS AND TO
REBUILD THOSE CUSTOM TO WHAT
THEY WERE CURRENTLY AS A FULL
REPLACEMENT TO THE PRE-LOSS
CONDITION DOESN'T MAKE SENSE. IT
WOULD BE MUCH MORE COST
EFFECTIVE TO GO AND BUY A
DIFFERENT HOME THAT'S ALREADY
EXISTING. THAT MAYBE IS SIMILAR.
OR IN THE CASE OF A MANUFACTURED
HOME, YOU'RE NOT GOING TO
REBUILD A MANUFACTURED HOME IF
IT'S DAMAGED AND FIRES.
OBVIOUSLY, MOST OF THE TIME
THEY'RE FULLY BURNED OUT OF
SIGHT, BUT YOU WOULD GO AND
PROBABLY JUST PURCHASE A NEW
ONE. AND SO THERE'S A LOT OF
DIFFERENT APPROACHES.
PARAMETRICS AS AS A SMALLER
LIMIT AMOUNT IS PROBABLY GOING
TO GIVE YOU MAYBE MORE FUNDING
TO GO AND BE SEED MONEY TO A
DIFFERENT RECOVERY ELSEWHERE, OR
TO A NEW PURCHASE OF SOMETHING
WITH A NEW LOAN PAYMENT FOR
THAT. SO I THINK IT COULD
CERTAINLY APPLY TO THAT. IT
CERTAINLY REMINDS ME THERE'S
TYPES OF REPLACEMENT PRODUCTS,
INSURANCE PRODUCTS KNOWN AS
FUNCTIONAL REPLACEMENT COSTS,
WHERE YOU MAY NOT HAVE A FULL
REPLACEMENT COST VALUE. AND IT'S
INTENDED FOR THOSE KIND OF OLDER
HOME SITUATIONS WHERE YOU'RE
BETTER OFF JUST GOING AND BUYING
ANOTHER EXISTING HOME THAT'S
STILL STANDING. AND SO IT COULD
MAYBE BE COMPLEMENTED WITH SOME
OF THOSE WITH MAYBE SOME OF THE
DEDUCTIBLE BUY DOWN. OR THERE'S
AGAIN, MANY APPROACHES AND WAYS
THEY CAN ALL FIT TOGETHER. BUT
TO AMY'S EARLIER POINT, I THINK
THESE ARE SOME OF THE
CONVERSATIONS AND CONCERNS ARE
BEING RAISED TO SOME OF THE
FANNIE MAE AND FREDDIE MAC
ENTITIES THAT THERE'S A LOT OF
DIFFERENT APPROACHES TO
REPLACEMENT COSTS AND THAT
THERE'S DIFFERENT RECOVERY AND
DIFFERENT PRODUCTS IN THE MARKET
BECAUSE OF SOME OF THESE UNIQUE
NEEDS AND STRUCTURES THAT ARE
BEING COVERED IN DIFFERENT WAYS.
SO, YOU KNOW, AND I NOTICE THAT
A LOT IN THESE EXAMPLES THAT
WERE GIVEN TODAY ARE GOVERNMENT
AGENCIES MIGHT GO OUT AND BUY
POLICIES. AND I GREW UP, I DON'T
REPRESENT THIS AREA, BUT I GREW
UP IN NAPA, WHICH I FEEL LIKE
GROWN UP. IT WAS FLOODING EVERY
YEAR. YOU KNOW, I REMEMBER
TAKING BOATS AROUND AND STUFF
LIKE THAT. AND OVER THE COURSE
OF DECADES, THE LOCAL
GOVERNMENTS, YOU KNOW, THROUGH
PARTNERSHIP WITH THE STATE AND
FEDERAL GOVERNMENTS, INVESTED IN
OBVIOUSLY, UPGRADING THE LEVEES.
WE SEE THAT HERE IN SACRAMENTO
AS WELL. AND SO THE LIKELINESS
TO FLOOD IN NAPA IS A LOT LOWER.
HOWEVER, I WONDER IF THE
AVAILABILITY OF PRODUCTS LIKE
THAT WOULD DECREASE THE
INVESTMENTS MADE TO DO THE WORK
THAT ACTUALLY NEEDS TO BE DONE.
IF WE'RE EVEN GOING TO HAVE
PEOPLE LIVE THERE IN THE FIRST
PLACE, RIGHT? I DON'T WANT TO
INCENTIVIZE LOCAL OR ANYBODY.
