January 5, 2022
Helen Wiley, interviewer
In the face of escalating extreme weather events, having disaster insurance is becoming even more critical for households to secure greater financial resilience. However, few homeowners know that, for example, most homeowner insurance policies do not cover flooding resulting from a natural disaster event. Given many gaps in the existing disaster insurance market and challenges with getting payouts to policyholders quickly, there is need for innovative new products. Parametric insurance, while not new, is getting increased attention as a way to provide faster and more flexible funds to victims of disasters. While still a small part of the U.S. disaster insurance market, a few parametric-based products are now available for specific perils (e.g. Jumpstart for earthquake, Raincoat and FirstTrack for hurricane, etc.). And now Recoop Disaster Insurance has come to market as a parametric-like solution and the first multi-peril disaster insurance product available for homeowners. To learn more about this new product, the Risk Center reached out to Darren Wood, Founder, and President of Recoop Disaster Insurance. This interview has been edited and condensed.
I understand you experienced some challenges with disaster recovery firsthand. Is that what motivated you to start your company?
Darren Wood: Absolutely, two decades in the insurance industry will do that to you. Things really came into focus for me in 2012 when Hurricane Sandy hit the Atlantic seaboard. This was the genesis for creating Recoop Disaster Insurance. Reports of 100-mph winds, 14-foot storm surges, and nearly 8 million businesses and households without power dominated the news.
But the aftermath was what struck me the most. That superstorm alone was responsible for $70 billion in damages and left many individuals and families homeless and ultimately bankrupt. Experiencing these devastating personal stories of loss and uncertainty crystalized for me the toll these natural disasters take on everyday people. And it wasn’t just about hurricanes. What about the earthquakes, tornadoes, winter storms, and more that cause families to lose their homes and put their financial futures in jeopardy? It made me ask, as an industry, how can we help?
Many homeowners and renters do not realize that they have gaps in coverage after a disaster. How is your company seeking to fill this gap?
Wood: Gaps in coverage are usually hiding in plain sight. Certain disasters, like earthquakes and storm surge caused by hurricanes, aren’t typically included in standard homeowners or renters’ insurance policies, so without Recoop, they could be on the hook for those. Another common gap is the depreciating value of certain parts of the home, think the roof or windows, where the cash value the homeowner receives from the insurance company may only be a fraction of the cost to replace them. In addition, deductibles can be very high for disasters, especially for wind-related damages from tornadoes and hurricanes in high-risk areas. These disaster deductibles can cost anywhere between 2 – 20% of a home’s value.
Families are also exposed because most homes are underinsured by 20% of their value and there are rising costs of materials and the increased demand and cost for labor and supplies. This goes for guaranteed replacement policies too, which are often capped based on the home’s insured value. Plus, with typical home insurance, customers could be stuck waiting up to 30 days before they get paid after submitting a claim.
The risk to families is real and living in denial is costly. Recoop is the first and only multi-peril disaster insurance product that pays a lump-sum cash benefit (up to $25,000) after a natural disaster. It covers the gaps to pick up where typical homeowners and renters insurance stops. We get recovery cash into their hands within days in most cases and without any loopholes or gotchas.
Parametric insurance products for disasters have been limited in the U.S. but are starting to expand. Recoop describes itself as a parametric-like solution without being inherently a parametric product. Can you explain how your product works and the benefits of this approach?
Wood: While Recoop itself is not a parametric product, it is parametric-like in that it covers specific trigger events with a set payout and is very similar in claim speed and ease of use. Unlike parametric products though, Recoop is designed to pay out claims based on the magnitude of losses (more than $1,000) not based on the magnitude of the event. Recoop tries to eliminate the variability of damage being based on the strength of the event. There are far too many scenarios where even a “minor” disaster event can result in damage that pushes material costs to the consumer versus the insurance company. For example, a roof that subjects the consumer to actual cash value provisions, separate wind deductibles that are often a percentage of the home’s value, or similar expenses the consumer can’t afford.
In addition to the $1,000 damage threshold, consumers have to be located in a state or federally declared disaster area for a payout. Policyholders are also required to have an underlying home or renters policy. This is to ensure that their structure is insurable and is our way to keep costs down, allowing us to pass on lower premiums to the consumer by not having underwriting upfront (or factoring in items such as credit score, home value, and the like). I believe this will make the product available to more people through lower costs as well as basically being a guaranteed issue policy.
While parametric products have been limited in the past, we are glad to see more coming to market. Products like these just make sense and are a key piece of any family’s insurance portfolio to cover specific disasters or events that are not covered by traditional homeowners’ insurance, like earthquakes or floods.
With changing climatic conditions, we are having more extreme weather events today, resulting in catastrophic losses for many households. How is your company communicating about climate and rising disaster risks?
Wood: Not only do we want to educate consumers on the gaps in their current homeowners’ policies, but we also want to educate them on the rising risks associated with the climate crisis, which will have a very real impact on many Americans. The disasters we see on the news now are just the tip of the iceberg. In fact, according to FEMA, 80% of U.S. counties have experienced a weather-related disaster in the last 5 years. So, it isn’t a question of “if” they will be impacted by a natural disaster, but “when”.
Knowledge is power, so we encourage consumers to dig in and read their homeowners insurance policy to better understand their coverage. Actively looking for terms like “limits of coverage”, “eligibility”, and “exclusions” will help them discover what is and isn’t covered, so they know where to start looking for additional coverage to address their risk. They also need to know how many out-of-pocket dollars they’ll need to have available to cover their insurance deductible. It’s a big part of the reason why Recoop customers don’t have to pay any deductible to receive their benefits. In fact, our customers can use their quick and easy Recoop cash to pay their deductibles so they can start to recover and heal.
Recoop is now available in over 30 states. What is next for your company?
Recoop is currently available in 37 states. We’re actively working on adding new states and policies in the future and will be in all 50 states very soon. With our current distribution plan, we’re focused on actively rolling out this product offering to employee benefit brokers, and we’ll continue to work on growing over time through other market categories.
We know that the average household savings in the U.S. is just $3,800, and 60% of Americans have no emergency fund. Too many people face financial ruin in the wake of a natural disaster, and that’s just not okay. Our focus right now is on helping as many people as possible by ensuring that Recoop is accessible to them, building awareness around our product, and creating an understanding of how it can help protect their financial future.