WO2007139966A2

WO2007139966A2 - Process and method for writing supplemental catastrophic insurance and securitization of risk

Info

Publication number: WO2007139966A2
Application number: PCT/US2007/012542
Authority: WO
Inventors: Christopher D. Sposato; Jeffrey A. Mcgovern; Thomas M. Dawson
Original assignee: Individual
Current assignee: Individual
Priority date: 2006-05-26
Filing date: 2007-05-25
Publication date: 2007-12-06
Anticipated expiration: 2008-11-26
Also published as: WO2007139966A3

Abstract

A method and system are provided for the classification, bundling and securitization of insurance risks and the sale of those risks in domestic and international financial and capital markets in the form of bonds, debentures, exchange-traded funds and/or types of securities which are currently, or in the future may be capable of being publicly listed in connection with either a primary or secondary offering and tradable over the counter or on an appropriate exchange, such as NASDAQ, NYSE, and The London Stock Exchange. A supplemental catastrophic insurance policy application, issuance and claims payment method and system utilize a debit card that is issued with the policy and subsequently credited with a predetermined percentage of the policy limit for use by the policyholder essentially immediately after verification of the occurrence of an insured event in the U.S. Postal Service zip where the property is located and without the filing of a claim; following receipt of an electronically-filed verified claims form from the insured, up to the remaining unpaid policy limit is credited to the debit card account.

Description

PROCESS AND METHOD FOR WRITING SUPPLEMENTAL CATASTROPHIC INSURANCE AND SECURITIZATION OF RISK

Field of the Invention This invention relates to insurance policies for supplemental catastrophic insurance and the classification, bundling and securitization of risks associated with those policies as well as other types of insurance.

Background of the Invention

It has been predicted that the apparent increase in the number and severity of what can be characterized as natural disasters in recent years will continue. These acts of nature include hurricanes, flood waters, earthquakes and tornados. Owners of property located in and around stricken areas have found that their property insurance premiums have increased dramatically, in some cases by a factor often or more on an annualized basis. Property owners have also been compelled either by sheer economic necessity or by the insurer who has raised the deductible amount to cover more of the loss or to forego homeowners' insurance coverage all together.

It has also been reported in the popular press and elsewhere following the 2005 hurricanes — Katriήa, Rita and Wilma— , that insurers were slow to pay against valid claims and indeed resisted claims, arguing among other things that excluded "flood" or "storm surge" rather than covered wind had damaged homes and businesses. In most instances, claims adjusters, appraisers and other administrators are involved in confirming that damage has occurred and evaluating its extent before any policy proceeds are transmitted to the policyholder. As would be expected, the time immediately following the occurrence of such a natural disaster is when the policyholder is most likely to be in need of cash or other financial resources. Home owners may be cut off from their employment at a time when essential repairs must be made to their residence and when unexpected expenses such as temporary lodging and the purchase of restaurant meals, replacement personal items and clothing is necessitated. Outstanding personal loan and residential mortgage payments continue to come due and the inability to meet these obligations can wreak havoc on the apparent creditworthiness of a responsible individual or family. Thus, there exists a need to provide insured property owners with a form of insurance that can make funds available essentially immediately following the occurrence of an insured catastrophic event to help meet the need for cash to pay for losses and expenses related to the occurrence that are not paid for under existing homeowners' or other insurance policies. It is therefore an object of the present invention to provide a method and system for enrolling prospective policyholders, issuing evidence of the insured' s status, notifying policyholders of their entitlement to claim coverage and making funds available essentially immediately after the occurrence of an insured event.

It is also an object ,of the present invention to provide a standardized insurance policy with terms and conditions tailored precisely to support the other objects of the present invention.

It is another object of this invention to provide a debit card or alternative device at the time of the purchase of the policy and before the occurrence of an insured event in order to provide individual policyholders with a means to immediately access a predetermined percentage of the policy limit to pay for otherwise unreimbursed losses and expenses attributable to natural disasters without the filing and processing of claims forms.

It is another object of this invention, that the insurer, through a participating financial institution, shall actuate the transfer of funds to insureds' debit cards or the alternative device in accordance with the terms of the policy upon verification of the occurrence of an insured event. It is yet a further object of this invention to provide a method and process for the classification, bundling and securitization of risks insured under standardized insurance policies for transfer to domestic and international capital markets.

Yet another object of the invention is to effectuate the methods and systems described above in an efficient, timely and cost-effective manner by providing interactive websites for making information available to interested consumers applying for and, if appropriate, obtaining confirmation of the insurance coverage at the desired policy limit and for on-line claims filing and processing.

Another object of the invention is the ability to provide a system and method of making gift purchases of the standardized insurance policies described above through an interactive website.

Summary of the Invention The above objects and other advantages are achieved by the invention through one or more insurance entities or through the preferred embodiment that comprehends the creation, design and implementation of a novel program for the classification, bundling and securitization of insurance risks and the sale of those risks in the U.S. domestic and international financial and capital markets in the form of bonds, debentures, exchange-traded funds and/or other types of securities which are currently, or in the future may be capable of being publicly listed in connection with either a primary or secondary offering and tradable over the counter or on an appropriate exchange, such as NASDAQ, NYSE, The London Stock Exchange, and others.

In one aspect of the invention, individual and institutional investors are provided with the opportunity of participating in the insurance/reinsurance business on a selective basis that is tied to a portfolio of defined or specified risks and/or underlying standardized policies exposed only to a single specific peril, e.g., hurricane, earthquake, or flood, and to a selected level of severity of that peril, rather than through an investment ^" insurance-linked security issued by an affiliate of an insurer or reinsurer that represents a selected aggregate exposure to the single peril underwriting performance of an entire portfolio of traditional multi-peril property insurance policies issued to insureds in a large geographic area, e.g., $100 million of Atlantic Coast windstorm or $1 billion of California earthquake. The invention is also to be contrasted with investments in an insurer's or reinsurer's corporate stock or bonds that are subject to diverse types of risks as well as other unrelated business and credit risks. Practice of the method of the invention also reduces transaction and frictional costs to access financial and capital market investors, and greatly broadens the pool of potential risk capacity available from outside of the insurance/reinsurance industry, as compared to the methods and practices known to the prior art.

