Community Embedded Insurance

Galen Nelson
Feel like we should have a little red light.

Michelle Beadle
Let me know when you want to start.

Galen Nelson
Maybe wait another minute or so. I feel like that\'s what we do with all staff, and it seems like it\'s not such a bad way to go.

Charlie Sidoti
Yeah.

Galen Nelson
Michelle, confirming you can still hear us.

Charlie Sidoti
He\'s on mute.

Michelle Beadle
Yep, I\'m going to hit start the webinar.

Galen Nelson
Okay. Wonderful, well, I think we\'ll get started. It sounds like folks are gathering.

Galen Nelson
I want to welcome Charlie and welcome everyone joining today at MassCEC and beyond. I\'m excited to launch this Climate Tech Speaker Series. We\'ll be highlighting experts, pioneers and practitioners from a variety of existing and emerging climate tech sectors and disciplines, as well as subject matter experts who can provide insights into broader economic, social, and technological dynamics shaping our industry. Today, we\'re going to focus on climate and related insurance products, specifically community embedded insurance. Charlie Sidoti, who joins us today with InnSure, will share his experience and knowledge. Charlie brings 35 plus years in the insurance industry, including underwriting, engineering, and risk management related leadership roles with property and casualty insurance carriers, and experience leading risk assessment focused Insurtech startups. Charlie is currently founder and chief executive of InnSure, a mission driven nonprofit focused on catalyzing a bold insurance response to climate change. But before we turn to Charlie, I wanted to provide a bit of context, because I think for many, the connection between insurance and climate tech, climate policy and climate progress may be a bit fuzzy.

Galen Nelson
Perhaps more of us are aware of the need for innovative climate finance products to support climate work. Many of you may be aware that the Healey Administration launched the Massachusetts Community Climate Bank in 2023. It launched its first product last year in 2024 - a loan for affordable housing and building decarbonization.

Galen Nelson
I'm happy to share that MassCEC played a role in standing up the state\'s first climate bank.

Galen Nelson
Climate finance institutions like the Mass Community Climate Bank may offer more patient or lower interest capital to encourage home and business owner adoption of climate technologies, either on their own or blended with traditional finance products.

Galen Nelson
Climate projects, whether they be mitigation, adaptation, or resilience related, may need financing, but of course, all project finance involves risk, whether that be technology risk, borrower or credit risk, market risk, or other risk classes, including federal government clean energy incentive and tax credit risk. Increasingly, climate practitioners are realizing that novel insurance products could help address some or all of these types of risk, because that is the function that insurance performs. It manages risk. For us here at MassCEC, I can remember early conversations with MassCEC colleague Kelsey Reed on this topic who played a key role in designing and managing the solar loan program that MassCEC administered. We had set aside a little over five million dollars in a loan loss reserve to protect participating solar lenders, mostly small banks across the state, from loan defaults.

Galen Nelson
But I remember discussing with Kelsey at that time, in the future, could we address that default risk with a novel insurance product that might be substantially more capital efficient than a loan loss reserve?

Galen Nelson
More recently, we\'ve supported at least one Massachusetts-based company in this space, Energetic Insurance, which develops bespoke insurance products to support mid-market commercial solar PV project finance.

Galen Nelson
And then more recently, we discussed with a rapidly growing Massachusetts based climate tech company the desire for an insurance product to address insolvency risk as they move to land their first customer.

Galen Nelson
This is really a rapidly evolving space. I also want to acknowledge an excellent event on this topic recently convened by the Massachusetts Climate Office, by Chief Hoffer, the city of Boston, and the Green Ribbon Commission. It was great to see you there, Charlie. I thought that was a really good event that drew a wide variety of stakeholders, including a lot of big brand insurers.

Galen Nelson
Charlie, you\'re our inaugural presenter. Thanks again for sharing your time and expertise with us. We\'re going to have a conversation, cover some territory, and then open it up to all of you on the webinar. Please use the Q&A function and feel free to drop in questions at any time, although we\'ll hold off on addressing them until the end.

