N.C.’s ‘game-changing’ catastrophe bond aimed at installation of ‘super roofs’

North Carolina has launched a $600 million catastrophe bond that rewards homeowners and their insurer for installing “super roofs.”

Private insurers have stopped offering coverage for homeowners along the state’s coast with the risk of storm damage to property on the rise. Hundreds of thousands have been forced to buy coverage from the North Carolina Insurance Underwriting Association (NCIUA), the state-created insurer of last resort.

NCIUA must buy its own risk mitigation in the form of reinsurance and catastrophe bonds. This year, the insurer began offering investors a catastrophe bond with two features linked to reducing wind damage risks to homes in its portfolio.

It’s a novel approach that incentivizes homeowners to install robustly wind-resistant “super roofs.” As more people add these roofs, the annual pricing on the bond resets to reflect the changing exposure.

The approach is “game-changing” according to an expert quoted in a Bloomberg report and could be a model for other states to address natural risks.