Traditional Home Insurance Is Collapsing. Here’s What Could Fill the Gap

In 2019, when the worst flooding in recorded history spread across the entire Mississippi River basin, Colin Wellenkamp’s phone rang for weeks. Wellenkamp runs a nonprofit called the Mississippi River Cities & Towns Initiative, which coordinates between mayors’ offices in more than 100 river communities from northern Minnesota to southern Louisiana. As he describes it, his headquarters served as “one big virtual situation room” for relief agencies and municipalities up and down the central US. The damage reports were gut-wrenching: Underneath historic downtowns, sewer systems filled, swelled, and popped; roads above them buckled and collapsed. Not too far from Wellenkamp’s office in St. Louis, stranded residents had to be rescued by boats as rushing waters rose and coursed through their living rooms, and a young couple drowned in a submerged vehicle. In one town—Davenport, Iowa—the sewage treatment plant became an island, and the city had to boat its employees to the site. Workers stayed there for nine solid days, sleeping on cots, to keep wastewater from backing up into homes and businesses. Wellenkamp knew that in the aftermath of any natural disaster, the first days and weeks can be brutally decisive for the fate of a town. As modest city budgets were being triaged to handle the most dire of emergencies—rescuing the stranded, restacking sandbags, getting power plants back online—damage to other systems was mercilessly stacking up. City leaders could see the future with sickening clarity: Public relief money from agencies like the Federal Emergency Management Agency would take weeks, months, or even years to arrive. As road and sewer repairs waited for funding, destruction would compound over time: Water would continue to flow into busted drainage networks; inundated homes would get moldier. Private insurance payouts would be similarly slow, when they weren’t denied outright. Churches, gas stations, and grocery stores—often the only ones for miles—would close for good. Some residents would leave and never move back. And sure enough, much of it came to pass. “Our cities didn't need a lot of money to respond. Most of them just needed 50 grand, $75,000, $100,000 … but it wasn't there,” Wellenkamp says. “Who's helping you within the first 72 hours? Nobody.” By chance, a few months before the 2019 Mississippi River flood, Wellenkamp learned about a new, little-known form of insurance that was quietly expanding in disaster-prone areas around the world—not a way to cover individual homes but a means to insure entire towns and ecosystems against calamities. It had started taking off in the farmlands of eastern and southern Africa in the early 2010s, particularly in Malawi and Ethiopia. Then it began to spread into war zones and other settings once deemed uninsurable. It’s called parametric insurance, and it relies heavily on sensors, satellites, and AI. The idea is just what it sounds like: When sensors confirm that certain predetermined parameters have been hit—say, half an inch of rain falls in a single hour, or winds north of 100 miles per hour are sustained for 60 consecutive seconds—any participating government or business within the qualifying area can get a payout. By making determinations based on remote weather readings instead of actual damage assessments, insurance companies can do away with human field adjusters. And by processing claims with AI, they can get money into people’s hands within days. The cash is usually drawn from a pool that a range of parties pays into: often governments, nonprofits, and businesses with a financial stake in their local ecosystems. In 2018, some staffers at the United Nations had reached out to Wellenkamp’s nonprofit to discuss disaster resilience, and parametric insurance came up. They’d seen it work in other parts of the world and offered to broker a conversation between Wellenkamp and some major parametric insurance providers to see if a similar model could serve in the Mississippi River basin. Since then, he’s been in conversations with one of the world’s largest insurers, Munich Re, trying to come up with a plan to prevent what happened in the 2019 floods. Wellenkamp is in good company. As disasters multiply and traditional home insurance crumples under the weight of climate change, the parametric model has been moving steadily into prime North American markets, insuring against a litany of previously hard-to-cover catastrophes. Last year, the Bay Area city of Fremont became the first municipality in the country to take out a city-wide parametric flood insurance plan. A homeowners association near Lake Tahoe, California, has a joint parametric wildfire insurance plan, and a group of nonprofits in New York has partnered with the city to purchase a shared parametric flood insurance plan that will cover a handful of particularly low-lying New York City neighborhoods. Hoteliers and local governments in Hawaii and Cancun, Mexico, have