I'M NOT SAYING LOCAL
GOVERNMENTS, BUT THE FEDERAL
GOVERNMENT OR ANYBODY FROM
SAYING, HEY, LET'S NOT, YOU KNOW,
BUILD UP THE LEVEES OR WHATEVER,
BECAUSE WE HAVE THIS PRODUCT
AVAILABLE. AND I DON'T KNOW,
AGAIN, IF YOU HAVE ANY THOUGHTS
ON THAT, BUT BUT WE OBVIOUSLY
WANT TO PREVENT THE DISASTERS
FROM HAPPENING IN THE FIRST
PLACE. RIGHT. SO WELL ACTUALLY,
YOU KNOW, YOU'RE TOUCHING ON
SOMETHING INTERESTING. WHEN I
WAS PREPPING FOR TODAY, I
CHECKED IN WITH KATE STILWELL
ABOUT OBSTACLES FOR THE
DEVELOPMENT OF PARAMETRIC
PRODUCTS, AND SHE MENTIONED,
WELL, THAT FEMA IN SOME WAYS,
LIKE YOU GET PUNISHED, YOU DON'T
FOR IF YOU HAVE INSURANCE WHICH,
WHICH THEY'RE ACTUALLY THEY JUST
FIXED A PIECE OF THAT. THEY'VE
NOW CHANGED IT SO THAT, YOU
KNOW, AS LONG AS THAT JUST THE
FACT THAT YOU HAVE INSURANCE
DOESN'T IMMEDIATELY DISQUALIFY
YOU FOR A GRANT. SO THAT'S GOOD.
BUT I DO THINK THAT, LIKE WHEN
I'VE BEEN, I'VE BEEN LOOKING AT
TALKING TO MUNICIPALITIES THAT
FORMED THEIR OWN INSURANCE
POOLS. RIGHT. RISK POOLS WHEN
THEY WHEN INSURERS PULLED OUT
AND IN THE 90S AND STOPPED
INSURING MUNICIPALITIES. SO THEY
HAD TO GO GET CREATIVE AND BUILD
THEIR OWN INSURANCE PROGRAMS.
AND PARAMETRICS ARE DEFINITELY
PART OF THAT. BUT MITIGATION HAS
TO BE PART OF THAT, TOO. SO I
THINK, YOU KNOW, THESE ARE THE
THESE ARE THE CORE BUILDING
BLOCKS OF, YOU KNOW, GOVERNMENT
SUPPORTED POOLS IS MITIGATION
HAS TO ALWAYS BE PART OF IT. AND
THEN SOME LAYER OF BUY IN FROM
THE PROPERTY OWNERS ALONG WITH
SUPPORT FROM, FROM GOVERNMENT
AGENCIES THAT HAVE THE FINANCIAL
STRENGTH RIGHT. AND I'LL ECHO
THAT, YOU KNOW, ACROSS THE US,
NOT JUST IN CALIFORNIA, WE'RE
SEEING A LOT OF PRESSURE IN
INSURANCE MARKETS AND
DISRUPTION. IT'S PARTICULARLY
PRONOUNCED HERE IN CALIFORNIA.
BUT WE'RE REALLY DEALING WITH
TWO DIFFERENT ISSUES. WE HAVE
AVAILABILITY BECAUSE THE COST OF
INSURANCE IS MAYBE FALLING
BEHIND THE COST TO TRANSFER.
