As the Trump administration stalls federal funding for projects intended to make states more resilient to climate change and private insurers decline to cover
properties in high-risk zones, North Carolina just proved there’s another way to fund disaster preparedness: a $600 million catastrophe bond that rewards homeowners and their insurer for installing “super roofs.”
Along North Carolina’s beaches, wind damage from hurricanes is such a threat that many private insurers have stopped offering coverage. Hundreds of thousands of homeowners have been forced to buy coverage fromthe North Car
olina Insurance Underwriting Association (NCIUA), the state-created insurer of last resort for coastal properties.
Like other insurers, NCIUA has to buy its own risk mitigation so it can pay customers if a major event causes more damage than it has saved from collecting and investing p
remiums. One option is reinsurance and another is a catastrophe bond, which pays out a specific amount if damage reaches a particularly severe level. Cat bonds have become popular with institutional investors like hedge funds and endowments in recent years because they trigger rarely and otherwise deliver high returns.
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For years, academics and brokers have discussed whether cat bonds could do more than just clean up after disasters—whether they could incentivize mitigation work th
at would lessen damages in the first place. Earlier this year, NCIUA decided to test it: They offered investors a cat bond with two features linked to reducing wind damage risks to homes in its portfolio.
First, if no major losses occur each year, $2 million returns to NCIUA—earmarked exclusively to incentivize homeowners to install super roofs that are especially wind-resistant. Second, as more people add these roofs, the annual pricing on the bond resets to reflect the changing exposure.
It’s modest financially but revolutionary conceptually, said Shalini Vajjhala, founder and executive director of PRE Collective, a San Diego-based nonprofit that works with communities and government agencies to clear barriers to building climate resilient infrastructure.
“The North Carolina program is game-changing,” she said. “It’s a precedent-setting way of linking how you manage your financial risks with how you manage physical risks.”