Galen Nelson
We also have a couple of poll questions that we intend to make available to you, to pose to all of you. We\'ll do that toward the end of the discussion. Thanks again for joining us, Charlie. Let\'s set the table a bit. If you could just talk about InnSure, why does it exist and what problem are you trying to solve?

Charlie Sidoti
Sure. Thank you so much. We really appreciate the opportunity, especially on the inaugural event, but also all the work you do. Some of the comments you said are exactly right. The transition can only move as fast as we can manage the risks, and risk management and insurance are required for that.

Charlie Sidoti
And then there are other challenges which we\'ll talk about as we go through the session. I am Charlie Sidoti, and I am the executive director of InnSure. InnSure is a, as Galen said, a nonprofit focused on this intersection of climate tech and Insurtech and climate insurance and de-risking the transition.

Charlie Sidoti
We believe that insurance is one of the most effective and efficient ways to finance risk related to both the energy transition, but also on the impacts of catastrophes, which we\'re going to talk about.

Charlie Sidoti
The insurance industry is having a difficult time in both of these areas. The energy transition and innovation is going very quickly, driven a lot by what MassCEC does and others, probably a lot of the people on this call. And insurance is not a super-efficient innovator. So, its having difficulty keeping up with the evolving risks that come along with the innovation that\'s happening related to transitioning to a low carbon economy.

Charlie Sidoti
On the flip side, climate is changing, and the impacts are flowing through. Just some of the recent storms, Helene and Milton on the hurricane front, and obviously the terrible fires that are going on in California right now, are both, at least in part, contributed to climate change. Those are both difficult things for the industry to deal with. What we are dedicated to is really creating insurance markets that work, not just for the insurance companies, but for everybody. Our goal is to make insurance accessible, affordable, and widely adopted. We think it needs to be in the hands of people that have risks, whether they\'re individuals or enterprises, or even communities in this time of climate change.

Charlie Sidoti
That means not just innovating insurance, but also innovating the risks and the risk control factors, the adaptation measures, whether they\'re at a community level related to the hazards like hurricane and wildfire, or at an innovation level, a product level, when it comes to new technologies coming into the market.

Charlie Sidoti
We believe that a lot needs to happen in insurance. It\'s not just tinkering around the edges. Some of the losses during Hurricane Helene, less than 25% of the catastrophe damage was covered by insurance. That\'s really not a good number. We think some significant reimagining of how insurance is delivered is necessary, and we are promoting and supporting the innovation necessary to do that.

Charlie Sidoti
That translates into what we call our four measurable pillars of impact, which is really closing these protection gaps where there are gaps in insurance, often related to risk or price or accessibility. How do we close those protection gaps in ways that accelerate the adoption of technology that is promoting a transition to a low carbon economy? How do they drive and incentivize community resilience? Part of that on both fronts is, how can they promote nature-positive practices? We\'re trying to create better insurance products and services that deliver these impacts for the world. We really look at everything through the lens of what does the world need from insurance, which we also think can be a good business.

Charlie Sidoti
That translates into some programs. What do we actually do? We run incubation, acceleration programs, and challenges. We\'re going to talk about one that we\'re doing for the State of New York, NYSERDA, and New York State Energy Research Development Authority.

Charlie Sidoti
We also do local demonstration projects and planning projects. How do you incorporate insurability into community economic development planning so that these risks, and not just the risks, but how to make the community more insurable, is part of the planning process, which is better for the projects, better for the community over the long haul. Both of those require a broad ecosystem of innovators and academics and solution providers that really cut across finance projects on both sides, adaptation projects, but also energy transition related technology and project developers.

Charlie Sidoti
That\'s what we do at a high level. I\'ll stop there, and we can dig in.

Galen Nelson
Thanks, Charlie, that\'s really helpful. That grounds the conversation. I wonder if we could even take a step back a little bit. I think we\'re so in the weeds on climate programming and occasionally moving increasingly into climate finance. But I wonder if you could just talk about insurance products. How are they developed? How do the large insurers develop insurance products? What does that process look like?

Charlie Sidoti
Yeah, it\'s a great question. I\'ll go through this overly complicated slide, but it\'s not really. This represents the value chain that brings a product to market, and how we approach it.