IT'S THE COST TO REBUILD ALL OF
THAT WITH THE LOSSES AND THE
FACT THAT WE'VE SEEN SUCH AN
EROSION OF CAPITAL AS WE'VE
CONTINUED TO INCREASE PAYOUTS,
TO REBUILD FROM SO MANY STATES
AND SO MANY AREAS, HURRICANES,
EARTHQUAKES, OBVIOUSLY WILDFIRES
AS INSURANCE PREMIUMS CATCH UP
TO THAT AND KIND OF CLOSES THAT
GAP. AND REALIGNS THAT
AVAILABILITY COMES INTO THE
MARKET. BUT THEN YOU HAVE THE
AFFORDABILITY ISSUES THAT
REMAIN. AND SO TO AMY'S POINT,
THE MITIGATION, NO MATTER IF
YOU'RE DOING IT AS TRADITIONAL
INDEMNITY PRODUCT OR A
PARAMETRIC, THE COST OF CAPITAL
IS GOING TO HAVE A COST. AND THE
MORE THAT WE KEEP PAYING OUT, NO
MATTER WHAT PRODUCT IT IS, THAT
COST OF CAPITAL WILL CONTINUE TO
BE PRESSURED AND THEN RESULT IN
HIGHER COSTS. AND SO IF WE START
TO SEE A HUGE RASH OF PAYOUTS IN
PARAMETRIC, THEN PROBABLY PRICES
WILL START TO ADJUST AND REFLECT
WHATEVER THAT COST OF TRANSPORT
FOR THAT COST TO CAPITAL
MITIGATION FOR ANY SORT OF
PROPERTY LOSS, WHETHER IT'S OUR
RESIDENTIAL COMMUNITIES OR
COMMERCIAL PROPERTY COMMUNITIES,
MITIGATION IS THAT BEST TOOL IN
THE TOOLBOX TO SLOW DOWN THAT
PAYOUT. WE CAN'T CONTROL MOTHER
NATURE AND WHAT'S GOING TO OCCUR
WITH THAT. BUT IF WE CAN PREVENT
THE LOSSES FROM HAPPENING OR THE
SEVERITY AND EXTENT OF THE
PAYOUTS THAT ARE NEEDED TO DO
THAT, REPAIRS OR REBUILDS,
THAT'S GOING TO BENEFIT ALL OF
THE PRODUCTS THAT ARE AVAILABLE
IN THE MARKET. ALL RIGHT. I'LL
JUST SAY ONE LAST COMMENT ON
THAT. THAT'S A GREAT POINT
BECAUSE OBVIOUSLY, IF YOU KNOW
EVERYBODY IN NAPA WHEN I GREW UP
OR THE LOCAL GOVERNMENT STARTED
GETTING ALL THESE POLICIES
CONTINUE TO FLOOD, CONTINUE TO
FLOOD, CONTINUE TO FLOOD, THEY
WOULD STILL BE INCENTIVIZED TO
DO THE MITIGATION BECAUSE THEY
WOULDN'T BE ABLE TO AFFORD THE
POLICIES IN THE FIRST PLACE,
BECAUSE THERE WOULD BE SO MANY
LOSS PAYOUTS AS A RESULT. SO
ANYWAYS, THANK YOU. I APPRECIATE
IT. AND ONE. DO
YOU DO YOU KNOW IF YOU HAVE TO
DISCLOSE TO INSURER IF YOU HAVE
A PARAMETRIC POLICY, WHY YOU
WOULD WRITE? I DON'T I DON'T
THINK THAT THERE'S ANY
REQUIREMENT IN THE EXISTING
INSURANCE PROCESS OF THAT THERE.
THERE'S GENERALLY IN THE CLAIMS
PROCESS, IF YOU HAVE DUPLICATE
COVERAGE, PARTICULARLY WHEN IT
COMES TO LIKE LIABILITY COVERAGE,
THERE MAY BE SOME COORDINATION
OF BENEFITS, BUT IT'S NOT LIKE A
CONDITION FOR THE PURCHASE OF A
POLICY. YOU WOULDN'T WANT TO
USUALLY HAVE TWO POLICIES FOR
YOUR HOMEOWNERS AND BE PAYING
TWO SEPARATE PREMIUMS. AND
CERTAINLY THERE'S THE RISK OF
BENEFITING FINANCIALLY FROM
THAT. SO I THINK THAT USUALLY
THEY TRY TO AVOID HAVING
DUPLICATE PAYMENTS FOR THE SAME
LOSS. OTHERWISE YOU'RE NOT BEING
INDEMNIFIED. YOU ARE ACTUALLY
MAKING OUT AHEAD OF WHAT IT WAS.
SO THAT'S KIND OF CONFLICTS WITH
THE INDEMNITY CONCEPT. BUT AS
PARAMETRICS ARE STRUCTURED IN
WHAT I'VE SEEN IN THE MARKET
TODAY, TO BE AS A COMPLEMENT OR
SUPPLEMENT TO THAT, I DON'T
THINK THAT THEY WOULD POSE A
CONFLICT, BUT AS THEY EVOLVE,
KIND OF WITH NEW PRODUCTS THAT
EMERGE, IT WOULD BE SOMETHING TO
BE JUST MINDFUL OF. YEAH. ALL
RIGHT. THANK YOU ALL SO MUCH FOR
BEING HERE TODAY. WE GREATLY
APPRECIATE YOUR PRESENTATIONS
AND WE APPRECIATE YOU BEING HERE.
