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The InsTech perspective… modelled hazard data for parametric triggers
Many government agencies around the world publish freely available information on weather and natural hazards, such as hurricane categories and tracks, earthquake magnitudes and epicentres, precipitation levels and temperature. Parametric insurance contracts have traditionally relied on these data sources to determine pay-outs to policyholders.
Now, more insurers are using proprietary data to enable new parametric products or to improve existing products. In some cases, this involves using physical sensors that measure the conditions at a policyholders’ location. Another approach is to use models that can calculate hazard metrics that would not otherwise be available.
In this week’s Parametric Post, Reask’s Head of Parametric Products explains on the InsTech podcast that Reask’s wind speed data for tropical cyclones is like “a virtual anemometer… at any location in the world”. Reask’s machine learning model has been trained on various data sources to understand how wind speeds are distributed within tropical cyclones. This enables parametric products that pay out based on the wind speed at a policyholder’s exact location, as modelled by Reask, rather than the cyclone category and policyholder’s distance from the track.
Peter Lacovara, Head of Commercial at Floodbase, also told the podcast about the machine learning model Floodbase has trained. It analyses satellite images and understands which areas are flooded. The output can be used for parametric flood insurance products that pay out based on ‘fractional flooded area’ (the proportion of an area which is flooded).
These models do not just enable a new way to understand natural hazards today, they can also be used to analyse historical events. Floodbase and Reask were both founded in the last ten years, but their models can produce flooded area and wind speed estimates for events that occurred decades ago. This helps insurers price parametric policies and helps anyone considering a parametric policy understand whether they would have been paid if they had been covered by the policy in the past.
Floodbase: making parametric flood insurance possible
Flood • InsTech podcast
Whilst parametric solutions can help provide new capacity to insure catastrophic risks and widen access to insurance, parametric flood insurance is not yet widespread. This is due in part to data and modelling challenges specific to flood. Peter Lacovara, Head of Commercial at Floodbase, explains how Floodbase is solving these challenges on InsTech podcast episode 252.
Reask, Kettle: building transparent coverage for hurricane risks
US • Hurricane • InsTech podcast
For insurers to underwrite profitably in Florida, having the right hurricane reinsurance is essential. MGA Kettle has announced a new parametric reinsurance product for Florida using wind field data from Reask. Reask’s David Schmid and Kettle’s Brian Espie join InsTech podcast episode 251 to discuss how the new product works.
The new technology available to risk managers
UK • InsTech event
InsTech’s next evening event on 18 July at CodeNode, London, will explore how risk managers are using new risk data and technology to inform their decisions. David Schmid, Head of Parametric Products at Reask and Martin Hotz, Head of Parametric Nat Cat at Swiss Re Corporate Solutions, will be on stage to discuss how risk managers are increasingly adopting parametric insurance to cover tropical cyclone risks.
In the news…
Raincoat raises $6.5m in seed funding
Latin America • Caribbean • InsTech podcast
Raincoat, which designs and provides software for consumer parametric products, has raised $6.5 million USD in a seed funding round led by TwoSigma Ventures. This brings Raincoat’s total funding to $11 million USD. The company plans to use the funds to expand its parametric products, covering hurricanes, earthquakes, wildfires, flood, drought and rainfall across more areas of Latin America and the Caribbean. To learn more about Raincoat, hear from Co-founder and CEO Jonathan Gonzalez on InsTech podcast episode 183.
Cyclones trigger pay-outs under UN programme in Vanuatu
Vanuatu • Cyclone • Agriculture
The United Nations Capital Development Fund (UNCDF) operates a parametric microinsurance scheme in the Pacific in partnership with local insurers, reinsurer SCOR and with premium subsidy support from broker Howden. Cyclones Judy and Kevin in March 2023 triggered pay-outs to 84 people totalling $23,682 USD. The UNCDF’s blog post features perspectives from three people who received a pay-out.
Descartes: insuring intensifying cyclones in the Asia-Pacific
APAC • Cyclone
Insurer and MGA Descartes Underwriting has written about how rising temperatures are expected to cause cyclone risk to intensify in the Asia-Pacific region in the near future, leaving organisations increasingly exposed. Descartes’ article explains how it provided parametric cyclone coverage to a hospitality company in Fiji that had suffered losses from Cyclone Winston in 2016.
Blink Parametric partnership brings flight delay cover to Italy
Italy • Travel
Blink Parametric, which provides parametric travel disruption solutions, has partnered with CPP Italy and Europ Assistance Italy. This enables Europ Assistance Italy’s customers to be covered by parametric flight disruption insurance. When a cancellation or delay occurs, customers are automatically reimbursed with a pay-out or lounge pass.
