The Parametric Post, the only newsletter dedicated to parametric insurance.
The InsTech perspective… hidden climate risks: the future of parametric?
While mandatory climate disclosures are starting to make organisations more aware of the financial impact of climate change, some less obvious climate risks remain underappreciated. Do these risks represent the parametric insurance market of the future?
Mitiga Solutions, one of the firms helping organisations with mandatory disclosure reporting, recently told us about some of the novel use cases of its climate analytics.
“Clients use our EarthScan product for pre-transaction due diligence. Understanding how climate could potentially impact return on investment is becoming an increasingly important part of this process. Location planning is another area of high demand. We’ve had clients come to us to understand where they should build their next airport or data centre. … Finally, EarthScan helps clients with supply chain resilience. We can explore how climate change could impact an organisation’s entire operations – not just the assets that they own.” – Kate Rodger, Head of Sales, Mitiga Solutions in a recent InsTech interview.
Arbol’s co-founder and CEO Sid Jha also spoke to the InsTech podcast last year about how investors in property portfolios such as real estate investment trusts (REITs) are likely unaware of how climate risks could affect their investment.
Organisations know they are exposed to catastrophes hitting their property, but climate risks concealed in investment portfolios, business plans and supply chains might be going unnoticed. The exact losses can also be hard to quantify. Parametric risk transfer is well suited to these climate risks and can provide the rapid liquidity organisations need to stay resilient.
Although most companies will not be ready to buy insurance for these risks today, awareness is growing and future losses may force organisations to make them a priority. Insurers can seek out early adopters now to identify hidden risks that could shape the future of the parametric market.
You can read our recent article, ‘Insuring interruptions in global supply chains’, to learn more about parametric solutions addressing new risks.
Getting ahead of the risk curve
UK • InsTech event
Turbulent times mean threats can arise faster than ever for risk managers. Our next evening event in London looks at the emerging technologies and new products risk managers are using. Generali will discuss how parametric solutions are filling protection gaps, while other speakers include the risk managers from Google, Portakabin and Landsec. Join us on 5 March from 4pm.
Latest parametric opportunities
Are you an insurer, MGA or broker with capacity to deploy for parametric insurance?
We know organisations seeking:
-
$20 million of crop insurance in India, May-Dec 2024
-
$50 million of insurance for wind speeds in Florida and the Gulf of Mexico, Mar-Dec 2024
-
$100 million of insurance for Philippines typhoon, Apr-Dec 2024
Can you offer coverage to any of these organisations? Email [email protected] to learn more.
Do you represent an organisation looking for parametric insurance? The Parametric Post reaches parametric specialists across the global (re)insurance market. Reach out at [email protected] to talk about listing your need.
We are not a broker. InsTech, in partnership with ParaRisk (a joint initiative by 20 Twenty Search and Cerchia), makes paid introductions across the parametric insurance market, including brokers, (re)insurers, MGAs and data providers, to help facilitate transactions and grow the market for everyone.
In the news…
Munich Re forms global parametric natural catastrophe team
Climate • Earthquake
Reinsurer Munich Re has consolidated its parametric natural catastrophe underwriters into a global team led by Rene Mück (former Americas Head of Munich Re Capital Partners). Munich Re says the move will enable a consistent risk appetite and help the reinsurer grow its share of parametric business. The team will also coordinate closely with other units focused on parametric epidemic insurance, weather derivatives and agriculture risks.
MIC parametric product covers loss of income caused by flood
India • Flood
Insurer MIC Global has designed a parametric product covering micro businesses and gig workers in India against loss of income caused by floods. The parametric cover uses technology from Weather Risk Management Solutions (WRMS). It is being distributed by local insurers in India.
Aon forecasts growing parametric supply and demand
Climate • Weather
Aon’s Global Insurance Market Insights report for Q4 2023 predicts growth in the parametric market in 2024. As more parametric covers have been tested and pay out as expected, more corporates and public entities will demand parametric solutions. Aon also forecasts an influx of capital from both established providers and new sources of capacity.
Global Parametrics scheme pays $50k to Philippines farmers
Philippines • Agriculture • Typhoon
In 2023, insurer CLIMBS and technology company IBISA launched a parametric microinsurance product to protect farmers in the Philippines against climate risks. The product, which pays out based on several triggers including rainfall and wind speed, is backed by Global Parametrics, part of the CelsiusPro Group. Throughout the year events including Typhoon Doksuri triggered pay-outs, with total claims amounting to ₱2.7 million ($50,000 USD).