OKAY. WE'RE NOW GOING TO OPEN
THIS UP FOR PUBLIC COMMENT. ANY
MEMBERS OF THE PUBLIC WISHING TO
MAKE A COMMENT PLEASE COME
FORWARD. GOOD AFTERNOON. MY NAME
IS KATE STILWELL AND MANY THANKS
TO AMY FOR AND LLOYD FOR TEEING
ME UP MY NAME. I AM THE FOUNDER
OF JUMPSTART INSURANCE.
JUMPSTART IS THE FIRST
PARAMETRIC INSURANCE FOR
CONSUMERS IN THE UNITED STATES.
NOW, NOT THE ONLY ONE, AND IT'S
FOR EARTHQUAKE RISK. I STARTED
MY CAREER AS A LICENSED
STRUCTURAL ENGINEER, AND I COME
TO INSURANCE FROM THE
PERSPECTIVE OF MAKING SURE THAT
OUR BUILT ENVIRONMENT IS STRONG
ENOUGH TO WITHSTAND AN
EARTHQUAKE. I SERVED A TERM AS A
PRESIDENT OF THE STRUCTURAL
ENGINEERS ASSOCIATION AND WORKED
ON PUBLIC POLICY COMMITTEES WITH
THE CITY OF SAN FRANCISCO TO
WORK ON DISASTER POLICY AND
UNDERSTOOD THAT IT'S NOT JUST
SAFE BUILDINGS THAT WE NEED.
THERE ARE MANY OTHER ASPECTS OF
DISASTER RECOVERY, AND HAVING
ENOUGH MONEY COME INTO THE
SYSTEM IS WHAT'S GOING TO
PREVENT A CITY LIKE OAKLAND FROM
BEING THE NEXT NEW ORLEANS AFTER
HURRICANE KATRINA, AND THAT WAS
AROUND THE TIME WHEN I WAS
WORKING ON THOSE COMMITTEES, AND
I WAS MOTIVATED TO UNDERSTAND
MORE ABOUT THE ROLE OF FINANCE
AND INSURANCE ON JUMPSTARTING
THE RECOVERY PROCESS OF US AS
INDIVIDUALS AND OUR WHOLE
COMMUNITIES AND THE ECONOMY.
AFTER THAT, AND I STUMBLED UPON
THE NOTION OF PARAMETRIC
INSURANCE. AND IN 2006 AND SAID,
WELL, GOODNESS GRACIOUS, IF
FARMERS IN AFRICA CAN DO THIS,
WHY CAN'T WE GET PARAMETRIC
INSURANCE FOR CONSUMERS IN
CALIFORNIA? WELL, FAST FORWARD
TEN YEARS WHEN WE ALL HAD THESE
SUPERCOMPUTERS IN OUR POCKETS.
THE TECHNOLOGY WAS MATURE ENOUGH
TO DELIVER ON THIS IDEA, AND THE
FIRST FOLKS THAT WE WENT TO WERE
THE CALIFORNIA DEPARTMENT OF
INSURANCE TO ENGAGE THEM EARLY
AND ENGAGE THEM OFTEN ABOUT,
DOES THIS FIT AS INSURANCE IN
THE CONTEXT OF THE DEFINITION OF
INSURANCE? THE REASON WE WANTED
IT TO FIT AS INSURANCE IS SO
THAT THE PROCEEDS WOULD NOT BE
TAXABLE FROM THE CONSUMER
PERSPECTIVE, THAT'S THE MOST
IMPORTANT REASON TO CLASSIFY IT
AS INSURANCE, ALTHOUGH IT IS
NOT, DOESN'T LOOK AND FEEL LIKE
INSURANCE BECAUSE IT DOESN'T
MAKE YOU WHOLE BASED ON WHAT
DAMAGE YOU RECEIVE. IT'S JUST
ENOUGH DOESN'T REBUILD YOUR
HOUSE. IT'S JUST ENOUGH MONEY TO
JUMPSTART YOUR PROCESS OF
RECOVERY, WHICH IS WHY WE CALLED
THE COMPANY JUMPSTART TO MAKE
THAT ABUNDANTLY CLEAR, I WANT TO
SHARE THREE LESSONS THAT WE'VE
LEARNED AND THREE PROJECTS THAT
I'M WORKING ON. JUMPSTART WAS
ACQUIRED IN 2021 BY NEPTUNE
FLOOD INSURANCE, SO I NOW LEAD
AND OPERATE JUMPSTART UNDER THE
UMBRELLA OF NEPTUNE. MY ROLE, MY
JOB TITLE AT NEPTUNE IS
PRESIDENT OF PARAMETRIC
INSURANCE. NEPTUNE IS BULLISH ON
THE POTENTIAL OF PARAMETRIC
INSURANCE TO REALLY CHANGE THE
CUSTOMER EXPERIENCE AND ALSO OF
INSURANCE AND DISASTER RECOVERY,
AND ALSO TO HELP INSURANCE
FULFILL ITS SOCIAL GOOD TO
PROVIDE THE SAFETY NET. I'LL
KEEP MY COMMENTS SHORT BECAUSE I
SEE THAT WE NEED TO WRAP IT UP.
