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The InsTech perspective… parametric policies for humanitarian organisations
Pay-outs from parametric policies are typically used to cover a loss suffered by the insured after a trigger event like a natural catastrophe. Now in some cases, parametric coverage is being purchased by organisations that suffer no direct loss from the insured event. In July 2019, a network of over 50 humanitarian agencies purchased coverage against drought in Senegal from multi-country risk pool the African Risk Capacity. A pay-out of $10.6 million was triggered in November that year. The aid organisations used the funds to mitigate the economic impact by sending enriched flour and making cash transfers to affected communities.
In this week’s issue, the network of humanitarian agencies has renewed its policy in Senegal and indicates it will take out a policy in Zimbabwe supported by the United Nations World Food Programme. Meanwhile, the World Food Programme is working with the Caribbean Catastrophe Risk Insurance Facility (CCRIF SPC), another multi-country risk pool, to create similar solutions in the Caribbean and Latin America. Global Parametrics’ new product for microfinance institutions, featured in Issue 10, also does not indemnify against loss but provides emergency financing to support communities after a disaster.
Parametric insurance innovation often starts with a pilot programme, or a single organisation showing how a new type of policy works in practice. If it succeeds, the principle is applied more widely. For example, CCRIF’s formation in 2007 led to multi-country risk pools being set up in Africa in 2012, the Pacific in 2016 and Southeast Asia in 2018. The 2019 pay-out to humanitarian agencies in Senegal looks to be the precursor to parametric policies becoming available to more non-governmental organisations.
In the news…
France • Agriculture • Weather
Skyline Partners’ Gethin Jones told us that the company had structured a heat stress parametric product for the dairy industry on podcast episode 146. SCOR has been announced as the reinsurer backing the product, created in partnership with agriculture technology company ITK. The product has been launched in France, to protect 50,000 cows initially.
Mozambique • Cyclone
Most economic activity in Mozambique takes place in its densely populated coastal areas, which are periodically hit by cyclones. Parametric data provider CelsiusPro and consultancy Royal HaskoningDHV have created a catastrophe risk model and parametric index for cyclones in Mozambique. The World Bank commissioned the companies in 2020 to create the risk model, which will be used by the government of Mozambique to develop insurance capacity and quantify the financial impact of disasters. We spoke to CelsiusPro’s CEO Mark Rüegg recently for an interview to be published next month.
US • Business interruption • ESG
QOMPLX’s Q:INSURANCE underwriting decision platform is expanding to parametric insurance in the US market. MGA InQlusiv will use the automated underwriting platform to sell parametric digital business interruption policies when it launches later this year. InQlusiv received investment from (re)insurer MS Amlin in August and will target its policies towards businesses owned by women, LGBTQ people and people of ethnic minorities.
US • Commodity prices
Stable has raised $46.5 million in a Series A funding round led by Greycroft. Stable’s platform provides parametric protection against volatility in the price of commodities to its clients using more than 5,000 commodity indexes from 70 countries. Anthemis, which led Stable’s $3.5 million seed round in 2020, also participated in the funding round.
US • Earthquake • Flood
MGA Jumpstart, which provides parametric earthquake insurance to households and businesses in California, Washington and Oregon, has been acquired by Neptune Flood Insurance. Neptune offers indemnity-based flood insurance for items not covered by the US National Flood Insurance Program (NFIP). Its CEO Trevor Burgess has said Neptune will use the Jumpstart brand for parametric insurance, while Jumpstart founder Kate Stillwell described flood risk as “the next logical peril for consumer parametric”. Hear InsTech London’s Matthew Grant interview Kate on podcast episode 104 last year.
Agriculture • Weather
MS Amlin AG, the reinsurance arm of MS Amlin, will enter the agriculture reinsurance market after hiring Rinat Bektleuov as Product Group Lead Underwriter. Weather index insurance is one of the core products of the new offering.
In the last decade, less than 20% of earthquake losses were covered by insurance. MGA Descartes Underwriting is hosting an event on 20 October with brokers at Marsh and EPIC to discuss how parametric insurance can be applied to earthquakes.
Senegal • Zimbabwe • Drought
Start Network has taken out a parametric insurance policy with the African Risk Capacity (ARC) against drought in Senegal, at a cost of $1.5 million. Start Network is a network of more than 50 humanitarian agencies including Catholic Relief Services, Save the Children, Action Against Hunger, Plan, Oxfam and World Vision. The policy is part of the ARC Replica project, in partnership with the government of Senegal and the United Nations World Food Programme and financially supported by German development bank KfW. A similar policy for 2019/20 paid out $10.6 million to Start Network, the first time a sovereign risk pool had paid out to a non-governmental organisation. Start Network says it will purchase a similar policy for Zimbabwe later this year.
Caribbean • Central America • InsTech insight
The United Nations World Food Programme has announced its intention to augment its disaster risk financing in the Caribbean and Latin America by being the first non-governmental organisation to take out coverage from the Caribbean Catastrophe Risk Insurance Facility (CCRIF SPC). Read our recent article explaining how CCRIF’s parametric risk pooling is supporting disaster resilience in the region.
Pakistan • Agriculture • Weather
Area yield index insurance protects farmers against reduced yield by measuring a geographical area’s average yield for a season against previous seasons. Pay-outs are triggered if the reduction in yield exceeds a threshold. Pakistan’s provincial Punjab government had previously run an area yield index insurance pilot which covered 280,000 farmers in 2019. Now Habib Bank Limited, the Bank of Punjab and TPL Insurance have agreed to pilot an area yield index insurance policy for wheat and rice crops in Punjab, working with agtech Pula and reinsurer SCOR. The product will be bundled with crop production loans offered by Habib Bank Limited and the Bank of Punjab.
Kenya • Agriculture • Weather
The Kenya Agriculture Insurance Programme has offered an area yield index insurance product since 2016, with up to 50% of premiums subsidised by the government. The policy is supported by agtech Pula, seven African insurers including APA Insurance and reinsurers Swiss Re, Africa Re, SCOR, Continental Re and Hannover Re. Discover the lessons learnt from the project in this case study from the MicroInsurance Centre at Milliman, including how to build capacity, finding the right delivery partners and building awareness of farmers.
APAC • Energy
Descartes Underwriting’s Robert Drysdale and Ben Qin explain how climate-driven natural catastrophes threaten renewable energy infrastructure in the Asia-Pacific region, and how parametric insurance can protect against losses caused by physical damage, yield volatility or construction delays.
Earthquake • Active assailant
Global Parametrics’ Dr Alin Radu and Skyline Partners’ Laurent Sabatié and Davide de Santis discuss data sources, basis risk and intangible assets in an article to showcase the work of general insurance pricing actuaries. The article explains structuring approaches with examples from Global Parametrics’ earthquake policies and Skyline Partners’ active assailant product.
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