The original underlying insurance risks may be sold, in whole or in part, and identified, classified and associated with an individual series of bonds, debentures, exchange traded funds or other securities that are issued in accordance with customary practices. Any premiums payable with respect to those risks, or losses incurred as a result of an insured event, can be directly credited to, or offset against, the bond, debenture, exchange-traded fund or securities account, as required by the circumstances.

The original underlying insurance risks can also be packaged and sold so that the holder of the security can receive an interest payment or other type of remuneration on a periodic basis that varies depending upon the likelihood and extent of loss of principal invested.

The business process and method of the invention for the securitization of risk is adaptable to all types of insurance or reinsurance risk (including all lines of property and casualty, catastrophe, life and health; however, for purposes of describing the process and method in conjunction with a specific embodiment, wind/hurricane risk will be used as an example. The original underlying wind/hurricane risk can be insured in a purpose-drafted wind/hurricane risk-only policy or the risk can be insured as part of the coverage afforded by customary homeowners' or commercial property insurance policies as a potential rider.

As used herein, the term "securitization" means the creation of a financial instrument that represents interests and obligations of a portfolio of insurance policies that can be freely transferred in the capital markets.

The term "security" will be used for convenience and will be understood to include bonds, debentures, exchange traded funds or other forms of financial instruments. Origination and Pricing Risk Insurance risks are underwritten and priced by underwriters based on various risk parameters and pricing parameters. Once an insurance risk is underwritten and accepted, the insurance company issues evidence of the coverage that it will provide upon the occurrence of the specified event, typically in the form of an insurance policy and/or certificate of insurance. The policy document(s) will contain or refer to the terms and conditions of coverage and the price that is payable.

Risk underwriting and pricing is a function of parameter definitions and selection or rejection of risks meeting or failing to meet the underwriting and related pricing criteria. Risk parameters can be one or a few, or they can involve numerous identified variables. For the purpose of describing one embodiment of the method of this invention, two (2) risk parameters are identified:

1. geographic location, defined by ZIP code; and

2. expected severity and breadth of coverage defined by the range of the category of hurricanes to be covered, such as: i. Category 1 and above, ii. Category 2 and above, or iii. Category 3 and above. These categories are defined and publicly announced by at least one responsible government agency, and by a small number of specialized private entities.

Pricing parameters can be simple or complex and can include, for example, (a) cost of risk which is a function of the risk parameters; (b) the timing of the purchase; and (c) the time value of money in the form of the premium paid for the policy. These are evaluated and weighted to determine pricing which is based on proprietary financial analyses and modeling tools that are well known in the art.

For the purpose of the example, the product has a "dynamic adjustable unit price," meaning that each unit of risk is priced and sold assuming a twelve-month term that will not extend beyond the 31^st of December in the calendar year in which the coverage is purchased.

Sale of coverage during the twelve-month period can be at a price higher or lower than the original unit price depending upon (a) how close to hurricane season it is purchased; (b) if it is purchased after the hurricane season has started; and (c) how the forecasts for the hurricane season have developed during the period prior to the purchase. For example, an insured could buy a policy or certificate of insurance in June which would have a six-month term ending 31 December for the same price or more than another purchaser who purchased a policy or certificate of insurance with a twelve-month term on 1 January that ends on 31

December of the same year.

Policy limits can be sold in single or multiple increments, i.e., $5,000, $10,000 and so forth, up to $25,000 or even $50,000. Premiums may be simple multiples of the basic unit price or a variation thereof.

Classifying And Monitoring Of Risk

A database is created and populated to provide accurate detailed information for each risk accepted: The data preferably includes: 1. each policy or certificate number;

2. nature of the underlying risk (hurricane wind risk - Category "X" or higher);

3. geographic location by zip code; 4. price (premium charged - both on a gross and net basis);

5. when the risks are bundled into a reinsurance contract, information as to the type of reinsurance protection that is included (e.g., is the risk covered by quota -share participation, or excess of loss protection; is there an applicable attachment point, etc.); and 6. such other information as may be required by applicable legal requirements, issuer's customs and local practices. The risks accepted will be monitored to enable a determination as to:

A. the total number of units, e.g., in $5,000 increments, sold in each zip code and by address in that zip code; B. how much risk is exposed in any one zip code (for example, the aggregate value of the limits of liability for policies or certificates issued with respect to such zip code); and C. the total premium collected per zip code.

Creating Defined Packages of Risk by Bundling Policies and Certificates

One or more insurers reinsure a portfolio of standardized single peril policies to a special purpose reinsurer or to a segregated account reinsurance company. There may also be a traditional reinsurance company in between, but the existence of such a relationship is not relevant to the discussion here. Each reinsurance transaction will identify the risks reinsured and confirm that they are reinsured into the appropriate reinsurer or into a unique segregated account. Each reinsurance transaction can contain all similar risks, e.g., the same geographic area, same coverage specifications, Category 2 and higher; or, alternatively, a reinsurance transaction can be structured to have risks with geographical diversity and/or coverage specification diversity. The nature of the risk composition will affect the pricing for the specific securities that are to be issued and sold to investors. Concomitantly, the nature of the risk composition will also affect the financial ratings of those securities assigned by ratings agencies such as Standard & Poors, Moodys, Fitch, etc. (which can be non- investment grade or something higher). To the extent that a "risk index" is constructed or developed for the trading and pricing of these types of securities, the composition of the portfolios of reinsured policies will affect the securities' price along the index. In the event that the risks pass through an intermediate reinsurer, further definition as to the character of the risks can be provided in accordance with practices known to those of ordinary skill in the art.

