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The InsTech perspective… parametric opportunities in Latin America
Many areas of Latin America are highly exposed to natural perils such as hurricanes, earthquakes, drought and wildfire. Yet the region is underinsured. Súper’s co-founder and president Dario Luna told us, “There are millions of people in Mexico that want to buy insurance but do not get the chance to do it.”
Insurance penetration (insurance premiums as a share of gross domestic product), which is used as a measure of the development of a country’s insurance sector, is low across Latin America. Well-structured parametric products present a new opportunity for Latin America’s people and businesses to get better insured.
This week’s issue features earthquake, hurricane and landslide protection in Mexico, Puerto Rico and Colombia respectively, whilst more parametric initiatives are in pilot or in practice elsewhere in the region. For more on insurance innovation in Latin America, watch out for our online event on the topic in November.
Mexico • Earthquake • Health • InsTech interview
“For our clients, it does not matter if you call it parametric; they will focus on the features.” Dario Luna, co-founder and president of Súper, discusses digitising insurance products and the Mexican insurance market. Súper’s parametric earthquake insurance was triggered by a 7.0 earthquake on 7 September. The MGA, backed by Seguros Atlas, General de Seguros and Munich Re, also offers life and health products.
Insurance Business Applications is looking for partners working in parametric insurance, Chief Commercial Officer Karina Buch tells Robin on podcast episode 156. Its policy administration platform IBSuite can call in external data used for a parametric trigger via APIs.
In the news…
Puerto Rico • Hurricane
The Puerto Rico Children and Youth Rights Network has announced it will identify 500 low-income families exposed to hurricanes and offer them parametric protection from insurtech Raincoat for free. Nonprofit Mentes Puertorriqueñas en Acción, which translates as Puerto Rican Minds in Action, is backing the initiative. Raincoat offers parametric policies with limits of up to $1,000, underwritten by Óptima Seguros and Munich Re. Pay-outs are made within 15 days of a hurricane.
Colombia • Landslide • Weather
Global Parametrics and bank KfW have announced a parametric risk transfer product for landslide risk in the city of Manizales, Colombia. The product is funded by a €3 million grant from the German Federal Ministry for Economic Cooperation and Development and has capacity from Global Parametrics’ Natural Disaster Fund. The trigger index will be structured using historic rainfall data and data from local weather stations, in partnership with risk modellers ERN and Ingeniar Risk Intelligence.
If successful, the product will be scaled to other geographies. Omar Cardona, CEO of Ingeniar, described Manizales as “an ideal natural laboratory” due to the landslide and rainfall data available. The solution aims to cover over 260,000 residents in the city. ERN’s President of the Board Mario Ordaz says the product “will improve the disaster financing planning at a city level, allowing coverage for a recurrent peril”. Mario gave his insights on catastrophe modelling at our digital event in March 2021, “Earthquake Risk: a Global Challenge”, which is available to watch on demand.
Emerging technology and new data sources have enabled wider applications of parametric insurance. Charles Blanchet, Vice President of Solutions at ICEYE, explains that parametric solutions for flood have been limited by “the lack of reliable, consistent and verifiable methods to measure and report flood depth globally”. ICEYE provides insurers with high-resolution, building-level flood depth data immediately after an event, which can be used to power parametric policies. Watch out for our upcoming digital event with ICEYE on 21 October and an in-person event on 8 November. To find out more about the company listen to our interview with Charles on podcast episode 128.
Nigeria • Agriculture • Weather
Reinsurer Africa Re has partnered with the International Finance Corporation (IFC), part of the World Bank Group, to develop the index insurance market for smallholder farmers in Nigeria. Africa Re and the IFC’s Global Index Insurance Facility will work with local insurers to create parametric products to protect against climate-related risks such as drought and flood.
US • Flood
New York City is increasingly exposed to flooding, but those living in the city’s floodplains tend to be less resilient to economic hits. The Wharton Risk Center has received a grant from the US National Science Foundation (NSF), in partnership with the Department of Energy and the Department of Homeland Security, for its inclusive insurance project for low and middle-income households in the city. The project involves the Center for New York City Neighborhoods purchasing a parametric policy that could be used to provide emergency cash grants to households after a flood. Research will be undertaken on other parametric flood policies for community development finance institutions. The project is in partnership with Global Parametrics and Guy Carpenter.
Climate • Alternative capital
“In a world of growing and converging risks, developing countries and their communities are often the worst affected and the least able to rebuild and recover,” said the United Nations Development Programme’s Achim Steiner as it launched the Insurance and Risk Finance Facility (IRFF). The IRFF aims to co-create insurance and risk finance solutions across 50 developing countries by 2025, in line with the InsuResilience Global Partnership’s target of protecting 500 million poor and vulnerable people announced at the UN Climate Summit in 2019.
The IRFF’s initiatives are expected to include parametric programmes covering climate-related risks. UN Development Programme Senior Advisor Daniel Stander said work was already underway in Algeria, Argentina, Bangladesh, Colombia, Ghana, Jordan, Nigeria, Pakistan, Panama, Uzbekistan and Vietnam. The IRFF is backed by €35 million of funding from the German government. Insurance industry partners include Allianz, Aon, AXA, AXIS, Guy Carpenter, Hannover Re, Munich Re, SCOR, Swiss Re and Willis Towers Watson. Insurance-linked securities investors are expected to provide capital.
In the first of a series of interviews on parametric insurance from Insure TV, FloodFlash’s Ola Jacob uses an example involving ships in Ancient Rome to explain the concept of parametric insurance. While you’re there, catch InsTech London’s Matthew Grant talking about insurtech and parametric on Insure TV.
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