Parametric Insurance in Structural Engineering: A Game Changer!

Key Concepts

• Parametric Insurance: A type of insurance that pays out a pre-agreed lump sum upon the occurrence of a specific, measurable event (parameter), rather than based on actual damage assessment.
• Take-up Rate: Insurance jargon referring to the percentage of people who purchase a particular type of insurance.
• Crumple Zone (Structural Engineering): The design philosophy in structural engineering where buildings are designed to absorb energy and sustain damage (potentially becoming a total loss) during a major event like an earthquake, in the name of protecting occupants' lives.
• Reinsurance: Insurance for insurance companies, essential for covering "correlated risks" where many policyholders experience losses simultaneously (e.g., natural disasters).
• North Star: A guiding principle or ultimate goal that directs one's actions and intentions, particularly in career and entrepreneurship.
• Resilience Rating: A metric used to assess and acknowledge a building's ability to withstand and recover from natural disasters, similar to environmental sustainability ratings.

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Introduction: Kate Stillwell's Journey and Mission

Kate Stillwell, PES, MBA, and President of Parametric Insurance at Neptune Flood, shares her unique journey from structural engineering to entrepreneurship in the insurance industry. Her career is driven by a central question: how to incentivize building owners to construct structures more resilient than minimum code requirements, thereby fostering economically resilient communities. This mission led her to explore financial mechanisms, ultimately finding a natural fit in insurance.

The Problem: Structural Engineering's "Dirty Secret" and Insurance Gaps

Building Design Philosophy: Structural engineers design buildings to have a "crumple zone," meaning they are intended to sustain damage or even be a "total loss" in a major event like an earthquake, primarily to ensure occupant safety. This is often referred to as the "dirty little secret" of structural engineering. However, this design philosophy often overlooks the economic resilience of the building and the surrounding community, as it doesn't guarantee the building can be quickly reoccupied or repaired.

Low Earthquake Insurance Take-Up Rate: A significant challenge, particularly in California, is the extremely low "take-up rate" for earthquake insurance, hovering around 10-12% (depending on whether residential and commercial properties are counted). This statistic highlights a critical gap in economic recovery planning. After a major earthquake, the financial inflow for recovery would be a "tiny fraction" of what's needed. Compounding this, FEMA is often "too little, too late," and over half of Americans live paycheck to paycheck with $400 or less in savings, including "friends and neighbors," not just the "poorest of the poor." This creates a dire need for private sector economic stimulus post-disaster.

The Solution: Parametric Insurance and Jumpstart

Concept and Mechanism: Kate's pursuit of solutions led her to business school, where she discovered parametric insurance. This innovative insurance model provides a "pre-agreed lump sum delivered upon occurrence of a parameter," rather than requiring a traditional damage assessment. This concept sparked the idea for her company, Jumpstart.

Accessibility and Impact: Jumpstart was designed to offer a "low dollar amount lump sum" – typically $10,000, $20,000, or $40,000 – not enough to rebuild a house, but sufficient to provide a "jump start" on the recovery process. Key features include:

• Affordability: Making insurance more accessible to a wider population.
• Flexibility: The payout can be used for anything, regardless of actual damage, and is available to both homeowners and renters. Examples include moving expenses, or covering lost wages due to school closures.
• Innovation: Jumpstart was the "first of its kind introduction of parametric insurance at the consumer level in any developed country," a testament to the California Department of Insurance's openness to innovation.

Leveraging Structural Engineering Expertise in Insurance

Advantages of a Technical Background: Kate emphasizes that a background in structural engineering, characterized by being "highly pedigreed" with "deep expert knowledge," provides a unique advantage in the diverse insurance industry. This expertise creates a "crack in the door" for problem-solvers that might not be available to others.

Strategic Alignment: This advantage is amplified when structural engineers align their interests with insurers, articulating a dual mission: "We want to help you make more money, but also we want to create good in the world." This "social mission" appeals to insurers' need for positive publicity and aligns with their broader societal role.

Entrepreneurial Challenges and Lessons Learned

Navigating the Insurance Industry: While the insurance licensing exam is significantly less demanding than the structural engineering licensing exam, the biggest hurdle for Kate was building relationships. Unlike structural engineering, where qualifications are paramount, insurance is "all about who you know." This required extensive "pounding the pavement," repeated interactions, and "political navigation" to identify and gain access to decision-makers.