Charlie Sidoti
Where you see traditional insurance capital from here up, that is really what the industry looks like. I\'ll talk about the bottom two; what we think is necessary to drive the innovation that I talked about earlier. Insurance and reinsurers have dollars, capital stacks that back the financing of claims that could happen in the future.

Charlie Sidoti
They put that capital on top of alternative capital and other types of capital, like self-insured retention programs, captives, and other people who are retaining some of the losses for themselves but also buying insurance. That traditional insurance layer is a series of reinsurers and insurance companies, some of which build products, some of which outsource the product development to innovators, which often can be very small companies that don\'t have the balance sheets to back the losses if and when they come.

Charlie Sidoti
But they have the innovative expertise and technology to develop new products. Insurance products are a promise to pay. They are a contract between, and it could be multiple players, but it could be just two players like a asset owner and the insurer. Your insurance contract says, if my house burns down or blows away, I get paid this amount, based on some sort of trigger.

Charlie Sidoti
Innovative products can be very sophisticated or actually very simple but differently defined. Instead of actual damage happening, there are new types of products like parametric products that say, if the wind speed blows below whatever, maybe a performance guarantee gets triggered that supports the revenue streams of a wind farm. Products are not enough to get things in the hands of people. You also need distribution. The typical distribution is somebody with an insurance product sells through an agent or broker to an individual customer with an individual asset or exposure to risk. We think all of these things can be innovated. You can have new products like micro insurance or parametric insurance. You can have new distribution, like community embedded insurance, which we\'re going to talk about in a little bit, which is a group purchase of insurance like an employer would do.

Galen Nelson
Just jumping in there with regards to the product development, these insurers are looking at actuarial data. I was wondering if you could talk a little bit about data needs. I think we\'ve had some conversations around the need to better understand, for example, liabilities associated with conventionally built buildings versus high performance buildings. Is access to data a challenge for insurers that want to develop more climate sensitive products?

Charlie Sidoti
Yes, absolutely. Data is, to put a price on risk, you need to understand the profile of the frequency of the event that you\'re trying to insure against, the severity, and the cost. There is information about what could cause the loss, which could be a number of things, hurricanes, fires, hazards, but also technical risks that you could be insuring against that have different types of triggers.

Charlie Sidoti
As you\'re looking at some of these climate issues, there is this time horizon issue. We know very well looking backwards, but looking forward might be a whole different scenario because of climate change and the impact of climate change. This forward looking, what is going to happen based on the current models, and especially in most insurances, one year, but we\'ve identified that to make insurance more certain, we need to be able to do this over a longer time horizon. Looking forward, all these things require data. To your point, one of the things we really think, there is a ton of innovation going on in the energy transition. There is more innovation going on related to insurance products for climate technologies and people impacted by these climate issues.

Charlie Sidoti
But one of the things we think needs to happen is the innovation efforts need to be more closely integrated. If you\'re integrating the risk transfer and the risk management at the same time you\'re innovating the technology, you can incorporate things into the technology that reduces the risk and makes it more insurable. At the same time, you\'re collecting data and getting better insights about how the technology could or will work, which makes it more insurable, which makes it easier to unlock finance going forward.

Galen Nelson
Understood. I think there may be a good example of that in at least one of the awardees from your prize, a very concrete example. Maybe we\'ll get into that. You referenced catastrophes. Let\'s dig into that a little bit and talk about what\'s happening in the industry right now. We\'re seeing rising claims, rising premiums, and rising non-renewals.

Galen Nelson
Several states are struggling with the property insurer of last resort and identifying funding for those. There was some very good coverage in the New York Times, I think yesterday, about some of this. Government backed mortgage lenders like Fannie Mae and Freddie Mac, which guarantee about 70% of mortgages on single family homes, still charge the same fees for private mortgage insurance. They still are not making a distinction between insuring a home built in, for example, a wildfire prone area and one that is not.

Galen Nelson
A lot of challenges in the industry right now. I\'m wondering if you could talk specifically about community embedded insurance in the context of the California wildfires, for example.

Charlie Sidoti
Yeah, I\'m going to quickly go through some of the actual programs and we\'ll come back to this. But I did want to highlight, you talked about the prize, we\'ll talk about that later.

