Parametric reinsurance for emerging climate risks – The Parametric Post Issue 55

The Parametric Post, the only newsletter dedicated to parametric insurance.

The InsTech perspective… parametric reinsurance for emerging climate risks

Insurance companies first purchased parametric reinsurance for their portfolios in the 1990s. The earliest parametric catastrophe bonds covered hurricane and earthquake risk for (re)insurers such as Swiss Re, Tokio Marine and Munich Re. Where demand for reinsurance coverage outstrips supply of traditional reinsurance capacity, parametric triggers have been used to help insurers transfer their risks. This principle has since extended beyond hurricanes and earthquakes to other perils where traditional capacity is limited.

Now parametric reinsurance products are being developed for risks where there is little or no existing supply of reinsurance. In this week’s issue, The Demex Group raises $5 million USD to bring its Retained Climate Risk Reinsurance product to market. The concept behind the product is that some climate risks such as severe thunderstorms are typically retained (not transferred to reinsurers) by insurers, but are becoming harder to manage as losses grow due to climate change. Demex’s parametric product is designed to help insurers transfer these risks.

Other risks which have historically been retained by insurers but could have a growing effect on their portfolios in years ahead include air quality and sea level rise. We are aware of companies designing parametric products for these perils today.

In the news…

Demex raises $5m to help insurers transfer weather risks

Weather • InsTech article

The Demex Group, an MGA specialised in non-catastrophic weather risks, has raised $5 million USD in a funding round led by Blue Bear Capital, bringing its total funds raised to $18.2 million, according to Dealroom. Demex will use the funds to bring its Retained Climate Risk Reinsurance (RCR Re) product to market. You can read about why a US insurer purchased RCR Re in a recent InsTech article with Demex’s Bill Clark and Matt Coleman.

Arbol case study: protection for farmers in Cambodia

Cambodia • Agriculture • Weather

Agribuddy, which provides products such as seeds and fertiliser to smallholder farmers on credit in Cambodia, partnered with parametric specialist Arbol in 2021. The partnership enables Agribuddy’s customers to be protected against reductions in crop yield after poor weather, which would affect their ability to pay for the seeds and fertilisers they have used. Arbol’s case study explains how parametric coverage helps farmers invest more in their crops by managing weather risk.

Aon: rethinking resiliency with event-based risk transfer

North America

Broker Aon is running a four-part educational video series about parametric solutions. The first webinar, taking place on 13 September, will provide an overview of parametric solutions and demonstrate how parametric can complement other forms of risk transfer, with success stories and emerging use cases.

Raincoat wins grant in climate resiliency competition

US • Latin America • Climate

Parametric insurance technology company Raincoat is one of the winners of the Climate Resiliency Challenge, run by insurer CSAA, broker Aon and design firm IDEO. Raincoat was one of the three ‘scaling stage’ companies to win a grant of up to $200,000 USD. Raincoat focuses on providing coverage for wildfires, floods and extreme weather to communities across the Americas. Look out for our upcoming podcast with Raincoat to learn more.

Reask launches hurricane landfall probability forecasts

North America • Hurricane

Reask, whose hurricane data and models are used for designing and triggering parametric policies, has launched hurricane landfall probability forecasts. These forecasts help insurers understand the likely impact of a hurricane days before landfall, which helps them manage their portfolio and communicate with policyholders. They could also be used to design parametric policies that pay out before a hurricane hits to cover policyholders’ evacuation costs.

BirdsEyeView partners with Everest on US weather coverage

US • Weather

EverSports & Entertainment Insurance, a brand of (re)insurer Everest, will use BirdsEyeView’s software to price parametric weather insurance in the US. EverSports & Entertainment Insurance specialises in insuring sports, leisure and entertainment companies. These companies suffer losses when severe weather disrupts events.

SEADRIF pays $1.5m to Lao PDR, parametric trigger not met

Lao PDR • Flood

The government of Lao PDR has received $1.5 million USD from multi-country risk pool SEADRIF. The pay-outs are in relation to an ongoing flood event in 10 of the country’s 17 provinces and flooding caused by a tropical cyclone in August 2022. Lao PDR has a semi-parametric flood policy with SEADRIF. Claims are triggered based on the estimated number of people living in areas with high flood depth, but the policy also has a ‘finite risk’ component to pay claims for flood relief, response and recovery where the parametric trigger was not met. These claims were both under the ‘finite risk’ component of the policy.

FloodFlash agrees capacity partnership with Hiscox

US • Flood

Parametric flood insurance MGA FloodFlash has announced a capacity partnership with Hiscox for its expansion in the US. The insurance capacity from Hiscox is in addition to FloodFlash’s existing capacity from Munich Re. After launching in 5 US states in 2022, FloodFlash’s policies are now available across the US.

Zurich weather pilot in Indonesia to expand after 200 pay-outs

Indonesia • Agriculture • Weather

Zurich Syariah, part of Zurich Insurance Group which provides Takaful (Shariah-compliant) insurance products in Indonesia, launched a weather index insurance pilot for coffee farmers in 2022 with technology company Blue Marble. Zurich has announced that the insurance product is now covering thousands of farmers, more than 200 of which received a pay-out after excess rainfall in late 2022. Zurich plans to scale the product to more areas of Indonesia and other crops.