The Regulatory Environment: Surprisingly, the regulatory framework was not a major obstacle. Regulators, particularly the Department of Insurance, are "really open to innovation," especially when it aims to protect more consumers in novel ways and address gaps in coverage (e.g., earthquake or flood insurance). Their core mission is consumer protection.

The Human Cost of Entrepreneurship: Kate learned a profound lesson about the personal toll of entrepreneurship. She "did not fully appreciate the gravity of how long it would take and how much personal turmoil it would create." She experienced "nervous breakdowns" and found herself with "less than $400 in the bank," a "very vulnerable place to be" especially with family responsibilities. Her advice to aspiring entrepreneurs is to "take a hard look at your personal finance situation and your personal like wherewithal" due to the high levels of rejection and stress. She also learned to "scale back our ambitions in order to deliver at a more steady pace."

Case Study: Jumpstart's Pivotal Moment

In August 2017, Jumpstart faced a critical setback. After 1.5 years of intensive work with a reinsurer (involving millions of dollars in staff time for modeling, analysis, and regulatory compliance), the reinsurer pulled out just seven days before launch (August 17th, 2017), citing "cold feet" from a boss. This forced Kate to fire her entire team of seven and eliminated the premise for securing additional funding.

In a "last ditch publicity stunt," two employees volunteered to take an "earthquake simulator" trailer to the InsureTech Connect conference in Las Vegas. This interactive exhibit, placed in Caesar's Palace, drew "a hundred people long" lines and generated significant buzz, including a tweet calling it "The best thing about the [InsureTech] conference." This tweet came from an innovation representative of another reinsurer, who ultimately partnered with Jumpstart eight months later, allowing the company to go live. This period was marked by "six weeks of complete heart-wrenching heartache" and financial precarity, underscoring the resilience required in entrepreneurship.

Fostering Resilience: Collaborative Efforts and Professional Growth

Kate co-founded organizations like the US Resiliency Council (USRC) and the Global Earthquake Model (GEM Foundation), both born from committee work.

The Role of Committees: Her key advice for structural engineering professionals is to "participate in committees." This provides opportunities to:

• Collaborate with professionals from diverse companies and industries.
• Understand industry needs across related fields (architecture, building management, sustainability, climate finance).
• Seed new ideas, approaches, and collaborations.

US Resiliency Council (USRC): The USRC, originating from a subcommittee of the SEI Existing Buildings Committee (now the Resilience Committee), aims to provide resilience ratings for buildings. Similar to the US Green Building Council's environmental sustainability ratings, the USRC offers a metric to acknowledge and credit building owners for investing in making their structures more robust against natural disasters.

Global Earthquake Model (GEM Foundation): The GEM Foundation produces worldwide earthquake data to a "common scientific standard." This data is valuable for the insurance industry and, most significantly, for disaster preparedness.

The Indispensable Role of Mentorship

Kate attributes her success to "the giants whose shoulders I'm standing on top of." She highlights several key mentors:

• Chris Poland (Previous CEO, Degenkolb Engineers): A "forward thinker" in the 1990s and 2000s regarding structural engineering's role in finance and the broader economy. He influenced the "safe enough to stay" concept (from a SPUR publication), arguing for higher performance levels in housing to ensure communities remain intact post-disaster.
• The Late Helmut Krawinkler (Stanford Advisor): Emphasized a "very big picture thinking" about structural engineering's societal impact, combining probabilistic and practical approaches. His "diaspora" of students have been profoundly influenced by his "broad, very heartfelt mode of thinking."
• Daniel Holsey (San Francisco Neighborhood Empowerment Network): Focused on disaster preparedness through community building, with the core value of "get to know your neighbors," recognizing that people are "each other's most valuable resources" in a disaster.

Mentors help individuals cultivate and find their "north star," providing "conviction" that is "contagious."

Conclusion: Actionable Insights for Structural Engineers

Kate's final piece of advice for structural engineers considering leadership, innovation, or entrepreneurship is to "be able to articulate your north star." Most individuals already have one; the challenge is to clearly define it and then organize "all of your activities, all of your communications, all of your intentions around that one north star." This guiding principle, whether it's making a neighborhood more resilient or building generational wealth, provides the necessary drive and resilience to navigate challenges. Structural engineers, often "do-gooders" at heart, can easily extend their desire to make the world safer from individual buildings to broader community resilience.