Charlie Sidoti
Community embedded insurance is a product development and distribution development that I\'ll talk about in detail. In our world, it often gets coupled with what we call the total cost of risk, which I\'ll talk about first, because you can\'t create a community embedded insurance without understanding the total cost of risk across a community. Understanding the total cost really helps.

Charlie Sidoti
One of the things we\'re trying to do is create a simulator that gives community leaders insight into the total cost of risk. The total cost of risk is exactly that. The inputs into total cost of risk are loss costs and specifically what is retained by the community. That is the opposite of what the insurance industry does. It is the uninsured, the aggregation of all the deductibles, the ones that are retained, the losses that actually flow through to the community that are not insured elsewhere.

Charlie Sidoti
Investments that are or could be made into adaptation. We could spend money to invest in things that reduce our losses. There is a cost to that insurance that is covered everywhere and not included in those retained loss costs. If something happens, the costs associated with response and recovery add up to the total cost of risk, which then gets distributed to a number of different people, including individuals in the community that maybe don\'t have insurance. Governments are often the insurer of last resort, like you mentioned. Insurers do pick up the insurance and other risk takers. Some of it potentially flows through to the banks like you alluded to earlier. Philanthropies also come in when there\'s a catastrophe and have to fund some of these.

Charlie Sidoti
The reason all this is so important is if you step back from the individual asset owners buying individual insurance for one year and think of it as not just an insurance purchase, but how do we finance these over longer time periods, understanding how those costs are coming through, who they land on, how they are changing based on climate change, then that informs a more holistic approach that we call community embedded insurance. That is to say, we can transfer this risk at a community level, which is a distribution or a purchase innovation. We can leverage the purchasing power or the financing power of the whole community to do things more efficiently and effectively. But we can also use those same insights to prioritize adaptation and understand trade-offs between, do I build the one-billion-dollar seawall, or do I build the three-hundred-million-dollar nature-based solution that maybe gives us money to then subsidize purchase of insurance? You look at it more holistically across all risk management. You can look at equity issues. You can look at how to prioritize things sequentially over time. It provides an approach to managing risk at a community level, which often could include the group purchase of innovative insurance products by the community and embedding them in things like your tax payments or other things. We think this is a way to drive a lot of the innovation from the demand side, from the people who have the risk and own the risk. They can drive innovation up that value chain that we talked about, as opposed to just always insurers driving it down from the supply side.

Charlie Sidoti
We do have a number. You talked about wildfire. We have a number of projects. We were working with the California Department of Insurance and Cal Fire. We were actually supposed to go to a meeting next week to do some planning around how they could do a group purchase. But obviously they\'re a little busy right now. There are a number of pilots that we are working on, and a lot of them are in the community planning stage. We\'re working with some communities in Southwest Virginia around riverine flooding. We\'re working with California on wildfire. We\'re working with Honolulu and doing a disaster resilience plan for the city and county of Honolulu. We\'re starting working with Salem, Mass., to say, how can we do a home resilience audit and then capture the value of any improvements that homeowners make, really based on the Mass Saves energy audit? We want to call it Save Mass and think about it from the resilience and the coastal flood perspective.

Galen Nelson
That\'s great. Thank you. To be clear with these, if community embedded insurance takes off, you would still, with these communities, still rely on a reinsurer?

Charlie Sidoti
It\'s a great question. We think that reinsurers will still provide a lot of the capital. The catastrophe market, about 50% of all catastrophes on average are uninsured. A lot more capital is necessary. We think that comes from a number of different areas. We think a lot of people, whether they know it or not, whether it\'s the community or the individuals, are significantly self-insured. A protection gap is essentially self insurance. You\'re insured whether you know it or not. You\'re taking the risk. Local communities and local governments bear a lot of that risk.

