A historic first for New York City
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Partnering to provide parametric protection against flood risk for low-income communities
The Center for NYC Neighborhoods (CNYCN), in partnership with the Mayor’s Office of Climate & Environmental Justice (MOCEJ), the Environmental Defense Fund, and SBP USA, has launched a new pilot project to support low- and moderate-income (LMI) communities in high-flood-risk neighborhoods with emergency cash funds after a major flood. Financial protection is provided by Swiss Re Corporate Solutions and led by Swiss Re Public Sector Solutions in partnership with Guy Carpenter, the pilot was funded by the Civic Innovation Challenge, the National Science Foundation (NSF), and the Department of Homeland Security.
The program will provide parametric coverage for excess rainfall and storm surge events that can lead to severe flooding. CNYCN receives the proceeds of a parametric derivative payout, which supports their emergency cash grants to eligible New Yorkers.
Protecting livelihoods against increasing flood risk
Currently, 780,000 of New York City (NYC) residents live within or directly adjacent to the 500-year floodplain, which is expected to grow to cover one quarter the city’s landmass and 1 out of every 10 New Yorkers by the year 2050.
Past disasters, such as Hurricanes Sandy and Ida have laid bare the reality that these events disproportionately hurt the most vulnerable of society. In 2012, Hurricane Sandy caused USD70B of economic damage only half of which was insured. It served as a wake-up call, highlighting the vast protection gap that exists even in the most developed regions of the most developed nations. In the United States, between 50% and 70% of the damage from Hurricane Sandy was driven by flooding, illustrating the significant impact of “secondary perils” and the challenges faced especially by LMI neighborhoods, where primary recovery resources - savings, credit, aid, and insurance - are often in scarce supply.
Harnessing the power of digital solutions
This historic program leverages Swiss Re Corporate Solutions’ models for precipitation and storm surge-induced flooding. Qualifying flood events using a mix of near real time satellite data from ICEYE's dedicated fleet of 24 satellites, on-the-ground real-time sensors, and social media. The increased granularity of data allows for payouts made to CNYCN to more accurately reflect their grant expenditures following a flood. This is a leap forward in comparison to traditional parametric flood offerings, which rely on a proxy to determine flooding (e.g., precipitation recordings at local weather station, satellite rainfall estimates, or the proximity of a hurricane).
A transparent approach to payouts
If a flood occurs, using reported flood extent from ICEYE, Swiss Re Corporate Solutions and ICEYE will determine the percentage of each insured neighborhood that falls within the flooded area. If the percentage is above a threshold agreed to in the derivative contract, Swiss Re Corporate Solutions will issue a payment to CNYCN. Grants will be distributed to households via CNYCN’s program.
The pilot program incepted on February 1, 2023 and will last for one year, with the goal to scale within NYC in the coming years.
This innovative insurance product allows New York City to optimize its resources and focus on helping LMI communities to recover more quickly after a severe flooding event.
Extreme weather events can lead to significant financial and societal disruptions in major cities like New York, and this risk will only grow over time due to both development and climate change. This transaction serves as a timely model for other states looking to leverage the insurance industry and the innovative risk solutions available that help buffer their natural catastrophe exposures.