used parametric plans to insure coral reefs against storm damage. For years, 16 national governments in the Caribbean have paid into a single parametric hurricane plan; after 2024’s Hurricane Beryl met the set parameters, the plan quickly sent out payments, including nearly $44 million to Grenada alone. The money allowed hospitals and schools to reopen quickly, fixed roads and public water lines, and supported farmers and small businesses. The scheme that Wellenkamp and Munich Re have been devising could become one of the biggest parametric plans in North America—a way to insure the entire Mississippi River basin against flooding and other disasters. If all goes as expected, Wellenkamp hopes to roll out a pilot program in the mid-Mississippi region next year. Further on the horizon, the Trump administration has even begun talking about determining FEMA payouts with a parametric model. Some pragmatists laud parametric insurance as a model that might upend disaster relief as we know it. No more impractically slow, potentially biased assessments or years spent waiting for disbursements—just defined parameters and quick payouts. But to some environmentalists, it looks like a scheme for insurers to use sensors and AI to profit off disasters on terms that are favorable to them, in markets they have previously been unable to enter. Others highlight that measurable weather thresholds don’t always correlate with actual impacts, and they worry about claims being automatically denied even as homes and businesses lie in ruin. On the Mississippi, Wellenkamp is just hoping he can stanch the cascade of flood-related devastation—and the resulting exodus of people from their communities. If you know how to spot them, the scars of flooding are everywhere along the Mississippi: green algae on highways far from the river, faded black water marks on concrete road barricades, and strings of unoccupied, grassy lots at the ends of city streets as they approach riverbanks. One day this spring, Wellenkamp—with short graying hair, a phone that kept ringing, and dress shoes he didn’t mind muddying—showed me that subtle reminders are all over the city of East St. Louis, Illinois. Located directly across the Mississippi from the iconic Gateway Arch, East St. Louis is one of the few cities in the basin located almost entirely on a floodplain. Over the last half century, its population has plummeted from more than 80,000 residents to 17,682, due in part to repeated flooding. Where other cities near the river suffer from what’s referred to as “frontdoor” flooding—water that overflows from the Mississippi itself—East St. Louis often faces more of a “backdoor” threat. Water runs downhill into the city from surrounding developments on higher ground and from the off-ramps of highways that criss-cross the predominately Black community. The city has drainage canals that flow into the Mississippi, but when the river is too high, the mucky water in those ditches reverses course, sending stormwater back into the surrounding neighborhoods. “You’ve got surface water coming from the highways,” said Charles Powell III, the city’s mayor, as we stood with Wellenkamp on an overlook facing the river. “It has nowhere to go, because the canal is filled,” he said. “So now you’re trapped.” Four years ago, during a major rainfall, an especially bad flood poured into an East St. Louis neighborhood called Mary Terrace, wedged in a low-lying area between Interstate 255 and a set of raised railroad tracks. First responders staged a rescue operation, launching boats into the recessed neighborhood from an elevated strip of pavement near a senior citizens’ center and a Seventh Day Adventist church. Then the city set about blowing out mud that had accumulated in the sewer system, pumping water out of homes, helping families with mold mitigation, and repairing streets that had collapsed when water lines burst. Without extra funding to help them meet these immediate needs, the city had to take significant bites out of its already-tight annual budget, including money to assist residents of a 39-home neighborhood that was submerged for weeks. East St. Louis is an extreme case, but these are exactly the kinds of municipal traumas that Wellenkamp hopes a parametric plan will alleviate. For the pilot project—which would likely include East St. Louis—Wellenkamp plans to peg the parameters to the flood heights recorded in 2019. If floodwaters reach those levels, the mayors of qualifying river cities could accept a near-immediate payout from the insurance plan. They could use it to restore power or bring in additional pumps, remove water from city streets before they buckle, or suck sewage from residential and commercial basements before they condemn the property to mold. But some environmentalists have their doubts about parametric insurance’s salvific potential. Critics point to the problem of the parametric cliff: Say an area has been hit with 95 mile-per-hour winds and suffered severe damage; it might not rec