Charlie Sidoti
We think capital needs to be innovated, which requires regulatory innovation as well. One model that we see that could fill the gap, which doesn\'t exist in insurance but is very prominent, is community development financial institutions. CDFIs are really connected to the communities, and they lend on a business model that needs to be profitable, but they also focus on impact goals. That type of model, there are 1,500 community development banks, all with different models, that are all impact focused in one way or another. There is going to be one insurance company that is focused on that type of model, a mission driven reinsurer, and it\'s called Greeny Reunion. It was funded by the Greenhouse Gas Reduction Fund. It\'s in the process of being set up, and they can provide capital to back some of these innovative products. They can do it more effectively and efficiently because they are often specialized and closer to the communities or the issue that they are trying to solve.

Galen Nelson
Okay. I think you got at this a little bit, but I think it\'s worth leaning into or hovering on a bit, which is to say that because community embedded insurance is just more localized, it is more local and regionally specific and can be more sensitive to the needs of a region versus the insurance industry that we have now, where you\'ve got carriers that operate regionally or even nationally. I\'m exposed with my insurance to risk in Florida, despite the fact that the insurers deny that this happens, many have confirmed that, in fact, yes, that is why premiums are going up in Massachusetts, not exclusively because of risk here, but because of claims elsewhere. It does make me think that there is more of an opportunity to develop innovative approaches. You could be more sensitive to, for example, providing premium reductions for certain properties that meet certain standards, or to make investments in adaptation infrastructure in a way that I think we just wouldn\'t see with the conventional insurance.

Charlie Sidoti
It is very difficult for a large global reinsurer to capture the value of local projects that bend the cost curve that they don\'t really understand. There are 19,000 municipalities in the United States. The large global reinsurers that have forty or fifty billion dollars worth of assets, they have difficulty. If a local community leader says, we did a fifty million dollar coastal restoration, and we know that it reduced the risk by this much, the big global carriers are focused on risk reducing or changing things that are like rain in the northeast United States is going up by 40%, and they are trying to model that data. When it gets to hyper local data and hyper local projects, you are right, local connection is key. That is why we think a model based after the community development financial institutions, but community development reinsurers, would at least connect them. It might not solve all the problems, but at least the discussion is about what\'s going on locally, which is often the risk data.

Galen Nelson
Okay. I don\'t know if it makes sense to hover on the wildfires anymore. Maybe we\'ve spent enough time in that dark zone. It is obviously awful and it will continue to be a real serious challenge for the insurance industry. Maybe it makes sense to pivot to something a little bit more upbeat. You just announced the winners of InnSure\'s insurance innovation prize. Eight winners, right, including Massachusetts based Energetic Insurance, which, as you note, has been supported by MassCEC, and in fact, was co-founded by a MassCEC alum. You awarded five million to your eight winners to develop solutions that fill insurance gaps in the energy, buildings, and transportation sectors. We\'d love to hear more about the competition, and maybe some of the winners.

Charlie Sidoti
I\'ll give you a real short on the prize. It was a five million dollar pool. We ended up giving it to eight submissions. It was actually nine companies. One had a joint submission. It was for companies that submitted a proposal to develop an in-market insurance product that they could deliver within 18 months that would essentially accelerate the adoption of either clean transportation, clean energy, or clean buildings, or provided some sort of innovation that cut across those categories. It was super exciting. The companies were a joint submission from Ecostrat and New Energy Risk to provide performance guarantees around bio feedstocks for the bioeconomy. Energetic Capital and kWh Analytics provided two different types of tax credit insurance to make the smaller tax credits on the smaller developers more able to transfer the tax credits, sell the tax credits. EV Star provided an insurance warranty product for EV charging stations, which in a lot of areas are like 19% of them are down because of some sort of problem with the charging station.

Galen Nelson
Charlie, could you just quickly for the uninitiated define what a parametric product is?

Charlie Sidoti
Sorry for the insurance lingo. Parametric products. Most insurance products have a trigger that is some sort of cause of loss, and there is an adjustment of the loss damage that says this is what you get paid. It is the combination of the two. Parametric insurance policies are triggered by a performance metric, wind speed, in this case it is solar irradiation at the project site, or wherever the solar panels are. In most parametric products, they are triggered by some sort of third-party reliable data source. They are tracking irradiation at their locations, and if the radiation falls below or is above, however the trigger is set, if it is below a certain level for whatever the period of time is, it will automatically trigger a payment. Nothing needs to be done. There is no filing of claims. It gets money out very quickly. Parametric products can be done for performance guarantees, things that are weather related. It is a new type of insurance in some respects, but in some respects, life insurance is parametric. It is triggered by you are not alive anymore. That is the metric essentially.

