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The InsTech perspective… parametric insurance enabling crucial financing
Currently, the insurance industry is experiencing a ‘hard market’, meaning premiums increase year on year while the capacity to cover most risks decreases. This presents a challenge for investment in new projects around the world, especially in locations prone to extreme weather or natural catastrophes. The traditional insurance products that are needed to safeguard investment may not be available, which has led to more projects choosing parametric insurance.
In this week’s issue, WTW announces that it has placed parametric coverage for a Sri Lankan seafood company, enabling the company to access $15 million USD in project financing. The funds will be used to rehabilitate abandoned shrimp farms and invest in new farms. The development bank that provided the investment said that the parametric structure “significantly reduces the credit risk associated with the project financing”, while “no traditional [insurance] products were available.”
Earlier this year, Swiss Re Corporate Solutions and Aon structured a five-year parametric earthquake solution for a hydropower construction project in Nepal. This insurance was needed to meet the requirements of the project’s sponsors and financiers so that the construction could continue. To reach global decarbonisation goals, projects such as these that remove, reduce or avoid carbon emissions need more financing. InsTech’s latest report, ‘Carbon offsetting: the insurance use case’, looks at how new insurance products, including parametric products, can support investment by providing coverage against relevant risks.
In this issue, Aon is revealed as the broker behind a parametric earthquake and hurricane cover purchased by the government of Puerto Rico. The territorial government bought the coverage because the US Federal Emergency Management Agency (FEMA) requires it to be covered by sufficient insurance to be eligible for financial assistance after a disaster.
The parametric market has shown it has an important role to play in helping projects and organisations meet insurance requirements where they are struggling to purchase traditional coverage. These examples also illustrate the willingness of the parametric market to structure products that meet specific requirements. While the majority of parametric deals cover a single peril for one year, all the above examples are either multi-peril or multi-year covers.
Otonomi: Supply chains, cargo delays and parametric insurance
Supply chain • InsTech podcast
While supply chains are under increasing pressure, many losses associated with cargo delays go uninsured. Yann Barbarroux, CEO and Co-founder of Otonomi, explains the insurance product the company has built to cover supply chain delays for third-party logistics companies and freight forwarders.
Carbon offsetting: the insurance use case
Carbon • InsTech report
Insurance has an important role to play in the carbon markets. InsTech’s new report investigates the risks faced by carbon offsetting projects and the new insurance products being developed to cover them, including the role of parametric coverage from companies including Arbol, Descartes Underwriting and Etherisc.
CFC: insuring the dangerous decade ahead
InsTech interview
Specialist MGA CFC has announced an ‘innovation facility’ that enables it to test new products on behalf of its insurance capacity partners. George Beattie, Head of Innovation at CFC, describes the company’s innovation strategy and interest in themes including parametric insurance and emerging risks.
In the news…
WTW structures four-peril parametric cover for shrimp farms
Sri Lanka • Agriculture • Climate
Broker WTW has created a parametric solution covering earthquake, typhoon, excess rainfall and heat stress risks for Sri Lankan shrimp farms. Taprobane Seafood Group purchased the cover in order to meet the insurance requirements to secure $15 million USD in project financing from Dutch entrepreneurial development bank FMO.
Aon places $32m Puerto Rico cover for FEMA requirements
US • Hurricane • Earthquake
Aon has been announced as the broker behind Puerto Rico’s $32 million USD of parametric hurricane and earthquake coverage that we first mentioned in Parametric Post Issue 51. The government of Puerto Rico bought this coverage to provide funds to respond quickly after a catastrophe and comply with US Federal Emergency Management Agency (FEMA) requirements. To be eligible for financial assistance from FEMA after a disaster, the agency requires that territorial governments and other public bodies are covered by sufficient insurance.
Arbol: how extreme heat conditions and flooding connect
Temperature • Flood
Arbol’s latest blog post explains the link between extreme heat and flooding and sets out how communities can build their resilience to flood risk. Arbol underwrites parametric climate and weather insurance including coverage for extreme heat and heavy rainfall.
