Data sources need to be as localised and accurate as possible to be effective parametric triggers for natural catastrophes or weather events because the severity of an event can vary even within local areas.
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The InsTech perspective… a new data source for parametric flood insurance
Flood • Satellite
Data sources need to be as localised and accurate as possible to be effective parametric triggers for natural catastrophes or weather events because the severity of an event can vary even within local areas. For example, the depth of a flood at one property may differ from another property on the same street. With localised, accurate data, policyholders receive pay-outs based on the event intensity at their specific location. This minimises basis risk, the risk that the policyholder suffers a loss greater than the received pay-out. The challenge is to find localised and accurate data sources that can scale.
Descartes Underwriting, an MGA underwriting parametric policies for climate risks, has announced it will use a new data source for its flood insurance policies. ICEYE operates microsatellites that use synthetic aperture radar technology to observe the earth and detect millimetre-level changes. The company combines its satellite observations with other data sources to measure the high watermark of floods at a property level. The visualisation below shows ICEYE’s analysis of 2907 buildings impacted by July 2021 flooding in the town of Bad Neuenahr-Ahrweiler in Germany.
This data, which ICEYE already provides to Swiss Re and Tokio Marine, will now be used to trigger Descartes Underwriting’s parametric flood policies. Sébastien Piguet, Descartes Underwriting’s Co-founder and Head of Underwriting, says the partnership will “advance the frontier of parametric flood insurance and expand [Descartes’] offering to a wider geographic client-base”. The growth of parametric insurance in recent years has been driven by the availability of new technology-driven data sources.
Flood • Satellite • InsTech podcast
“We are assessing six floods globally whilst you are talking to me.” Charles Blanchet, VP of Solutions at ICEYE, explained how the company’s technology works on podcast episode 128 in March 2021. Listen or read the write-up on the InsTech London website.
Flood • Satellite • InsTech event
ICEYE is sponsoring InsTech London’s next in-person event on Tuesday 9 November, hosted at the Steel Yard in London. Attendees will also hear from insurer Beazley, MGAs Skyline Partners and Vave, Lloyd’s syndicate Atrium Underwriters and data providers Fathom, McKenzie Intelligence Services, Addresscloud and Gamma Location Intelligence. The event is free to InsTech London members. If you would like to attend but don’t know your organisation’s registration code, then please email [email protected].
In the news…
Travel • InsTech insight
France-based MGA Koala, with insurance capacity from Wakam, has launched a parametric insurance product that compensates air travellers when flight disruption leads to a missed connection. We wrote about Wakam’s parametric travel insurance products, including its partnership with Koala, in an article in July.
US • Agriculture • Temperature
For some varieties of fruits and nuts, cold temperatures during a key few weeks can impair growth. Descartes Underwriting explains in this case study how it provided frost insurance for an almond orchard in California during the 4-6 week blooming period.
US • ESG
(Re)insurer SiriusPoint has purchased a significant ownership stake in Parameter Climate, a parametric insurance MGA founded in 2020. Parameter Climate will receive capacity from SiriusPoint and another reinsurer as part of the deal. The company will provide climate risk transfer products and services to help clients manage ESG risks.
Recoop Insurance is offering multi-peril disaster insurance to households with an existing homeowner’s or renter’s insurance policy in 37 states. The policy, which pays out lump sums between $5000 and $25000, is partially parametric and partially loss-based. Policyholders are eligible for a payout if they are in an area where the state or federal government has declared a disaster, and if they verify with photos that they have sustained at least $1000 of property damage. Recoop says this means they can make most pay-outs within 48 hours of an event. Recoop is underwritten by Professional Solutions Insurance Company and backed by Swiss Re and Munich Re.
China • Flood
Singapore’s Nanyang Technological University and the Guangdong Climate Centre of China will support the government of the Chinese province Guangdong in establishing a parametric flood insurance scheme for the province. The agreement was made at a meeting of the Singapore-Guangdong Collaboration Council, which includes representatives from the governments of Singapore and Guangdong, on 20 October 2021.
Earthquake • Catastrophe bond
The Acorn Re bond, which provides earthquake coverage to the Kaiser Permanente group of health plan companies, is looking for $475 million of capacity from capital markets. This represents the renewal of a $400 million bond from 2018 which matures at the end of October 2021. The ceding insurer is Oak Tree Assurance Ltd., the captive insurer for Kaiser Permanente, and the ceding reinsurer is Hannover Re. A captive insurer is a subsidiary wholly owned by its parent company, for which it provides insurance services.
US • Agriculture • Weather
This case study shows how parametric platform Arbol, founded in 2018, insures a cotton gin in Texas, using US Department of Agriculture data on county-level cotton yield as a trigger. Cotton gins, which refine and process cotton for use in various products, rely on supply of cotton to be viable businesses. When bad weather results in seasons with low yield, cotton gins suffer.
The InsuResilience Global Partnership, which has supported parametric programmes around the world, is holding its annual forum on 28 and 29 October. The InsuResilience Global Partnership was set up at the 2017 UN Climate Conference. The agenda includes a panel on risk pools featuring executives from the African Risk Capacity (ARC), the Pacific Catastrophe Risk Insurance Company (PCRIC), the Caribbean Catastrophe Risk Insurance Facility (CCRIF SPC) and the Southeast Asia Disaster Risk Insurance Facility (SEADRIF). Those who register in advance will be able to watch the sessions on demand.
Malawi • Agriculture • Weather
Area yield index insurance protects farmers against reduced yield by measuring a geographical area’s average yield for a season against previous seasons. Pay-outs are triggered if the reduction in yield exceeds a threshold. The Government of Malawi with agtech Pula, the UN World Food Programme and Nico Insurance Company run an area yield index insurance scheme in Malawi. The scheme recently paid out nearly $2.5 million to 67,286 smallholder farmers in the country following dry spells in the 2020/21 growing season.
Zambia • Agriculture • Weather
Mayfair Insurance launched weather index insurance in Zambia in 2014. The scheme protects smallholder farmers against excess rainfall and drought. A series of videos from the Global Index Insurance Facility discusses the success of the scheme.
Supply chain • Smart contracts
Specialist supply chain venture capital fund REFASHIOND Ventures has invested an undisclosed amount in OTONOMI, an MGA founded in 2020. OTONOMI are creating parametric cargo insurance products automated through blockchain-based smart contracts.
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