Charlie Sidoti
Scenario Labs and Larna also have some parametric products embedded in theirs. Those are also all risk. They cover more traditional type insurance, but for different types of energy assets included solar. Talarna is focused on energy storage battery products, including larger ones. Finally, Luminar is a lidar company, which is light radar essentially. They put them on the vehicles. They are some of the technologies and they are installing these on EVs. They are autonomous vehicle type capabilities that are crash avoidance. They actually reduce losses. They are embedding insurance into their technology products that they are selling to the EV manufacturers, and they think they can reduce the cost of insurance by thirty to forty percent, which should accelerate the adoption of electric vehicles.

Galen Nelson
Maybe more meaningful than the good student discount.

Charlie Sidoti
Yes, exactly.

Galen Nelson
The actuarial data, I think, will support the application.

Charlie Sidoti
They are a little bit further along than some of the other ones. Some of them are brand new products. They definitely have some of the data involved that they\'ve shown. They will be rolling into market in some states in, I think, the first or second quarter of 2025, through partnerships with, I think Volvo is their first customer.

Galen Nelson
Great, not surprising, given their track record. This prize is wonderful, Charlie. I\'m wondering just before we pivot to the next topic, and so glad that you\'ve launched it. We were happy to talk to you about it in the very early stages. We look forward to ongoing collaboration with you all. I\'m wondering, might this force some good conversations in the C-suites of major insurers? Do they need to launch their own skunk works? Do they need their own in-house innovation shops? Do you see that happening?

Charlie Sidoti
I think it is an individual question, company by company. It does drive innovation in multiple different ways. One, it provides the larger carriers that are slower to innovate a roadmap to follow. Two, it puts out startups that are doing the innovation. All these companies, insurance products, unlike other innovative products, you need to raise money twice. You need to raise money to develop the product and all the things that every company needs to do to operate a business. But then you need to get risk capital because you can\'t just sell insurance if you don\'t have a balance sheet to pay claims in the future. Companies need to go to the large carriers to access risk capital to back their loss reserves. The prize competition, the involvement by NYSERDA in promoting it, we did a lot of government roundtables, we did industry roundtables. That unlocks capital from the carriers and reinsurers to back these companies. It also creates a pathway for new companies to do the same thing. Once you do one, we are confident that hopefully these will be successful. Some of these, you talked about Energetic, Energetic is already there. They are more than a startup. They are still fairly young relative to billion-dollar insurance companies, but they have a track record. The more we put track records out there, it helps these companies get a track record, the easier they are to invest in, both operating capital and risk capital.

Galen Nelson
Thanks. That is very good to understand the raising money twice piece. That is an important detail. Pivoting to, we\'ve talked a lot about the industry. I think this will be my last question before we turn to hopefully some audience questions. Within the energy sector, we often like to say that if we want utilities of the future, we need utility regulatory frameworks of the future. Is it fair to say in this industry that if we want insurance companies to better integrate climate risk, of course that will require leadership from the private sector, from major insurers, but it occurs to me that it will also require new approaches to insurance regulation, and that is largely state driven, state regulated. I\'m wondering if you could talk about what climate sensitive insurance regulatory 2.0 models need to look like. What is the historic role that insurance regulators have actually played in the industry, and how does that need to change?

Charlie Sidoti
It is a really great question. You can\'t innovate unless you innovate all parts of the system. The historic role, I\'ll start with your last part of the question first. The historic role of regulators has been to ensure that prices are high enough so that companies don\'t go insolvent, because if a company goes insolvent, then all the losses that they are backing in those contracts, those promises to pay, are worthless. One of their missions is to make sure the industry is solvent, which is important. The other one is they want to make sure that consumers are not gouged and taken advantage of by companies. Those are two competing goals. It requires monitoring a lot of data and regulating products as they come through. One thing that historically has not been a mission is to take any action to make sure that adoption is high enough, so that people are insured to essentially manage the protection gap. They do create, the states do create these insurers of last resort, which are often called the residual market. The residual markets work really well when the residual piece is two or three or five percent of the market, and they are residual. If there is an excess loss, it gets spread out among everybody.