Blink Parametric travel solution launched by Assurant Japan
Japan • Travel • InsTech interview
Insurer Assurant Japan has partnered with Blink Parametric to launch its parametric travel disruption solution in Japan. Assurant Japan’s customers will receive automatic reimbursement in the event of flight cancellations, delays or lost luggage. To learn more about Blink Parametric, you can read our recent interview with Chief Commercial Officer Carl Carter.
Mitiga: the multiple hazards of volcanic eruptions
Volcano • Catastrophe bond
Modelling company Mitiga Solutions explains the different hazards associated with volcanic eruptions, including lava flows, landslides, tsunamis and ash. These multiple hazards complicate the design of parametric policies protecting against volcanic eruption risks. Mitiga is the modelling and calculation agent for the first catastrophe bond covering solely volcanic eruption risk.
Cerchia and GeoInsight to create new indices for ILWs in Asia
Asia • Cyclone • Typhoon
Cerchia has partnered with GeoInsight, a geospatial data science company, to create new indices for industry loss warranties (ILWs). Cerchia is building a digital marketplace for parametric risk transfer. ILWs, which have been used by insurers for over 30 years, are parametric risk transfer products that use industry loss data as an index, commonly relating to US hurricanes or earthquakes. A payout is triggered if the industry loss from a catastrophe is greater than a certain threshold. Cerchia and GeoInsight will focus on creating indices for perils faced by emerging economies in Southeast Asia.
Reask: “200 million virtual anemometers”
Hurricane • Cyclone • Typhoon
Reask’s Head of Parametric Products David Schmid explains in a blog post how Reask’s Metryc product can calculate wind speed data at any location, as if it were a virtual network of anemometers across the earth’s surface. David Schmid compares parametric policies triggered by Reask’s wind speed data to traditional ‘cat in a box’ covers to illustrate how they would pay out differently.
Swiss Re: parametric insurance for the construction industry
Construction • Climate • Earthquake
Swiss Re Corporate Solutions has noticed an increase in the construction industry’s interest in parametric solutions. Parametric products can cover physical damage to construction sites, supply chain disruptions, cost overruns or other losses associated with extreme weather or natural catastrophes. Swiss Re’s article also gives case studies of construction projects in California and Nepal using parametric coverage.
Descartes: covering wind farms for drops in power generation
Energy • Weather
Offshore wind farms are exposed to ‘wind droughts’: when lack of wind results in lower power generation and revenue loss. MGA and insurer Descartes Underwriting has published a case study showing how it offers wind farms parametric coverage that uses power generation as an index. If power generation drops below a certain threshold, a pay-out is triggered.
Nayms and Guy Carpenter issue ILW using crypto collateral
US • Hurricane • Blockchain
Reinsurer Prospero Re has purchased an industry loss warranty (ILW) for US named windstorms, with the trigger being a $60 billion USD industry loss. The transaction involved broker Guy Carpenter and risk exchange platform Nayms. Instead of holding traditional currency as collateral, the ILW uses USDC, a stablecoin, as collateral, held in a blockchain-based smart contract. Stablecoins are cryptocurrencies with value tied to an external reference such as the US dollar.
AXA Climate pilots hybrid index insurance in Latin America
Latin America • Agriculture
AXA Climate has completed a pilot of a ‘hybrid’ index insurance scheme in Latin America. The scheme involves a combination of indemnity-based and index insurance by calibrating satellite information with observed losses on the ground. The pilot covered over 25,000 hectares of corn, cotton and soybean farms. AXA Climate worked with technology partner GreenTriangle, reinsurer Hannover Re and insurer Sancor Seguros on the pilot.
Stable launches Bermuda insurer, plans new price risk cover
Price risk • Energy
Stable, which provides parametric protection against price volatility, has established an insurer in Bermuda to expand the scope of its coverage. Stable currently underwrites derivatives covering volatility in the prices of agricultural commodities. It plans to expand to cover price risk for the energy, fertiliser and packaging sectors.
Find out what you’ve missed…
Issue 52 – Modelled hazard data for parametric triggers
Issue 51 – Parametric risk transfer enabling loss prevention
Issue 50 – Parametric insurance for carbon offset projects
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