With Hurricane Helene’s damage estimates as high as $160 billion, US homeowners and municipalities face an increasingly stark reality: Traditional insurance models are failing to meet the challenges of more frequent climate-fueled disasters.
New models, including community-based catastrophe insurance and municipal pooled insurance, are emerging to help address the gap.
Even before Hurricane Helene leveled parts of the western coast of Florida and unleashed biblical flooding in the “climate haven” of western North Carolina, insurers were pulling back.
Last January, Nationwide Insurance announced plans to drop more than 10,000 policies in North Carolina, while the state’s rate-setting requested a 42% increase in home premiums. (A judicial hearing on Oct. 7 will take up the issue after the state’s insurance commissioner rejected the proposals). Across the country, insurance rates have risen an average of 20% in just the last year as storms, wildfires and flooding have increased.
The ripple effects extend beyond individual homeowners to entire communities. When residents can’t access or afford insurance, they’re forced to either pay in cash — as a third 32% of home buyers did in 2024 — or risk foreclosure when mortgage companies call their loans. As properties lose value and residents relocate, municipalities face declining tax revenues and struggle to maintain basic services, much less invest in resilience measures.
“If I’m the town manager or city manager of a place, I care about the collective value of the property in that place, because that’s what underwrites my bonds, that’s what pays my cops and firefighters and teachers,” said Jonathan Meyers of HR&A Advisors, an employee-owned real estate and economic development consultancy headquartered in New York.
“If the private insurance industry collectively says we can’t work here anymore, that’s an existential problem.” Meyers’ comments came at a two-day insurance-focused conference at Climate Week NYC hosted by InnSure, a Boston-based nonprofit focused on catalyzing climate-smart insurance innovation.
New approaches are needed to strengthen community resilience and cover losses when traditional insurance is underused or becomes unaffordable or unavailable due to more frequent floods, fires and hurricanes. In North America, just over 60% of the $1.2 trillion in economic losses from natural disasters over the past decade have been covered by insurance, leaving a “disaster protection gap” of more than $500 billion.
Emerging models
Call it insurance+. Community Based Catastrophe Insurance, or CBCI, enlists local governments or community groups as intermediaries between residents and insurers, leveraging collective bargaining power to secure broader coverage at lower premiums.
The model can take a range of forms. At its simplest, the community acts as a facilitator to help establish beneficial arrangements with insurers. More complex arrangements include setting up “community captives,” in which localities create their own risk-bearing entities that self insure.
Developed by the Wharton School’s Risk Management and Decision Processes Center and insurance giant Marsh & McLennan, the community-based CAT insurance can raise a community’s credit risk profile and boost its post-disaster economic revitalization.
New York City is pioneering its own community-based initiative, one of the first of its kind in the US, to boost the financial resilience of low- and moderate-income households against flood risk. The project, which could be a model for other cities, aims to develop inclusive insurance options for communities that have historically been locked out of the insurance market due to cost or availability barriers.
Muni infrastructure
Municipal pooled insurance takes a broader approach: protecting municipal infrastructure and budgets. By joining forces, multiple municipalities can spread their risks across different locations and vulnerabilities (a hilly town and a flood-plain town, for example), enabling them to secure lower premiums than they could obtain individually.
The model eliminates the high costs of traditional self-insurance options like captives, while still providing customized coverage and shared resources for risk assessment. Members of a pool share in the group’s losses, even if they’re not directly affected by a disaster.
One groundbreaking example is under development in South Africa’s Western Cape Province. Set to launch in 2025, the first-of-its-kind Municipal Risk Pool in South Africa’s Western Cape, or MRPWC, aims to provide up to half a dozen municipalities with coverage against flooding risks. The program will use parametric triggers – predetermined conditions that automatically initiate payouts tied to, say, rainfall levels — to shorten the claims process and payouts.
While donor funding will support initial capitalization, the pool will invest premium payments to grow its capital reserves and purchase reinsurance to transfer some financial risks to the private market.
Big insurers and other institutional investors are increasingly interested in policies for climate-resilient infrastructure. In April, the Insurance Development Forum, an insurance industry-led public-private partnership, inked a deal with asset management giant BlackRock to implement a climate-resilience “blueprint” and create a pipeline of infrastructure projects that meet insurers needs, likely in the form of a dedicated infrastructure fund. IDF members, which include Axa, Swiss Re, Allianz, AIG and Zurich Insurance, pledged to invest $500 million in blueprint-approved projects.
Workforce protections
Nakita Devlin, the CEO and founder of at Ric, a parametric insurance startup in New York, warned of a looming workforce protection challenge in the widening insurance gap. When traditional insurers “get the data on extreme heat and how it’s impacting the workforce, they’re going to start including exclusions on their workers’ comp and disability ability policies,” she said at the panel.
One solution, Devlin added, is for municipal pooled insurance policies to include a parametric feature that pays out when temperatures climb too high for workers to safely do their jobs. The Cape Town facility, for example, will include such a feature.
As the current insurance system starts to buckle under the weight of more powerful and costly storms, droughts and other natural disasters, new models are needed, and fast. For many communities, that may mean coming together to protect themselves when traditional insurers step back.