Community as our Ultimate Asset
By Dani Chang Foxon, Aakanksha Chaudhary, Samantha Liu, & Sarah Maung
Executive Summary
‘Home’ is where we feel safe, supported and trusting even when things get tough. We want to build communities which make us feel at home - even amid the aftermath of natural disasters in vulnerable places.
The Problem
Our interviews with residents of Paradise, CA helped us identify THREE major gaps within the community:
First, lack of transparency in risk assessment and imbalance in charges! There’s little knowledge available to the homeowners concerning how zoning risk tiers are created which forms the basis for insurance prices and mortgage rates. Even with modifications of houses to increase resiliency, these charges remain almost the same if houses come under one zoning tier leaving little incentive to build resiliently.
Second, lack of true representation of risks faced! Zoning risk tiers are outdated leading to outdated building and land management practices. This makes the insurance prices and mortgage rates inaccurate and leads to failure in taking concrete steps to handle the actual risks.
Third, lack of accountability, awareness and resources! Often the City downplays the risks, and homeowners are unable to understand how disasters might affect their homes. This leads to lack of necessary actions required to be prepared. Even if they’re aware, most homeowners can’t afford the building upgrades.
Our Solution
Epiphany: The City, Bank, Insurer, and Reinsurer – each have unique resources to fill these gaps. Everybody wants climate resilience to safeguard their interests. However, the incentives to work together towards the common goal of resiliency aren’t aligned!!!
Transparency, support, and security from working together will benefit the Homeowners the most.
It’s like a Puzzle – All pieces need to connect and work together to be successful! To make this possible, we tirelessly pondered on one question -
“How might we build a community (in vulnerable areas) as an asset that is self-reliant against impacts of disasters?”
Our roadmap to make community resilient and an asset involves FOUR sets of actions:
First, the City, Bank, Reinsurer, and Insurer will come together to form Community Resilience Trust.
The City puts a portion of the collected property tax along with reserves for Disaster Management into Trust and manages the Trust. If needed, the Trust will use these funds to raise bonds or to get loans from Banks for repairs/rebuilding at a cheaper rate. Furthermore, the reinsurer and insurer will offer services at cheaper rates to the Trust and the homeowners will purchase them from the Trust.
Second, the stakeholders will be held accountable through Smart Contract. Nested contracts between the stakeholders will ensure stakeholders are held responsible only for their individual actions towards the collective goal of resilience. A smart contract with an umbrella-contract above these nested contracts will effectively reduce the time delay in going through the hoops to act. Through Smart Contract, the Trust will constantly monitor actions of all stakeholders to create incentives around the common goal of resilience and ensure consequences for irresponsible behavior.
Third, the Trust will use a public AI platform to make the risk assessment process transparent and to create Adaptive Risk Tiers. The AI platform will bundle weather and building risk data from all stakeholders with constantly changing climate risks to create ‘Adaptive Risk Tiers’. Updating the tiers on a quarterly basis will reflect true risks and homeowners will get clarity on why their house is in a particular tier.
Fourth, AI will determine the Resilience Index enabling everyone to visualize the community's current preparedness against current risks. Based on the adaptive risk tiers, AI will suggest modifications to increase resilience. The City will modify its building and land practices as per the tiers, and homeowners will upgrade/modify houses/practices as per City’s suggestion. Based on the tackled risks, each will get a “Resilience Index”. These indices will be factored in deciding bank mortgage rates and insurance prices. AI will show their potential ranges. Higher the resilience lower will be the prices!
Conclusion
The preparedness in terms of resilience indices will be translated into simulation-experience for the City and/or for a homeowner to create awareness of the true risks and the required preparedness.
Post-disaster, the Trust's funds will provide subsidies to homeowners who qualify as low-income residents and will purchase extremely high-risk plots to build parks. Thereby, protecting people and their dreams from getting destroyed. Secondary loans will be provided to homeowners with low credit. In case they’re bankrupt, the initial loan taken will be paid first and then the secondary loan taken from the Trust.
We hope to proactively design a future where incentives are created for everyone by collectively leveraging capital and power of each stakeholder to work towards a resilient community. Creating resilience as the common goal promises a better and safer – today and tomorrow. Such a resilient community in vulnerable areas will then become our ultimate asset in fighting any disaster.
Community Resilience Trust is about standing strong together in vulnerable areas to create a safe future for us and for our generations to come.
In June, 2021 the Redesigning Finance students presented their work via Zoom to a panel of experts working in the home insurance sector.