Munich Re backs expanded WTW coral reef cover in Hawaii
US • Hurricane
Coral reefs around islands in Hawaii have been covered by a parametric tropical storm insurance policy since 2022, arranged by WTW with capacity from Munich Re. At renewal, the policy has been expanded to cover 314,976 more square miles. The policy limit remains $2 million USD, with the minimum pay-out doubling to $200,000. Coral reefs contribute more than $1.2 billion to the Hawaiian economy every year through reef-related tourism.
US provides $11.7m grant to ARC for Africa climate cover
Africa • US • Climate
The US government has entered into an $11.7 million USD partnership with risk pool the African Risk Capacity (ARC), which provides parametric insurance to African governments. The deal is intended to expand access to parametric insurance for 19 African states and continue to develop and refine ARC’s products. ARC currently offers insurance against droughts, floods, cyclones and disease outbreaks.
WTW and PCRIC insure Fiji coral reef against cyclones
Fiji • Cyclone
Broker WTW has arranged $450,000 USD of tropical cyclone coverage for the Lau Islands’ coral reef system in Fiji. The policyholder is conservation charity Vatuvara Foundation. The Pacific Catastrophe Risk Insurance Capacity (PCRIC) is providing capacity. Pay-outs will fund rapid response activities, including reattaching broken corals and cleaning up debris, as well as community assistance activities to alleviate food and water security concerns. Mining firm BHP provided funding to subsidise the premium.
Lao PDR renews flood coverage with lower trigger thresholds
Lao PDR • Flood
The government of Lao PDR has renewed its semi-parametric flood insurance policy with the Southeast Asia Disaster Risk Insurance Facility (SEADRIF). The updated policy now includes four trigger points instead of two, with lower thresholds. As a result, floods that would not have triggered pay-outs previously might do so under the new policy. Lao PDR received a $1.5 million USD pay-out from SEADRIF in late 2023, but not due to the parametric trigger; its claim was under the ‘finite risk’ component of the policy that pays for flood response costs where the parametric trigger was not met.
Price risk insurer Paratus enters renewables with investment
Energy • Price risk
Paratus, which provides insurance policies to protect companies against changes in the prices of fuel and freight, has received an undisclosed investment from private equity firm Ara Partners. Paratus is launching a new product protecting producers and consumers of renewable power and transition fuels from energy price volatility.
Partnership to launch weather insurance in Uganda
Uganda • Agriculture • Weather
Technology company Etherisc has partnered with agritech eSusFarm and Agro Consortium (AIC), a group of local insurers, to launch weather index insurance for farmers in Uganda. AIC will underwrite the product, which aims to cover 50,000 farmers.
World Bank expands crisis toolkit with new parametric features
Climate • Catastrophe bonds
The World Bank has announced three extra tools in the ‘crisis toolkit’ it launched in June 2023 to help countries prepare for and respond to natural catastrophes and climate hazards. The new ‘rapid response option’ will allow countries to redirect financing intended for other projects towards emergency response costs. The World Bank is also scaling up access to pre-arranged financing, which uses parametric triggers to provide funds when a disaster strikes. Thirdly, it is offering all countries the option to embed catastrophe insurance into their financing, which it has previously done with parametric triggers for several countries.
Collinson parametric travel product extends to US with Starr
US • Travel
Travel and insurance company Collinson has expanded its parametric travel insurance solution SmartDelay to the US. SmartDelay provides automated airport lounge access or cash pay-outs to consumers whose flights are disrupted. Insurer Starr is providing capacity for the product in the US and will distribute it to its own US customers.
Warm winter triggers second derivative pay-out to energy firm
US • Energy • Temperature
Star Group, an energy company operating in 19 US states, has received a pay-out from a weather derivative following warm weather in the first quarter of 2024. Weather derivatives are tradeable financial contracts that are used to hedge against weather risks. They are a form of parametric risk transfer, but unlike parametric insurance, weather derivatives are not regulated insurance products. Energy companies such as Star Group use temperature derivatives to hedge against the risk of lower revenues from decreased energy usage in warm weather. Star Group received a pay-out of $12.9 million USD on its weather derivative in 2023.
Find out what you’ve missed…
Issue 64 – Promising signs for the parametric flood market
Issue 63 – Parametric solutions for non-damage business interruption
Issue 62 – How parametric is filling wildfire protection gaps
Sign up here to receive the latest news, stories and insights on parametric insurance every two weeks.