Issuance and Sale of Securities The special purpose reinsurer or the segregated account reinsurance company markets and sells securities through public and/or private offerings in bulk or in a defined series, where each series represents the risks of one segregated account. Such marketing and sales can be carried out by an investment bank or other appropriate intermediary. Each sale of bonds, debentures, exchange traded funds or other securities has its own risk characteristics and corresponding probability of loss. These factors determine the interest rate the segregated account issuer will pay to the securities holder. Individual series can be priced by the issuer and/or the investment banker, with or without a third party advisor such as a risk modeling company, or they can be priced pursuant to a Dutch auction, the latter method being well known in the art. Interest can be paid to the bolder periodically as specified by the bond, debenture, or other instrument, or paid at maturity if the instrument is structured as a zero coupon instrument.

Upon the sale of a series of securities, the net proceeds due to the special purpose reinsurer or to the segregated account reinsurer, in one embodiment, can be placed in trust to be held directly or indirectly for the benefit of the insurance company or reinsurance company and to secure the obligations of the special purpose reinsurer or the segregated account reinsurer under its reinsurance agreement with the ceding insurance company or reinsurance company from which it assumed the risks. In some cases, this may be required as a matter of commercial practice or law.

In another embodiment, the net proceeds due to the special purpose reinsurer or to the segregated account reinsurer can be used to obtain letters of credit, surety instruments or held in escrow to provide the security to the ceding insurance company or reinsurance company. This aspect will be a result of any applicable legal requirements and/or commercial practices and customs.

In yet another embodiment of the invention, the special purpose reinsurer or the segregated account reinsurer holds and invests the funds without providing security to the ceding insurer or reinsurer.

Upon maturity of the bonds, debentures or other instrument, or within a specified time thereafter in the case of an insured event that could impact the repayment of principal where the results of the underlying risks have yet to be determined, the principal will be repaid to the securities holders in full, in part, or not at all, depending on whether the risks underlying the securities experienced any losses.

The following additional features constitute a part of the method of this invention. Determination and Notice of an Insured Event

In order to expedite and facilitate the determination of an insured event, e.g., a "qualifying hurricane", as well as the severity of the qualifying hurricane, wind speed location maps will be made available for viewing at a designated website within a prescribed period of time following a qualifying hurricane. The wind speed location maps can be based upon information that is obtained from federal or other governmental sources or, in a preferred embodiment of the invention, from an independent qualified consultant service. The retention of an independent consultant is presently preferred because the relevant data is typically available sooner than the official data is released by governmental authorities. In a particularly preferred embodiment, the wind speed location maps will be available for viewing within about forty-eight (48) hours following a qualifying hurricane. An overlay of the wind speed location maps with zip codes corresponding to those of all insured properties and/or a listing of all relevant zip codes with the respective hurricane category affecting each zip code is also preferably provided online.

Payment of Benefits

Benefits will be paid when the insured's property is located in a zip code that experiences a qualifying hurricane if any part of the geographical area comprising the zip code has experienced a qualifying hurricane of a category that is the same as, or greater than the category selected by the insured. For example, if only thirty-five (35%) percent of a zip code experiences wind speeds falling within Category One, and the remaining geographical area of that zip code experiences less than Category One wind speeds, all insureds having • property within the entire zip code that have selected Category One coverage will receive a payment to be used for qualifying losses, damages and expenses. No action is required by the insured. The insured's debit card account will be credited or other possible means of payment (e.g., credit card, savings/checking account, Western Union) will be actuated by a participating bank or other financial institution using well-established and customary procedures.

It will also be understood that the initial payment made to insureds will automatically and electronically be credited or transferred with a provisional payment of one-half (50%) of the maximum insured amount, e.g., $2,500 for a $5,000 policy limit, which amount can be accessed by using the debit card issued to policyholders. This initial payment is made without any showing or proof of loss or initial claims filing. These initial funds may be used for qualifying hurricane-related costs and expenses even though no physical damage has occurred or no claims were made under their existing homeowners' policies. Insureds will be required at the time of purchase of the coverage, or in the case of a gift, the gift recipient before the acceptance of the gift, to attest to the fact that the use of the initial funds credited to their debit card or otherwise received, will only be for hurricane- related costs and expenses as required by the terms of the standardized insurance policy.

In order to obtain payment of up to the balance of the insured amount, an on-line proof of claim form is to be submitted on-line with an attestation by the insured to the insurer . No other evidence need to be submitted by the insured and no claims adjuster will be assigned to review claims nor will other investigations be made prior to the transfer of the remainder of claims funds.

In a preferred embodiment of the invention, claim forms are accessed via the Internet at a specified secure website and completed online. The insured will confirm agreement to maintain receipts or other documents related to the claims form submissions for the requisite time period required by the insurers in accordance with applicable insurance laws. Once the attested proof of claim has been submitted and processed electronically, the amount of the claim will be credited to the insured's debit card account or other account and will be available for access. In the event that the total amount paid by the insured after the submission of a proof of claim is less than the total insured amount, the balance of the policy limit will remain available during the policy term to pay covered losses resulting from subsequent qualifying hurricanes. In no event will the amount paid out during the period of coverage of the policy exceed the total policy limit of the insurance.

Audits of claims can be undertaken by the insurer(s) in order to monitor and detect fraud/abuse in accordance with industry customs and practices.

