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The InsTech perspective… growing regulatory recognition of parametric insurance
Insurance law is based on the principle of indemnity, which requires that pay-outs from insurance policies do not exceed the policyholder’s economic loss. Parametric policies pay out based on event parameters rather than economic loss. As a result, companies selling parametric insurance products may need to work with regulators to find mechanisms that ensure compliance. This challenge is greater for personal lines parametric insurance, where stricter consumer protection rules usually apply.
As the parametric insurance market grows, some lawmakers and regulators are considering how to clarify the legal and regulatory requirements for parametric insurance in their regimes. In Parametric Post Issue 26, the Securities and Exchange Commission of Pakistan announced that the concept of parametric insurance would be introduced to insurance legislation. In this issue, a new law is signed in Vermont that clarifies the use of parametric risk transfer for captive insurers. Meanwhile, the US National Association of Insurance Commissioners is drafting a white paper outlining parametric products and potential regulatory issues.
You can learn more about parametric insurance regulation by reading our interview with Capital Law’s Rachel Hillier, who explains what factors need to be considered when drafting a parametric insurance policy.
Hail • Sensors
AXA Climate, part of the AXA Group specialising in parametric insurance, announced its partnership with CoreLogic on hail coverage in January 2022. On InsTech podcast episode 192, CoreLogic’s Robert Schablik explains what data is used in CoreLogic’s hail models. He is joined by underwriter Mia Vioulès, who describes how working with CoreLogic and Hailios allows AXA Climate to understand hail exposure and trigger pay-outs using remote sensing.
From 14 June 2022, InsTech’s latest report, “Parametric Insurance in 2022: the 150+ companies to watch”, will be available to download. It will be the most comprehensive report into the parametric insurance market available anywhere, with an overview of parametric insurance trends, what has changed since our previous report in 2020, our estimate of the current market size and details of more than 150 companies providing parametric insurance solutions. The report will be free for InsTech corporate members, who can download the report by logging into our website. Everyone else can save 50% on the published price of the report by signing up for a discount code before 14 June.
On 14 June at 2pm UK time, InsTech will host a live digital event to discuss the findings of our upcoming parametric insurance report. InsTech’s Matthew Grant and Henry Gale will be joined by Swiss Re Corporate Solutions’ Martin Hotz, OTT Risk’s Matthew James and Raincoat’s Jonathan Gonzalez. You can register for the event now.
In the news…
Colombia • Flood • Agriculture
Cloud to Street, which provides flood tracking for insurance, is launching a parametric flood insurance product for smallholder farmers across Colombia. The product is being delivered with parametric insurance technology company Raincoat and reinsurer Munich Re. Insured farmers will receive loan relief based on the magnitude of flooding at their location.
US • Commodity prices • Agriculture
Stable has raised $60 million USD in a Series B funding round led by Acrew. Stable provides parametric protection against volatility in the price of agricultural commodities to its clients using more than 7,000 commodity indices from 70 countries. Ruth Foxe Blader and Matthew Jones from Anthemis, one of Stable’s existing investors, explain why Anthemis invested in Stable on InsTech podcast episode 176.
The US National Association of Insurance Commissioners’ property and casualty insurance committee has announced that the committee intends to receive presentations from parametric insurance providers in the near future. It will begin drafting an outline of current parametric products and their potential regulatory issues before publishing a parametric insurance white paper later this year.
Bahamas • Hurricane
The prime minister of the Bahamas has announced the country will renew its parametric insurance coverage with the Caribbean Catastrophe Risk Insurance Facility (CCRIF). The Bahamas is currently covered by a tropical cyclone policy and an excess rainfall policy. The Bahamas received a $12.8 million USD pay-out from CCRIF after Hurricane Dorian in 2019, and also received smaller pay-outs after Hurricane Irma in 2017 and Hurricane Isaias in 2020.
US • Captives
A captive insurer is a subsidiary wholly owned by its parent company. The captive provides insurance for its parent company and companies within its group. In Vermont, a new bill has been signed into law stating that captive insurers “may accept or transfer risk by means of a parametric contract”. As a result, Vermont legislation now explicitly sets out that captives can provide parametric risk transfer products for companies within their groups, as well as ceding risks through parametric contracts to reinsurance or capital markets. The parametric risk transfer contracts referred to in the legislation, which are not described as insurance, do not require proof of loss or obligation to indemnify.
Philippines • Agriculture • Weather
A World Bank study claims that state-run agricultural insurer Philippine Crop Insurance Corporation (PCIC) is not providing adequate protection to farmers, despite receiving billions of Philippine pesos (tens of millions USD) in annual subsidies. PCIC’s current products are not well suited to smallholder farmers, according to the World Bank. It suggested PCIC should develop index-based insurance products for smallholders and focus indemnity-based crop insurance only on high-value crops. PCIC partnered with index insurance start-up Pula in 2021 to pilot weather index insurance and area yield index insurance for rice.
The Lloyd’s Lab innovation accelerator programme has opened applications for its next cohort. The Lab has previously worked with several parametric insurance start-ups including Parsyl, Skyline Partners and Blink Parametric. Applications close on 10 July 2022.
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