CrowdDoingand Project Heatherpropose launching a prevention derivative with two new stakeholders:
(a) contingent payers who pay in proportion to the reduction in risk, and
(b) impact investors who finance social innovations in which their return is similarly proportional to the reduction in risk.
It will build on existing precedents for contingent contracts involving social- innovation-based risk prevention. A spectrum of forest fire risk prevention approaches are available: from creative new social innovations to well-established interventions. The forest fire risk prevention derivative would first survey existing forest fire prevention interventions in Greater Sacramento with an eye towards which ones might be suitable to support and expand. It would then review global social innovations that might be relevant to Northern California to determine which to replicate. Entities involved in risk management and risk securitisation, from insurers to reinsurers to retrocessionaires, ought to welcome the chance to share liability proportionally through a commons of prevention innovations. The prevention derivative can expand as more institutions and individuals join as contingent payers and impact investors in order prevent a larger portion of collective risk. Payments by private and public institutions to support prevention derivatives can be in-kind, through services, and/or financial. The prevention derivative will identify comparison regions in order to assess relative risk prevention controlling for factors such as temperature, humidity, wind intensity, tree types etc.
Our team has researched the risk transfer markets to determine if risk prevention securitization is feasible. Initial analysis suggests that liquid risk prevention markets are possible through social innovation. Initial research has focused on flood prevention via coral reefs and fire prevention.