Installment Payment of Premiums In the event that the insured wishes to pay the policy premium on a monthly basis, an

EFT from the bank account or credit card authorized by the insured can be effected. In the event that an insured event occurs, any balance of premiums due will be deducted from the initial automatic payment to the insured and the EFT order will be terminated.

Coordination of Payment of Benefits

In a preferred embodiment of the method and system of the invention, the debit card is issued by a bank, credit card company or other established financial institution that has the existing infrastructure and systems in place to process the instructions transmitted by the insurer to credit the insureds' accounts with the individually specified amount of funds following the occurrence of a covered event or processing of a subsequent proof of loss submission through electronic notification from insurer. The use of a debit card is also preferred because it requires entry of a personal identification number, or PIN, and thereby reduces the opportunity for fraud.

As will be understood by those of ordinary skill in the art, it will be necessary for the issuer of the debit card to have access to funds on short notice in order to credit the accounts of the insured. These funds will eventually be paid over by the insurer or through procedures established if the covered risk has been securitized as described above.

In a further preferred embodiment of the method of the invention, affiliations are established with retail providers of goods and services in the area and/or region in which the insured properties are located. These contractual affiliations will include acceptance of the insured' s debit card and, preferably, the granting of a predetermined discount upon the use or presentation of the card for all or select purchases at the affiliated entity. Participating retailers can include home center stores, pharmacies, supermarkets, chain restaurants, gas stations, automotive service and rental agencies, providers of lodging and various retail/commercial establishments. Reminders of these affiliations can be printed as names or familiar logos on the debit cards as issued to insureds and can vary from one location to another to reflect the presence of affiliated vendors.

In this particularly preferred embodiment, the dollar value of negotiated discounts from affiliated vendors, which shall be available from the receipt of the debit card to the last day of the policy term, will not only amplify the actual value of the policy benefits, but may exceed the premium paid for the policy. For example, with a five percent discount granted by affiliated vendors, using the debit card to pay for $5,000 in goods and services will result in savings of $250, which may exceed the cost of the policy.

In an additional preferred embodiment, the supplemental insurance may be gifted. This allows for individuals, corporations (for-profit and non-profit alike), social agencies, church organizations, and the like, both in and out-of-state to provide critical supplemental insurance to whomever and wherever it is needed the most. The use of the supplemental insurance as a gift in mass markets is believed to be original to the present invention.

As will be understood by anyone who has ever suffered an insured property loss, the claims adjudication and handling process can be burdensome and time-consuming. Claim forms must first be obtained and completed; delays often occur pending arrival of a claims adjuster; estimates for repairs must often be obtained at a time when damage throughout an area or region overburdens available personnel. The method and system of the present invention avoids these institutional delays associated with known insurance industry practices and provides benefits promptly and when they are most needed by the insured property owners.

The methods and systems of the invention have been described above in the context of catastrophic supplemental risk insurance policies, and specifically with the example of hurricanes that have established and standardized measures of severity, i.e., categories 1, 2, and 3, or higher. Other perils associated with natural disasters, are also readily quantifiable. These would include the Richter Scale measurements reported for earthquakes and high water measures associated with flood-prone rivers and adjacent areas. As will be understood from the examples and specific embodiments provided, insurable, defined risks can be made the subject of comparable policies for which premiums and payments can be developed based upon existing industry practices, and the composition of the insured risk in bundled policies for these and other types of insured events can be calculated for purposes of securizing the risk.

As the above descriptions will also render apparent to those of ordinary skill in the art, the method and system of the present invention can be applied to other types of insured risks and policies including motor vehicles, life and personal property, casualty, including workers' compensation, and health, including group health policies, among others. Thus, the invention is not to be construed as limited only to residential use policies associated with catastrophic losses from natural disasters. Brief Description Of The Drawings

Preferred embodiments of the invention are further described in detail below and with reference to the drawings, wherein: FIG. 1 is a schematic diagram of one embodiment of the system of the present invention;

FIGS. 2A-2E are flowcharts illustrating the operation of the system of FIG. 1;

FIG. 3 is a simplified flowchart for the automatic payment of an insurance claim in accordance with the method of invention; and

FIG. 4 is a detailed flowchart of the operation of the system for managing and fulfilling the payment obligations.

Detailed Description Of The Invention The present invention for implementing a system and method for the automated management and fulfilling of insurance for disaster-related supplemental catastrophic claims to property will be described in further detail with reference to FIGS. 1-4.

FIG. 1 illustrates a schematic diagram of the system 10 of the present invention, in which a computer-based insurance system 12 includes a processor 14 for executing predetermined software 16 and for saving and retrieving data in a memory 18 to interact with a user 20 to establish an insurance policy with at least one user 20, and thereafter to manage the insurance policy and to process and fulfill insurance claims under the policy. The computer-based insurance system 12 can be implemented using any known hardware, software, and communications devices for interacting with at least one user. For example, the computer-based insurance system 12 can include a microprocessor and other integrated circuits and computing devices to operate a "WINDOWS"™ based operating system commercially available through Microsoft Corporation for executing the predetermined software such as customized insurance software and for interacting with the memory 18. In addition, the processor 14 can include and/or be connected to a communications interface to communicate with the user 20 through known communications protocols, such as using the HyperText Transfer Protocol (HTTP) for communications over the Internet, and the predetermined software can include an Internet browser such as "INTEKNET EXPLORER"™, also commercially available through Microsoft Corporation.

The user 20 interacts with the computer-based insurance system 12 through a user computer 22 including known hardware, software, and communication devices, such as a display 24 and an input device 26, for example, a mouse. In one embodiment, the computer 22 is operated by the user 20, for example, to use a graphic user interface (GUI) such as an Internet browser such as "INTERNET EXPLORER"™, in order to receive and view computer icons, input fields, and data entry images for inputting data and user selections to be sent to the computer-based insurance system 12 for establishing and managing an insurance policy associated with the user 20, as described herein in connection with FIGS. 2A-4.