Arbol: protecting business revenues from snow volatility
US • Snow
Arbol’s latest blog posts explain how its excess snow and low snow parametric insurance products can protect businesses against revenue volatility or unexpected costs. Climate change is changing snowfall patterns, so organisations may face unexpected snow removal costs or snowstorm damages.
ChAI partnership for commodity price risk insurance
Commodity prices • Supply chain
ChAI, an MGA that is building insurance products to help companies manage commodity price risks, has partnered with Fastmarkets, which provides pricing data for commodities. Cardboard will be one of the first commodities that ChAI will offer price insurance for using Fastmarkets’ data. Packaging materials such as cardboard are a major cost for manufacturing companies but there have been limited ways to manage price risks for packaging in the past.
HWind: reducing basis risk when selecting hurricane triggers
North America • Hurricane
Moody’s RMS has published a white paper on its HWind product, which provides wind speed footprints of hurricane events using more than 30 data sources. HWind’s data is used by insurers including Swiss Re Corporate Solutions and AXA Climate to trigger parametric policies based on the modelled wind speed at the policyholder’s location.
WTW works with WWF on insurance for Pacific fishers
Pacific • Climate • Agriculture
Broker WTW is designing a parametric insurance product to cover coastal fishers in Fiji and Papua New Guinea against climate risks. It is collaborating with WWF, an NGO. The organisations have surveyed fishing communities and found that various climate risks, such as floods, droughts and cyclones, threaten their food security and livelihoods.
Howden to subsidise coverage for 800,000 farmers in Rwanda
Rwanda • Weather • Agriculture
Broker Howden has partnered with Global Parametrics and social enterprise One Acre Fund to expand a parametric weather insurance programme for smallholder farmers in East Africa. The programme, backed by capacity from Global Parametrics’ Natural Disaster Fund and Hannover Re, currently insures 175,000 farmers in Tanzania and Malawi. Howden has provided premium subsidy support to expand the scheme to Rwanda and cover a further 800,000 people.
Parametrics part of World Bank’s new natural disaster toolkit
Climate • Catastrophe bonds
At the Summit for a New Global Financial Pact in Paris, focused on climate and development financing, the World Bank announced an “expanded toolkit for crisis preparedness, response and recovery”. The toolkit includes a new parametric insurance product the World Bank is working on with public-private partnership the Insurance Development Forum; building on its work providing catastrophe bonds to vulnerable countries, some of which have been parametric; and the option for countries to embed catastrophe coverage within lending products.
Vortex launches hurricane coverage online with Speedwell data
US • Hurricane
Vortex Insurance Agency, a subsidiary of MSI GuaranteedWeather (owned by insurer Mitsui Sumitomo), has launched a parametric hurricane insurance product for businesses in the US. The policy is triggered by Category 3 or above hurricanes passing within a radius around the policyholder’s location, as determined by calculation agent Speedwell Settlement Services. Companies can purchase the product through Vortex’s online portal, which it launched in 2022.
Start-up Sola launches tornado policy for homeowners
US • Tornado
MGA Sola, founded in 2020, has launched a parametric tornado insurance policy for homeowners in the US. The policy pays out based on tornado intensity at the home location, as measured by the Enhanced Fujita (EF) scale. The US National Weather Service publishes EF ratings within a few days of a tornado. Sola’s policy is currently available in 10 states with limits of up to $15,000 USD.
Fiji to spend $1.1m on parametric catastrophe cover
Fiji • Cyclone • Weather
The Government of Fiji is committing $2.5 million FJD ($1.12 million USD) to spend on parametric insurance in its 2023-24 fiscal year, which begins on 1 August. It is considering tropical cyclone and excess rainfall coverage from the Pacific Catastrophe Risk Insurance Company (PCRIC), a regional parametric risk pool.
US earthquake cat bond provides $175m of parametric cover
US • Captive • Catastrophe bond
Hannover Re has arranged $150 million USD of parametric coverage against North American earthquakes through a catastrophe bond. The bond protects the captive insurer of US healthcare group Kaiser Permanente alongside other companies reinsured by Hannover Re. It covers earthquakes in California, other US states and parts of Canada, Mexico and the Pacific.
Find out what you’ve missed…
Issue 51 – Parametric risk transfer enabling loss prevention
Issue 50 – Parametric insurance for carbon offset projects
Issue 49 – Investors continue to back the parametric market
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