THE NUMBER ONE ADVANTAGE SO MANY
OF THE PANELISTS TALKED ABOUT
THE ADVANTAGES OF PARAMETRIC
INSURANCE, BUT WHAT WE'VE
LEARNED FROM OUR CUSTOMERS IS
WHAT THEY LIKE BETTER THAN THE
SPEED OF PAYMENT IS THE LACK OF
ARBITRATION. IT PUTS THEM ON A
LEVEL PLAYING FIELD WITH THE BIG
GUYS AND THE INSURERS. THEY KNOW
EXACTLY HOW MUCH MONEY THEY'RE
GOING TO GET IN WHAT
CIRCUMSTANCES. THE SECOND THING
WE'VE LEARNED IS THAT PEOPLE
WILL PREFER TO BUY IT FROM A
TRUSTED ADVISOR. THE AGENTS THAT
NEPTUNE WORKS WITH. SO WHEN
JUMPSTART WAS AN INDEPENDENT
AGENT INDEPENDENT COMPANY, WE
SOLD DIRECT TO CONSUMER ONLY.
NOW THAT WE'RE PART OF
JUMPSTART, WE NOW THAT WE'RE
PART OF NEPTUNE, WE SELL DIRECT
TO CONSUMER AND ALSO THROUGH
NEPTUNE'S AGENTS. THE AGENTS DO
NOT UNDERSTAND PARAMETRIC. THEY
DON'T WANT TO SELL IT. THERE'S
ONE AGENT OUT OF NEPTUNE'S
THOUSANDS OF RETAIL AGENTS THAT
WE PARTNER WITH, NOT THOUSANDS
OF EMPLOYEES. THERE'S ONE AGENT
OUT OF THOSE TENS OF THOUSANDS
OF AGENTS WHO UNDERSTANDS AND
ADVOCATES AND SELLS PARAMETRIC
INSURANCE, AND HE SELLS IT AS
YOUR FIRST DOLLAR COVERAGE.
EXACTLY WHAT AMY SAID IS THAT
THIS IS YOUR SAFETY NET. THIS IS
YOUR FIRST LINE OF DEFENSE. HE
CALLS IT, YOU KNOW, WHY? HE
SAYS, YOU KNOW WHY IT'S CALLED
PARAMETRIC? BECAUSE IT'S YOUR
PARAMEDIC. IT'S YOUR FINANCIAL
PARAMEDIC. IT'S THE FIRST
RESPONDER AND IT'S THE FIRST
MONEY IN. BUT IT'S NOT REALLY
THE I-WORD. AND THAT'S WHY THE
BEST OPPORTUNITY TO GET
PARAMETRIC IN THE HANDS AND DO
THE GOOD WORK THAT IT CAN DO IS
THROUGH A TRUSTED ADVISOR, SUCH
AS MUNICIPAL RISK MANAGER, OR
SUCH AS A NONPROFIT LIKE THE
CENTER FOR NEW YORK CITY
NEIGHBORHOODS, WHO CAN OPERATE
AND NEGOTIATE ON BEHALF OF THE
CONSTITUENTS ON BEHALF OF THE
POOR PEOPLE. THAT LEADS ME TO
THE THREE PROJECTS THAT I'M
WORKING ON. NEPTUNE DOES NOT
SELL PARAMETRIC FLOOD YET, BUT
WE ARE WORKING WITH ON TWO
PROJECTS. ONE IS WITH THE CITY
OF SAINT PETERSBURG. ONE OF THE
REASONS WE'RE NOT SELLING
PARAMETRIC FLOOD YET IS THAT ON
WHAT WE'VE LEARNED FROM
EARTHQUAKE IS THAT WE DON'T WANT
TO SELL IT. ONESIE TWOSIE WE
WANT TO SELL IT TO GROUPS. SO
THAT THEY CAN DISPERSE THE
BENEFITS TO THEIR STAKEHOLDERS.