With continuing reference to FIG. 1, the system 10 of the present invention also includes an automated payment system 28 which, in response to instructions from the computer-based insurance system 12, initiates the payment of insurance claims to a user financial account 30 associated with the user 20, for example, a debit card-based account dedicated to fulfilling the insurance claims under a policy, such as hurricane-related costs and expenses. The automated payment system 28 operates on behalf of an insurance company underwriting the insurance policy of the user 20 as a policy holder, with such payments determined and verified by the computer-based insurance system 12 according to whether the conditions are met for payment of the insurance claim under the policy.

The user financial account 30 can be an account in a bank or other financial institution to which, for example, the user 20 authorizes the insurances company to make payments under the policy. Employing the user computer 22, the user 20 can monitor his or her financial account 30 to verify that the payment under the insurance policy has been automatically deposited to settle an insurance claim by the user 20. Referring to FIGS. 2A-2E, the system 10 operates by interacting with a user or an agent for the user, i.e., an insurance agent, through computer 22 to establish an insurance policy covering the insured property. Initially, the user 20 can be a visitor to a website of the insurance company, which is viewed on the display 24 and provides text messages, input fields, and menu selections to facilitate the entry of data by the user 20.

Referring to FIG. 2A, the system 10 displays choices to a visitor in step 32 on the display 24 to initiate insurance coverage by an insurance company; for example, a company which implements or which subscribes to the system 10 to mediate the management of insurance policies. In step 32, the visitor is provided with a choice to receive quotes for insurance coverage depending on whether the visitor is obtaining an insurance policy as a gift covering the residence of another person or entity, or the visitor is obtaining the insurance policy for the visitor's own residence or owned properties.

Other choices and input fields can be displayed, including basic data entry questions, such as age, citizenship, status of the visitor or prospective policy holder as a home owner or condominium owner or as a renter, the zip code of the property to be covered, and whether the policy owner is to be an individual or a company, such as a corporation or trust entity. Other questions or input fields can require entry of a valid credit card, and a brand or type of credit card such as acceptable cards and non-accepted cards, for example, American Express. Additional information can be displayed, such as a Homeowner or Renter's Insurance Coverage and Internet Only Communications Agreement, by which the visitor or prospective policy holder is required to accept or reject the terms of the Agreement, such as by actuating or mouse-clicking an "Accept" icon or a "Reject" icon, or an icon similarly labeled, so that all communications under any issued insurance policy are conducted through an E-mail address of the visitor, thereby enabling use of automated systems for issuing communications and reducing paperwork and paper processing. In step 34, the visitor selects whether the quote is for herself or is a gift for another, and enters any other of the required inputs. The inputted selection or answer is received by the processor 14, which processes the answer accordingly to rules implemented by the predetermined software 16. In an example embodiment, if the answer is outside of acceptable parameters, the system 10 will inform the visitor that the property is ineligible for coverage. For example, the insurance company, through the computer-based insurance system 12, can require that the prospective policy holder must be a home or condo owner or a renter, must be within a predetermined set of covered zip codes corresponding to geographic coverage areas, must be a U.S. citizen or a qualified permanent resident, and must be above a certain age reflecting the legal capacity of the policy holder to enter into a valid insurance policy contract.

The system 10 can require that the visitor have a valid credit card, and can optionally require that the credit card-be verified as valid, for example, using known verification techniques, such as a test charge and credit to the submitted credit card account. The system 10 can also require that the prospective policy holder agree to maintain the current home/condo/renter property insurance and agree to Internet-only communications. Failure of the visitor in step 34 to provide answers and/or to agree to the terms of the agreement for obtaining an insurance policy will cause the system 10 to exclude the visitor from coverage and from the quote process. With continuing reference to FIG. 2A, the processor 16 processes the answers and input selections of the visitor in step 34, and determines in step 36 if coverage is to be denied due to the zip code of the property to be covered. If coverage is to be denied based on the zip code, the method proceeds to step 38, and displays a message to the visitor that insurance coverage is not currently available for the zip code of the property. The system 10 can then optionally display a message to the visitor to choose whether or not to receive notifications as to when insurance coverage is established for that zip code. Messages displayed to the visitor or user 20 of the system 10 can be specific or generic, and can be listed in a web book or other table or list of text stored in the memory 18 for display to the visitor.

The system 10 then determines in step 40 whether or not the visitor chooses to receive such notification. If so, the system 10 registers the visitor in step 42, and terminates the process with the current visitor in step 44. When registered, the visitor is included in a list of people associated with the non-covered zip codes stored in the memory 18, so that the system 10 will notify the visitor of a change of status of the zip code as available for insurance coverage, for example, by sending an E-mail to any visitor in a newly-covered zip code, thereby allowing the visitor to resume the process in step 32 at a later date.

If the visitor chooses in step 40 not to receive such notifications of future zip code coverage, the system 10 terminates the process with the current visitor in step 44.

Referring again to step 36, if coverage is not denied to the visitor based on the entered zip code, the system 10 proceeds to step 46 to determine if the visitor meets the remaining requirements for insurance coverage. If not, the system 10 displays an appropriate generated message to the visitor in step 48 regarding the requirements, and then terminates the process with the current visitor in step 44.

Referring again to step 46, if the system 10 determines that the visitor does meet the basic requirements, it proceeds to step 50 in FIG. 2B, in which the visitor is required to compete the answers to a set of questions on a quotes page, such as the full name of the visitor or prospective insurance policy holder, the address of the property in addition to the zip code, as well as non-identifiable property ownership, the value and history of the property, and any other desired information. Additional questions can be used for implementing standard security input routines, for example, to prevent automated computer hacking and for preventing competitors from obtaining a listing of rate quotes. Such security routines are known in the art, for example, requiring human alphabetical letter recognition, identification, and data entry of skewed text which automated hacking systems cannot satisfy. If the system determines in step 52 that the visitor is not quotable and cannot receive a quote, for example, for failing to answer any questions such as due to being an automated hacking system, the system 10 displays a specific or generic message in step 54 regarding why how the visitor has not qualified for the quote and terminates the process in step 56.

