1: Product Name (Water Scarcity Insurance)
2: Populations that product/service would protect. If not obvious, explain population vulnerabilities.
Distinct products to serve different populations A) Individuals (disaster/emergency needs) B) Corporations and/or Farmers (drought conditions) C) Nation-states (long-term access to clean water) D) All the above populations (securing rights in a climate change scenario years or decades in the future)
3: Impacts that the product/service would protect against.
The most essential building block of health and society for humankind is reliable and consistent access to a clean water supply. For a majority of the world it is something taken for granted but in select instances it can become vitally important almost instantaneously and this insurance would be designed to alleviate that concern of needing it when least expected.
4: Trigger event that would result in a claim.
For Product A) a declaration of an emergency by a state or federal agency i.e. FEMA in the instance of a Natural Disaster like a Hurricane, tornado, or flood etc. For Product B) when a 'moderate' drought or worse is measurable in the region of the insured party as calculated by the PDSI or Palmer Drought Severity Index. For Product C) Expectation would be that this applies primarily to a 'developing' country and therefore a trigger event should be a declaration by the United Nations, World Economic Forum or a similar internationally recognized NGO that a region or country is in a period of water insecurity/scarcity (example Cape Town in 2017). For Product D) tied to sea level rise in the insured's geography benchmarked to a certain start year - for example a 2 inch rise in the region benchmarked to 2016, the year the Paris Climate Accords were signed.
5: Scope and nature of the insurance response (e.g. it could be a cash payment or could include services or a combination).
For Product A) physical delivery in the form of individual cases (defined as a 24-pack of 16.9oz bottles) and/or gallons. For events in which there is a lead time (Hurricanes/Blizzards) the insured should have the ability to trigger a claim either prior to the event (so that they can avoid the hoarding and rush at stores) or post event if they lose access. For unpredictable events then similar product but after the event. In both cases, if the insurance company deems it too high risk to be in the location to deliver physical product then a cash in lieu option shall be available but at a penalty to the insurance company. For example, if one case of water costs $5.50 then failure to deliver should result in a $11.00 payment per case to the insured party (2x the cost). For Products B-D) cash settlement - recently created Water Futures that trade on the CME (NQH2O Index) have standardized a unit of water that insurance products can be built on. That definition is "US dollar per acre foot (the volume of water required to cover one acre of land [43,560 square feet] to a depth of one foot, equivalent to 325,851 gallons)". This will allow for the insured party to try to estimate the amount of water required to be replaced should a scarcity event occur and therefore an associated dollar amount to replace it. For the insurance company the existence of this new future (albeit based solely off cost of water in California) market will allow them to appropriately price out the risk associated with the product. Why would a end-consumer utilize insurance over entering the future market themselves? Largely management and longevity risk...the ability to use the insurance product as an intermediary decreases complexity for the consumer and removes the need to consistently manage the future position over a multi-year process.
Due to the potential immediate unexpected need for water and/or capital to replace water the insurance company should air on the side of paying all claims as immediately (not "timely" as defined by a lawyer) as possible upon filing. This naturally increases the risk to the insurance firm and they should look to either price that risk into premium and/or include claw back language that states they can recoup money from the insured if it is determined to be a fraudulent claim.
6: Thoughts on why this would be a compelling product.
For the longer term (products B-D) Climate Change is a world wide phenomena that is not waning. The term "climate anxiety" has officially enter the zeitgeist and according to an April 2020 paper from Yale and George Mason the number of Americans that are 'very worried' about climate change doubled in the last 5 years to 26%. For Product A - Natural Disasters are by definition unexpected and cause concern and anxiety for anyone that is impacted by it. The ability to secure clean water in such a situation provides very high degrees of the unquantifiable "let's me sleep at night" factor.
7: Thoughts on how this product would be sold.
For Product A) it can either be an additional stand alone product that is sold via local agents (State Farm, Allstate etc.). Or it can be embedded as an additional premium option/rider for existing natural disaster types of insurance i.e. flood or even homeowner's or renter's insurance. For Products B-D) via either specialized insurers in the commercial space and/or reinsurance agents.