AND CONSTITUENTS. SO ONE EXAMPLE
IS WE'RE WORKING WITH THE CITY
OF SAINT PETERSBURG, FLORIDA,
WHICH HAD GOTTEN HIT BY
HURRICANE HELENE AND IS TODAY IS
GETTING HIT BY HURRICANE MILTON
SO THAT THEIR RESIDENTS WHO
OCCUPY PUBLIC HOUSING WILL HAVE
A PARAMETRIC BENEFIT BY VIRTUE
OF BEING A PUBLIC HOUSING
RESIDENT. SO ANY TIME THERE'S A
VERY LARGE FLOOD AND THEY'RE
REQUIRED TO EVACUATE, THEY WILL
GET $1,000 TO BE ABLE TO
EVACUATE, MEET THEIR FIRST
NEEDS, WHATEVER IT TAKES TO BE
ABLE TO MEET THE NEEDS OF THEIR
FAMILY. IN THE CASE OF A LARGE
FLOOD, THE NEPTUNE'S ROLE IN
THAT WILL BE TO ADMINISTER THE
POLICIES, BECAUSE THAT'S WHAT
WE'RE REALLY GOOD AT. THAT'S
WHAT'S REALLY AUTOMATED HERE.
MRS. JONES HERE IS YOUR
PARAMETRIC PARAMEDIC FIRST
RESPONSE, FLOOD POLICY AND YOU
WILL GET A TEXT MESSAGE WHEN
THERE IS A LARGE FLOOD. AND WE
WILL GET THAT MONEY IN YOUR
HANDS THE NEXT DAY WITH NO
ARBITRATION, JUST BASED ON THE
DEPTH OF THE WATER AS DETERMINED
BY THE TIDAL GAUGES OUT IN THE
BAY. ANOTHER PROJECT THAT WE ARE
WORKING ON IS IN THE STATE OF
CALIFORNIA. I'M WORKING WITH
KATHY SCHAEFER ON A THREE TIERED
COMMUNITY INSURANCE PILOT WITH
COMMUNITIES IN THE DELTA. SO WE
USE THE STRUCTURE OF A GAD
GEOLOGICAL HAZARD ASSESSMENT
DISTRICT GAD, TO PAY FOR A THREE
TIERED INSURANCE PREMIUM FOR
THEIR COMMUNITY. THE FIRST TIER
IS A PARAMETRIC PAYOUT IF THE
FLOOD WATER REACHES A CERTAIN
DEPTH, EVERYBODY IN THE GAD,
WHETHER YOU'RE A HOMEOWNER OR
RENTER, GETS $10,000. THE SECOND
TIER IS A IS AN INDEMNITY
INSURANCE POLICY WITH A HIGH
DEDUCTIBLE, A $10,000 INSURANCE
DEDUCTIBLE THAT ALLOWS THE COST
OF THAT INDEMNITY POLICY TO BE
MUCH, MUCH LOWER. AND THEN THE
THIRD TIER IS EXCESS INDEMNITY
INSURANCE ABOVE AND BEYOND THE
MIDDLE TIER INSURANCE POLICY.
AND THERE THE REASON WE
STRUCTURED IT THAT WAY IS THAT
THE FIRST DOLLAR COVERAGE, THE
PARAMETRIC WILL, THE COST OF
THAT PIECE GOES SUBSTANTIALLY
DOWN IF THE COMMUNITY MITIGATES,
IF THEY RAISE THE LEVIES. SO
THERE'S A BUILT IN INCENTIVE TO
INVEST THE PUBLIC MONEY TO BE
ABLE TO REDUCE THE RISK THAT THE
COMMUNITY WILL FLOOD IN THE
FIRST PLACE. I'LL PAUSE MY
COMMENTS THERE, EXCEPT TO SAY I
WILL BE HAPPY TO RESPOND. AS A
MEMBER OF THE PUBLIC, THE
PRIVATE SECTOR, TO ANY NEEDS YOU
MIGHT HAVE ON EDUCATION. OUR
EXPERIENCE, OTHER PROJECTS THAT
ARE WORKING. SO DO NOT HESITATE
TO CALL UPON ME IF YOU HAVE ANY
QUESTIONS OR NEEDS OR INTEREST
IN COLLABORATION. THANK YOU.
THANK YOU. OKAY, WELL, THIS
CONCLUDES THE ASSEMBLY INSURANCE
COMMITTEE ON PARAMETRIC HEARING
ON PARAMETRICS. THANK YOU.