When the system determines in step 52 that the visitor is quotable and can receive a quote, the visitor can optionally be required to complete answers to additional questions on a quotes page in step 58, and the system 10 then generates a quote based on the zip code and other factors inputted by the visitor, using various rules implemented in the predetermined software 16, as well as data such as lists or tables stored in the memory 18. Once the quote is generated, the system 10 displays the quote to the visitor in step 60.

In one preferred embodiment, the system 10 in step 60 can prevent the visitor from saving the quote by not presenting an option to save the quote at this stage in the process, since the quote engine and generation of quotes is dynamic in nature, and so rate quotes can change on a daily basis.

After step 60, the system 10 displays to the visitor a choice of whether or not to apply for insurance based on the displayed quote, as by icons labeled "Apply" or "Reject", and the visitor enters his or her choice. The system 10 then determines in step 62 if the visitor has accepted the quote and applied for a policy. If not, the system 10 terminates the process in step 56. In response to the visitor's choice to apply for the policy, the system 10 registers the visitor as a user in step 64, and proceeds to step 66 in FIG. 2C.

As shown in FIG. 2C, the system 10 displays to the registered user a list in step 66 for the user to provide required information to complete the application for the insurance policy, and the user completes all required inputs in step 68. In a preferred embodiment, once the user/applicant, starts to complete the application, the system 10 can time the user and provide a time limit to submit all of the required information to complete the application, since the quotes are dynamic and subject to change. The system 10 can determine how long the user can maintain the inputted data without submitting the incomplete application with a current quote, and so the system 10 can reject the incomplete application if the user has timed out Alternatively, the system 10 can integrate the submission process into the current quote engine implemented by the predetermined software 16 and generate a new rate quote at the time of the submission with a displayed pop-up message on the display 24 of the user that requires the user to address and optionally agree to the new rate in order to proceed. .

Such timeout procedures can be implemented by the system 10 in conjunction with the insurance underwriter, so that any subsequent quote generated for a policy with a completed application must be agreed to by the underwriter.

The system 10 can also require that the user, as applicant, attest to the use of an electronic transfer of funds to the user financial institution, such as the debit card, with such use being solely for fulfilling the insurance claim under the policy, for example, to only pay for hurricane-related costs and expenses.

After step 68, the system 10 then determines in step 70 if the application is complete and acceptable for submission of payment of the premium, for example, by credit card, such as the credit card information inputted by the user in step 32. If not, the system 10 displays a message to the user in step 72 that one or more specific input fields are not complete or are in error, and the system 10 prompts the user to correct the answers. For example, the user may have entered an unparseable name or address, such as accidentally entering a "$" or a "%" symbol in the name of the policy holder. In addition, verifications of input fields can be instituted as to field completion, allowable field size, and validity of numeric and alphabetic entries. In addition, the input field can include an age field and a zip code field which the system 10 will populate based on the user's earlier answers which were the basis of the quote, and therefore the user is not allowed to change the age or zip code in later data entry fields. The system 10 can also allow the user to enter a primary address, a billing address, and/or a mailing address, as well as any additional information required by the insurance application form for contracting with the insurance company or underwriter. However, no Post Office boxes will be allowed for primary address and bank debit card issuance procedures will be implemented to verify residence, etc.

If the system 10 determines in step 74 that the user does not wish to correct the answers, the system 10 displays a message to the user in step 76 advising the applicant that the process will be terminated, and the system 10 then terminates the process in step 78, since the system 10 cannot complete the policy application with uncorrected answers. If the system 10 determines in step 74 that the user does wish to correct the answers, the system 10 loops back to step 68 to have the user complete and/or correct all required inputs, and the system 10 proceeds through steps 68-78 until the user completes the data input correctly. Once the system 10 determines in step 70 that all required input data has been entered, the system 10 proceeds to step 80 in FIG. 2D. As shown in FIG. 2D, the system 10 shows the user any consumer notices and authorizations in step 80, for example, as required by local or federal law or for a repeat of the authorization for electronic-only communications, and the system 10 prompts the user to approve such authorizations, such as by actuating or mouse-clicking an "Accept" icon or a "Reject" icon. If the system 10 determines in step 82 that that user has not approved the authorizations, the system 10 displays a message to the user in step 84 explaining the consequences, and determines if the user has changed his/her mind in step 86. If no change is indicated, the system 10 terminates the process in step 88, and displays a generic message in step 90 that the user has not qualified for the policy. If the user indicates a decisional change in step 86, the system 10 loops back to step

82 to determine if the user has approved the authorizations. Once the user has approved the authorizations, the system 10 completes a credit card authorization form in step 92 based on the user inputs, to thereby complete the insurance application. The system 10 then determines in step 94 if the credit card payer information entered in step 32 agrees with the information provided later in the process by the applicant and if such credit card payer information is complete.

If not, the system 10 prompts the user to correct the credit card payer information, and starts a timeout period. If the system 10 then determines in step 96 if the user wants to correct the information, and if the user has responded within the timeout period. If not, the system 10 terminates the process in step 98. Otherwise, after step 96, the system 10 loops back to steps 92-94 to have the user complete the credit card payer information.

