Catastrophic Hazard Protection Mortgage Structure

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Solution Overview

Problem

Property owners in high-risk catastrophe areas face difficulties in securing catastrophe insurance, leading to financial challenges when their properties are damaged, and insurers/lenders face speculative risks.

Innovation Solution

A catastrophic hazard protection mortgage that includes financial protection for property damage from events like hurricanes, floods, or earthquakes, with an incremental interest rate and a catastrophic hazard protection clause, allowing for reduced principal or payment, and can be implemented electronically with reinsurance or coinsurance hedging strategies.

Engineering Contradictions & Design Principles

VSEngineering Contradiction Analysis

1Reliability

If property owners in high-risk catastrophe areas obtain catastrophe insurance, then they gain financial protection against catastrophic damage, but insurers face speculative risks that make them unwilling to provide coverage

Engineering Contradiction:

Improvefinancial protection availabilityVSAvoidinsurer speculative risk

Core Design Contradiction:

ReliabilityVSObject-affected harmful factors

Solution Approach 1:

The patent introduces a mortgage lender as an intermediary between property owners and insurers. The lender provides catastrophic hazard protection through the mortgage structure itself, acting as a mediator that transfers protection from traditional insurers to the lending institution, thereby resolving the coverage gap while managing risk through the mortgage framework

Inventive Principle:

Principle #24Intermediary (Mediator)

Solution Approach 2:

The patent changes the parameter of risk-bearing from insurance companies to mortgage lenders by restructuring how catastrophic hazard protection is delivered. Instead of traditional insurance policies, the protection is embedded in the mortgage terms, including principal reduction or payment options upon catastrophe occurrence, fundamentally altering who provides and bears the risk

Inventive Principle:

Principle #35Parameter changes

2Productivity

If property owners take out traditional mortgages without catastrophe protection, then they gain access to financing, but they face severe financial choices including default or additional loans when catastrophe damage occurs

Engineering Contradiction:

Improveproperty rebuilding capabilityVSAvoidowner financial burden

Core Design Contradiction:

ProductivityVSObject-generated harmful factors

Solution Approach 1:

The patent implements beforehand cushioning by pre-structuring the mortgage to include catastrophic hazard protection provisions before any disaster occurs. The mortgage includes built-in mechanisms such as principal reduction or additional payment options that activate upon catastrophe, providing financial cushioning in advance rather than requiring post-disaster financial decisions

Inventive Principle:

Principle #11Beforehand cushioning (Prior cushioning)

Solution Approach 2:

The patent merges catastrophe hazard protection with the mortgage financing structure itself. Instead of separate insurance and loan products, the protection is integrated into the mortgage terms, combining lending and risk protection functions into a single financial instrument that reduces the owner's financial burden

Inventive Principle:

Principle #5Merging (Combining)

3Adaptability or versatility

If insurers hold catastrophe hazard risk for high-risk properties, then they can serve this market segment, but the speculative nature of the risk makes it financially unsustainable

Engineering Contradiction:

Improvemarket coverageVSAvoidinsurer financial stability

Core Design Contradiction:

Adaptability or versatilityVSReliability

Solution Approach 1:

The patent extracts the catastrophe hazard risk from the insurance sector and transfers it to the mortgage lending sector. By taking out the risk-bearing function from insurers and placing it within the mortgage structure, the patent enables market coverage for high-risk properties while preserving insurer financial stability through risk transfer

Inventive Principle:

Principle #2Taking out (Extraction)

Data Source

PatentUS8290846B2Method of providing catastrophic loss protection through a mortgage

Publication Date: 2012.10.16 AON BENFIELD

AI summary

A catastrophic hazard protection (CHP) mortgage may be provided on real property or structure(s) on the real property of a owner. The CHP mortgage may be structured to include financial protection in the event that one or more structures of the real property is damaged by a catastrophe such as a hurricane or earthquake. The owner may pay an increased interest rate on the CHP mortgage. If catastrophe damage occurs, the principal amount of the CHP mortgage may be reduced by the lesser of the value of the damage or the principal balance. Alternatively, the owner may receive a payment equivalent to the lesser of the value of the damage or the principal balance. A CHP mortgage may be implemented electronically. Additionally, catastrophic hazard protection may be added onto an existing mortgage.