Charlie Sidoti
But in many states, including in Massachusetts on the Cape and Islands, I think the residual market for hurricane losses is creeping up to 35 or 40%. When it gets large like that, the economics of the market don\'t work. What happens is the industry is kind of exiting. I think the question might be related to that, which we can talk about. Residual markets don\'t work at 35 or 40%, and certainly in Florida sometimes you see 65%. That is not a residual market anymore. That is the market. The actual private market is the residual market. Regulators need to reorient themselves to how do we manage the protection gap? That requires maybe putting funds into some of these community development reinsurers to promote innovation through MGAs that actually close the protection gap.

Charlie Sidoti
Those are some things. Also, new products like parametric products are not traditional insurance. They are really derivatives because you are triggering a payment based on a metric that works like insurance. That is a derivative. They need frameworks for regulating some of these newer products that they do not necessarily have in all states. The innovation efforts around regulation and state involvement definitely needs to innovate along with all the other pieces of the value chain.

Galen Nelson
The residual market, the insurer of last resort, is it true that those are essentially funded by the large insurers?

Charlie Sidoti
It depends on the state and the details of the state. Usually there is some backing from the state. But if you trigger some sort of excess loss, like this California wildfire is probably going to trigger an excess loss, that then would cascade to the participants in the market based on their market share. If you have 50% of the market, you may get 50% of the excess surcharge, whatever that might be.

Galen Nelson
Thanks, Charlie. This has been incredible. We have a little over ten minutes left, so I do want to pivot to some of the audience questions. I also want to acknowledge Michelle on our team and Elizabeth on our team, who helped put this together today. I think Michelle is going to launch a couple of polling questions that you should all be able to access. It is the more button at the bottom of your screen, and you should be able to pull up a poll. Certainly let us know if you cannot do that. It looks like it has appeared. Why don\'t we now turn to some of the questions? One question from Emily, a great question. Can you summarize the top three areas where innovators and new ventures in the insurtech space should focus at this time? Part of the challenge that you launched for the prize, I remember having this conversation with you months ago, where the early steps are identifying what are some of the challenge areas and opportunities. What are the exciting areas where there is opportunity?

Charlie Sidoti
I will answer with two different frameworks. One is, if you look down that value chain, I think what we really need is new products, parametric micro insurance, a lot of different things, and new distribution. Group insurance is one example that I talked about. You can also embed insurance, like the Luminar example. They are selling a technology, they are a large technology provider, and they are embedding insurance included in the technology. Those are two areas. On the value chain, I think coming up with new ways to back these things, capital, where does the backing capital come from? Public private partnerships, which is the community driven reinsurers. You can also look at it by technology or hazards. Clearly wildfire is a challenge. Clearly flood is a challenge, which I think the first question alludes to. Clearly the innovation, the speed of innovation in the energy transition, and insurance not keeping up with it. Those are all areas that require R&D and innovation.

Galen Nelson
Great, thanks Charlie. You did refer to the first question from Jim. I think a question that is on many people\'s minds is that there is frustration that insurers, and to be fair to the insurers, likely supported by regulators, that they are insuring properties in places where there is extremely high risk. A more general question about the insurance industry and that particular challenge. What is the best response to that question? How do you see that space evolving? The flood insurance program is in deep water. What are the right solutions there?