Once the credit card payer information has been correctly entered and it matches the other information entered by the applicant, the system 10 determines in step 100 if credit card payment is accepted by the credit card company. If not, system 10 displays a message to the applicant in step 102 that the credit card has not been accepted and to try another credit card. The system 10 then determines in step 104 if the applicant wants to submit another credit card. If not, system 10 terminates the process in step 106. Otherwise, the system 10 loops back to step 92 to allow the applicant to enter new credit card payment information, and steps 92-104 are repeated until the credit card payment is accepted in step 100. The system 10 then proceeds to step 108 to notify the applicant that the insurance policy will be awarded to the applicant or the gift recipient pending the completion of the Registered Financial Account section by either the owner and/or the gift recipient, and the process proceeds to step 110 in FIG. 2E.

After the policy has been awarded, system 10 prompts the applicant to set up a registered financial account 30 of the user for receiving claim payments, and the system 10 then determines in step 110 if the applicant chooses to directly proceed to setting up the registered account. If so, the applicant finalized the process in step 114 so that the account of the applicant or insured is established.

If the applicant foregoes setting up the registered account in step 110, the applicant will not be able to print a copy of the awarded policy, which is to be individually generated with his/her name, and then log off or be timed out, and will not be granted the policy. Applicant's credit card will not be charged. The system 10 then proceeds to step 114.

The system 10 then transmits in step 116 the individual or consolidated data to the insurance company or underwriter, which utilizes the data in its dynamic pricing model.

The system 10 then determines in step 118 if the application for the insurance policy is a gift or for the applicant's own use. If the application is for the applicant's own use, the system 10 begins a processing step 120 for a bank debit card selection, in which the applicant is required to establish a debit card account 30 with a bank participating in or with the system 10 to provide the applicant with a debit card for claim payments. This debit card establishing process is coordinated with the participating bank, and contains standard bank required disclosures, security checks, and the mailing of a debit card and optionally with activation of the debit card. If the debit card account procedures are not completed, e.g., the debit card is returned to the bank or not activated, the applicant will be electronically notified and corrective measures will be employed by the system and/or the bank to either correct the situation or to credit the owner's credit card and not the issue policy. All such procedures will be explained in detail to the applicant and agreed to before the policy is formally awarded.

If the system 10 determines in step 118 that the insurance policy is a gift, the system 10 begins a processing step 122 for a gift selection, in which the applicant is instructed to enter a name and identifying information to permit the system 10 to contact the gift recipient to receive the gift. The gift recipient then enters a predetermined website associated with the system 10 to create a separate user account, and the system 10 continues the same process as with the bank debit card section in step 120, in which the gift recipient is required to establish a debit card account 30 with a bank participating in or with the system 10 to provide the gift recipient with a debit card for claim payments. This debit card establishing process is coordinated with the participating bank, and contains standard bank required disclosures, security checks, and the mailing of a debit card and optionally with activation of the debit card. If gifted account is not established, the grantor of the gift will be electronically notified and corrective measures will be employed by the system to either correct the situation or to credit the grantor's credit card and not issue the policy.

Referring now to FIG. 3, there is illustrated in simplified format a simplified system for the automatic payment of an insurance claim, in which the system 10 monitors in step 124 for an environmental trigger, employing, e.g., wind monitoring devices registering the requisite Category level of hurricane strength wind speed for the zip code of the insured property. If an insured event occurs, the system 10 causes a transfer of funds, e.g., 50% of the insurance policy limit, from the automated payment system 28 to the user financial account 30 as a credit transaction to the debit card associated with the policy.

The system 10 then displays and/or sends a message, for example, by E-mail, to the insured in step 126 indicating that the funds have been transferred to the insured's account. The insured can then log into the registered account in step 128, permitting the insured to file an attested online claims form in step 130, in accordance with procedures authorized by the state and by the insurance company. Once the appropriately completed claim form is submitted and approved, the insurance company transfers the remaining funds under the policy through bank transfers in step 132 to fulfill the insurance claim.

A more detailed illustration of one preferred embodiment of the operation of the system for managing and fulfilling the payment obligation is illustrated in the flowchart of FIG. 4. Windspeed data for the areas and regions in which insured properties are located is transmitted in step 1 from a plurality of hardened stations 202 and received in and stored by the windspeed reporting service database 200.

The windspeed data is transmitted to a processor 204 in step 2 and matched to zip codes for insured properties and to the respective category of the occurrence for each insured property in the area defined by the zip code. This data processing step can be completed either by the wind speed reporting service or the managing insurance/reinsurance company using an appropriately programmed general purpose computer.

The data processed in 204 is transmitted in step 3 to processor 206 and used to calculate the total amount of the preliminary benefit payment that will be credited to the effected policyholders' debit card accounts.

This payment information is transmitted in step 4 to the account manager of the segregated funds 208 and/or, in step 5, to the insurance company 210. In one embodiment, the account manager 208 assembles the cash or other proceeds 220 required to cover the preliminary benefit payment for transfer in step 6. Subsequently, these funds are transferred in step 7 to the debit card payment manager. Alternatively, the funds recalled can be transferred (not shown) to an account of the insurance/reinsurance company 210 as the party primarily liable to the debit card payment manager 230.

The data collated and stored in 204, described above, is also transferred in step 13 to processor 214 and used to prepare an estimate of the total value of claims that will be payable to policy holders. The value of this estimate can be up to the total value of policy limits based upon the severity of the hurricane in the insured regions. The estimate is also based on experiential factors and historical data that is readily available to the insurance industry. This estimate of anticipated total claim exposure is transmitted in step 14 to the segregated funds manager 208 and/or the insurance company 210 for the purpose of recalling funds 220 for the subsequent eventual payment to the debit card payment manager in step 15, as described above in conjunction with steps 6 and 7. In step 8, payment authorization is transmitted from the insurance/reinsurance company 210 to the debit card payment manager 230, along with the identifying account numbers, and the amount to be credited to each policyholder's account maintained in database 232. In step 9, the accounts 232 are credited and use of the debit cards by the holders to access funds from ATMs, to charge goods, or acquire services occurs in steps 10 and 11. As illustrated in step 12, when the insurance/reinsurance company 210 has the zip code and corresponding wind speed severity information, it is posted to an internet website 240 for access by policyholders who wish to determine whether their debit card accounts 232 have been credited. A secure website access link is also provided to enable individual policyholders to obtain more detailed information on how much cash is initially credited to their debit card account, subsequent balances during use, and any additional amount credited as a result of the approval of a verified claim.

