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Climate change impact on parametric portfolios – The Parametric Post Issue 36

The Parametric Post, the only newsletter dedicated to parametric insurance.

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The InsTech perspective… climate change impact on parametric portfolios

Aside from earthquake, the top ten triggers supported by companies profiled in InsTech’s comprehensive parametric insurance 2022 report are all climate-related. The most common uses of parametric insurance include windstorm, drought, temperature and flood cover.

As a result, insurers’ portfolios of parametric policies are heavily exposed to climate perils. As climate change affects the frequency and severity of various natural perils, insurers and reinsurers need to model the effects of changing climate risks on their portfolios, understand how perils such as floods and hurricanes correlate and consider how future climate scenarios will affect their future portfolio management strategies.

At InsTech’s in-person event in London next Tuesday 1 November, we’ll be discussing combined flood and hurricane risk with modelling companies Reask and Fathom, alongside open-source catastrophe modelling platform Oasis Loss Modelling Framework, MGA Vave, insurer Brit and insurance-linked securities investment manager Securis. You can sign up for the event on our website, free for InsTech corporate members.

The monthly Climate Risk newsletter includes our latest insights on climate risk and tracks climate-related insurance news. You can read a recent issue and sign up here.

OTT Risk: a new approach to business interruption insurance

Business interruption • InsTech interview

In our interview with OTT Risk’s Quentin Saleur and Matthew James, they discuss the causes and impact of business interruption on the tourism industry and the parametric solutions OTT Risk is building to cover non-damage business interruption losses. OTT Risk uses economic indices such as hotel occupancy and airport arrivals as parametric triggers. You can read the full interview to learn about OTT Risk’s approach to underwriting and how to quantify business interruption losses caused by social unrest.

Understanding and transferring climate risks

InsTech article

Several leading figures in parametric insurance for climate risks spoke at or attended the Weather Risk Management Association (WRMA) European Event in Paris last month. InsTech’s Henry Gale attended the event and shares two key takeaways from the event and looks towards what’s next for the parametric insurance market.

In the news…

Risk exchange platform Vesttoo achieves $1bn valuation

Pandemic • Motor • Insurance-linked securities

Vesttoo, a marketplace for non-catastrophe insurance-linked risk transfer, has closed an $80 million USD Series C funding round led by Mouro Capital and an undisclosed private equity fund, at a valuation of $1 billion USD. Vesttoo supports parametric reinsurance and retrocession transactions, as well as indemnity-based risk transfer. It has created indices for parametric mortality hedges, parametric longevity hedges and parametric motor liability hedges.

Insuring event postponement due to bad weather

US • Hurricane

Hundreds of events were cancelled as Hurricane Ian approached landfall in Florida, causing large business interruption losses for event organisers. MGA Descartes Underwriting’s case study sets out how it structured a hurricane insurance policy for a large music festival in the Southeast US, to cover financial losses if the event had to be cancelled or shut down.

Blockchain capital enabling parametric hurricane protection

US • Hurricane • Blockchain

Ensuro, a reinsurer that uses cryptocurrency from investors as an alternative form of capital, is providing insurance capacity for a parametric hurricane protection product available to US residents. The trigger is a hurricane of any intensity passing within a 20 mile radius of the resident’s zip code, using data from the US National Hurricane Center delivered to Ensuro’s smart contracts by a Chainlink oracle. Ensuro’s blog post has more details on the partnership.

ChAI raises seed round for parametric commodity price cover

Commodity prices • InsTech interview

ChAI, an MGA that is building a parametric insurance product to help companies manage commodity price risks, has raised an undisclosed amount of seed funding. The round was led by Seraphim Space with participation from Insurtech Gateway, Passion Capital, Primo Space Fund, 2050Cap and Portfolio Ventures. You can learn more about ChAI by reading our recent interview with Co-founder and CEO Tristan Fletcher.

Otonomi raises $3.4m for cargo delay insurance

Supply chain • Travel • Business interruption

Otonomi, a US-based MGA underwriting cargo delay parametric insurance, has raised $3.4 million USD in a seed funding round led by ATX Ventures with participation from Greenlight Re Innovations among others. Otonomi’s first product compensates logistics companies and freight forwarders for flight delays and interruptions.

Zurich adds snow to construction weather parametric product

US • Snow • Construction

Zurich North America launched a parametric weather insurance product for the construction sector in 2021, covering extreme wind, rain and temperature risks. It has now added a snow peril extension, which is triggered by daily snow accumulation (how many inches of snow have fallen and not yet melted). The product is designed to cover delay costs and other economic losses associated with weather events during construction projects.

Tropical Storm Ian triggers pay-out to Jamaica water utility

Jamaica • Hurricane

The Caribbean Water Utility Insurance Company (CWUIC) was established in 2022 as part of the Caribbean Catastrophe Risk Insurance Facility (CCRIF). Jamaica’s National Water Commission purchased parametric disaster insurance from CWUIC ahead of the 2022 Atlantic hurricane season and received a pay-out two weeks after Tropical Storm Ian moved south of Jamaica and caused heavy rainfall and storm surge. The pay-out was used to rebuild water systems and facilities.

Parametric microinsurance product launched for Vanuatu

Pacific • Cyclone • Agriculture

The United Nations Capital Development Fund (UNCDF) has launched a parametric microinsurance product in Vanuatu with local insurer VanCare Insurance. The product is designed to protect smallholder farmers, fishers, small businesses and people with disabilities against extreme weather events such as cyclones. The available coverage limits are VT50,000 VUV ($400 USD) and VT100,000 VUV ($800 USD). The product was designed as part of the Pacific Insurance and Climate Adaptation Programme (PICAP), funded by the governments of Australia and New Zealand. The UNCDF has piloted a similar parametric product in Fiji since August 2021.

Find out what you’ve missed…

Issue 35 – Parametric protection at the point of worry

Issue 34 – New ways to combine parametric and indemnity covers

Issue 33 – Parametric MGA to parametric insurer