Charlie Sidoti
It is very much like the energy transition. It is not a once and done thing. Jim is exactly right. He is saying, should we really be insuring people, having them build back in the flood zone and then pay again, and incentivizing behaviors of people living in areas that, quite frankly, some areas we should not be living in? On the flip side, you cannot just, it is probably a hundred million people that maybe need to either invest significantly in their built environment to make it risk free or lower risk, acceptable risk, or potentially relocate. That is very much like a transition challenge. How do we get from where we are today to where we need to go? What we think is, at least stop digging the hole. We need to start, stop digging the hole right now. That is one of the reasons we really promote local insurability planning being embedded at the community level, because local community leaders understand land use and they control land use issues. A lot of these risk issues are related to land use, infrastructure, and building codes. Having insurability as a separate thing that is not driven by those same community leaders is what causes a lot of this. Economic development is, we want the tax base to be big and profitable and drive revenues, and that means building on the beach and building by the river and building cheaper, so we do not have to do all these things that we should do. If you incorporate this total cost of risk concept and say, what is the total cost of building on the beach and building here? Then we think local decision making that incorporates all of that will lead to better decisions across the whole range of possible decisions. It would lead to building codes and regulations and things that just have a much healthier overall resilience approach that balances the trade-offs between investing in adaptation and risk reduction and transferring risk.

Galen Nelson
That makes sense. Not seeing any other questions. I do have one about the link between, particularly in the built environment, but of course you could loop in the transportation sector as well and thinking about locally or regionally focused insurance. Of course, we have enormous and rising health insurance costs. I am wondering if you could speak to either innovative policy work in this space or insurance innovators that are looking at these linkages between both indoor air quality and outdoor air quality, as we think about building electrification, getting natural gas combustion and stoves out of buildings and boilers, improving that indoor air quality that ostensibly would lead to better health outcomes and thinking about the cost of public health. What about the linkages there? I think that there are some states that are beginning to think about this and that doctors are beginning to prescribe building decarbonization, thinking about the public health costs that are related to poor indoor air quality.

Charlie Sidoti
It is a great question. I think it is an opportunity for a lot of innovation in both the financing of these risks, and also the efforts to make people more healthy. Historically, the opportunity is often based on the ability to assess risk. Typically, there are some big drivers of risk, things like obesity and smoking and general poor health, which swamp the ability of a lot of other things that do contribute to better health. But as data sources improve and analytics and AI tools become more advanced, there is an ability to start looking at very small drivers of risk, but aggregating them up in ways at community levels that look at things like you said, indoor air quality, things like food security, food availability, things like micro farms and local stores. What you are going to see over time is, instead of the risk models being driven by a handful of very large drivers of risk, those will still be in there for sure. But the innovators will then be able to say, we aggregated up these five hundred different community factors. We are working with the community to move all these micro levers, track them all, and then see and track the risk reducing benefit and capture the value of all those small changes. On an aggregate level, they can be very significant.

Galen Nelson
All back to data.

Charlie Sidoti
All back to data, exactly.

Galen Nelson
Better insurance products that are more climate sensitive, we are going to need access to data, which is also a change in the energy realm. On the grid, in order to operate the grid more efficiently, we need more data. At least one linkage there to our work. We are just about out of time. I just want to remind everyone of the poll. Please answer the questions in the poll. I think one relates to the format of this series, whether or not we want to continue with a webinar or move to more of a podcast, which I think we are kind of inclined to do, but would love to hear your thoughts on that. I am also going to drop my email in the chat for those who are outside the organization and do not have access to it. We are still thinking about creative names for this speaker series, so it does not remain the MassCEC Climate Tech Speaker Series, but something much more creative. Thank you to all of those who sent suggestions already but would love to hear more from all of you.

Galen Nelson
Finally, I want to thank you again, Charlie, for your time and this wonderful discussion. It has been really great. I think we have all learned a lot. We look forward to staying in touch with you in these efforts and following the winners and seeing how they progress, particularly the Massachusetts based winners. Thank you.

Charlie Sidoti
Thank you so much. We appreciate the opportunity to come, and we appreciate all the work that you and the community does here.

Galen Nelson
Great, wonderful. Thanks, Charlie. I also want to thank everyone who tuned in today and listened. We look forward to the next session. The next dialogue will be on February 7th. We will be talking about inclusive utility investment, a novel approach to project finance, utility driven project finance focused on building decarbonization. We are excited about that dialogue with Ashley Muskratt. We will send out information about that to everyone who tuned in today shortly. Thanks again. Thanks for tuning in. Thanks, Charlie. Everybody have a great weekend.

Charlie Sidoti
You too. Take care!