While the preferred embodiments of the present invention have been shown and described, it is apparent that. such embodiments are provided by way of example only.

Numerous variations, changes and substitutions will occur to those of ordinary skill in the art without departing from the invention disclosed. Accordingly, it is intended that the scope of the invention is to be determined by the claims that follow.

Claims

We claim:

1. A method of securitizing single peril insurance risks corresponding to standardized policies issued for specified property addresses covering losses associated with the occurrence of a defined event or events within a prescribed period of time, the method comprising: a. providing a database of information for each issued policy, which information includes at least: i. policy number, ii. nature of the risk event or events, iii. geographic location of property, iv. premium in dollars, v. policy limit, and vi. duration of policy; b. selecting a plurality of individual policies from the database to form at least a first bundle; c. calculating the total value of the policies in the first bundle; d. evaluating the composition of the risk associated with the first bundle; e. reinsuring the first bundle with a special purpose reinsurer or a segregated account reinsurer; f. placing the first bundle in a unique segregated account; and g. issuing securities corresponding to the first bundle for sale to one or more third parties at a price that is related to the risk composition.

2. The method of claim 1 in which the defined events are selected from wind and hurricanes of varying intensity, flood waters, earthquakes and tornados.

3. The method of claim 2 in which the defined events are hurricanes of intensity of category 1 and above, category 2 and above, and category 3 and above.

4. The method of claim 1 in which the geographic location of the property is defined by the United States Postal Service Zip code in which the insured property is located.

5. The method of claim 1 in which the prescribed period of time is a maximum of twelve months.

6. The method of claim 5 which includes varying the amount of the policy premium based on factors that include the date of purchase of the policy in relation to: i. any seasonal increase in the likelihood of occurrence of the event or events, ii. the commencement of the policy term, iii. the time value of the premium, iv. long term third party predictions of the likelihood of the occurrence and severity of the defined events, and/or v. market risk assessment by sales in specific zip codes.

7. The method of claim 1 in which the first bundle includes policies with similar risks that are selected from one or the same group of geographic locations.

8. The method of claim 1 in which the first bundle is comprised of policies selected from a variety of geographical areas having relatively high and low likelihood of occurrence of the event or events.

9. The method of claim 1 in which a plurality of bundles are formed, each of which includes a unique group of individual properties from the database.

10. The method of claim 1 in which the first bundle is comprised of policies selected for the same class of property, the class being selected from the group consisting of individual residences, garden apartments, high-rise apartments and commercial buildings.

11. In a method for the payment of a benefit to a policyholder of a catastrophic insurance policy for coverage of an insured property following the occurrence of an insured event, which includes maintaining a database of information on the location of a policyholder's insured property that includes the postal zip code in which the property is located and monitoring the geographical region in which the insured property is located for the occurrence of a covered catastrophic event, the improvement which comprises: a. identifying the severity of the catastrophic event for the geographical region in which the property is located as determined by a qualified independent authority; b. identifying the zip codes of insured properties within the geographical region of the catastrophic event; c. calculating an advance benefit payable to the policyholder for the insured property based upon the severity of the catastrophic event that occurred in the zip code in which the property is located; d. effectuating an electronic funds transfer of the advance benefit to a predetermined account that is accessible by the policyholder.

12. The method of claim 1 1 which includes the additional steps of: e. issuing the policyholder a debit card corresponding to the policyholder's insurance policy account; and f. crediting the policyholder's debit card account in accordance with step (d).

13. The method of claim 12 which includes crediting a second benefit amount up to the full insurance policy benefit upon receipt of a completed proof of claim from the policyholder.

14. The method of claim 1 1 in which the policyholder enters the insured property location information in the database via the Internet.

15. The method of claim 11 in which the policyholder applies for the catastrophic insurance policy via an interactive website maintained by the policy issuer.

16. The method of claim 11 in which the covered catastrophic event is selected from the group consisting of hurricanes, floods, earthquakes and tornados.

17. The method of claim 16 in which the event is a hurricane and the advance benefit payable calculation includes comparing the severity categories of 1, 2 or 3 with the policyholder's previously selected coverage.

18. The method of claim 1 in which step (b) includes mapping the zip codes of insured properties.

19. A method of securitiziπg a single type of insurance risks corresponding to standardized policies issued for specified subjects in a category covering losses associated with the occurrence of a defined event or events effecting the subject within a prescribed period of time, the method comprising: a. providing a database of information for each issued policy, which information includes at least: i. policy number, ii. nature of the risk event or events, iii. identification of the subject, iv. premium in dollars, v. policy limit, and vi. duration of policy; b. selecting a plurality of individual policies from the database to form at least a first bundle; c. calculating the total value of the policies in the first bundle; d. evaluating the composition of the risk associated with the first bundle; e. reinsuring the first bundle with a special purpose reinsurer or a segregated account reinsurer; e. placing the first bundle in a unique segregated account; and f. issuing securities corresponding to the first bundle for sale to one or more third parties at a price that is related to the risk composition.

20. The method of claim 19 in which the categories of subjects are selected from the group consisting of human lives, motor vehicles and non-vehicular personal property, casualty, workers' compensation, and individual and group health.