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PP46 - Featured

Parametric solutions for corporate earthquake risk – The Parametric Post Issue 46


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

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The InsTech perspective… parametric solutions for corporate earthquake risk

The 21st century has seen some of the costliest earthquakes of all time. Between 2000 and 2022, 123 earthquakes cost insurers more than $1 billion USD, with total economic losses exceeding $1 trillion USD, according to Aon. No natural disaster has caused more economic loss than the 2011 Tōhoku earthquake and tsunami in Japan, at $210 billion USD. The World Bank estimates physical damage from the recent 2023 Turkey-Syria earthquake at nearly $40 billion USD.

Although improvements in seismic building codes mean that buildings in highly exposed areas are more resilient to earthquakes than in the past, the strongest earthquakes can still inflict severe damage. Commercial buildings that experience significant shaking during earthquakes, even if they do not suffer structural damage, can face costly losses from damaged equipment, machinery, lighting, furniture, suspended ceilings and other internal non-structural elements or objects.

InsTech’s new report, “Corporate earthquake risk: the potential for building-specific risk transfer”, released in partnership with Safehub, examines how sensors can be used in parametric earthquake insurance. Safehub has developed proprietary, compact sensors for commercial buildings which are already used by FedEx, Pfizer and others for risk management and business continuity, and can be used in parametric insurance policies. You can download the report here.

OTT Risk: business interruption for the sharing economy

Business interruption • InsTech podcast

On podcast 237, Quentin Saleur and Matthew James discuss how small businesses and gig workers could be affected by future non-damage business interruption (NDBI) events, the extension of parametric insurance to cover non-physical losses and OTT Risk’s experience in the Lloyd’s Lab.

The Demex Group: covering the weather protection gap

Weather • InsTech article

An article summarising InsTech’s recent podcast discussion with The Demex Group’s Bill Clark and Matt Coleman has been released. This article includes how Demex offers coverage for non-catastrophic weather losses, the history of the weather protection gap and a case study of weather reinsurance for a US insurer.

In the news…

Blink Parametric expands into the US

US • Travel

Blink Parametric has announced an expansion of its partnership with AwayCare, an MGA providing travel insurance products. AwayCare provides its flight delay service to US-based travel insurance provider, Travel Insured International (TII). TII will now make the flight disruption product, managed by Blink Parametric, available within select insurance plans in the US. To learn more about Blink Parametric, you can read our recent interview with Chief Commercial Officer Carl Carter.

Descartes unveils drought case study

Australia • Agriculture • Drought

Insurer and MGA Descartes Underwriting has produced a report detailing how parametric principles can be applied to provide coverage to agricultural businesses for drought. Using a case study from April 2019, Descartes details how its parametric drought policy provided coverage for $3.5 million AUD in damages to an Australian cane grower.

Ensuro launches product for Kenyan farmers

Kenya • Agriculture • Weather

The parametric product provides coverage in the absence of rainfall during the seeding period and uses blockchain to automate the policy trigger and pay-outs. Created in collaboration with IBISA, which provides software to operate parametric microinsurance solutions for smallholder farmers, and microfinance institution Fortune Credit.

Lemonade Crypto Climate Coalition pays out first season of claims

Kenya • Agriculture • Weather

The Lemonade Crypto Climate Coalition has successfully paid out all eligible claims during its pilot for the short rains season from October 2022 to January 2023. Nearly 7,000 Kenyan farmers signed up for protection. At the end of this season, claims were triggered based on area yield data and cash transfers were sent directly to farmers. More information on the launch of the Lemonade Crypto Climate Coalition and its members can be found in Issue 22 of the Parametric Post.

An update to CCRIF’s parametric earthquake policies

Caribbean • Central America • Earthquake

Catastrophe modeller ERN, owned by Aon, has published an article explaining how it has recently updated the models used for the Caribbean Catastrophe Risk Insurance Facility’s (CCRIF) parametric earthquake insurance policies. CCRIF is a multi-country risk pool offering parametric catastrophe insurance to countries in the Caribbean and Central America. CCRIF’s parametric earthquake policies pay out based on modelled losses, meaning that pay-outs are not triggered by a specific earthquake measurement such as magnitude, but by a model that takes into account various earthquake metrics and the vulnerability of different areas across a country to calculate a pay-out. ERN has updated both the hazard and vulnerability aspects of its model and developed a new post-event tool that estimates the modelled loss.

MGA Koala raises €2m for travel insurance

Europe • Travel

Upon closing its third seed round, the MGA received investment from three new investors, UNETI Ventures, Slimmer AI and Sterling Oak Group. Koala plans to invest in optimising pricing and expanding its product offerings. Koala will also partner with its new investor, Slimmer AI, to develop its AI capabilities. Receiving capacity from Ensuro, Koala already offers travel insurance products, including a parametric flight disruption policy.

Philippines government reported to abandon parametric

Philippines • Typhoon • Earthquake

Bloomberg is reporting that the Philippines government plans to purchase indemnity-based insurance to cover its natural disaster losses, instead of renewing a parametric catastrophe bond that protected it against typhoons and earthquakes. The catastrophe bond provided $225 million USD of protection and paid $52.5 million USD after Typhoon Rai in 2021. If the Philippines is replacing its parametric cover with indemnity insurance, the government may have been dissatisfied with how the catastrophe bond responded to previous events. The bond was not triggered by Typhoon Goni in 2020, which caused hundreds of millions in damage, and the pay-out from Typhoon Rai was confirmed more than a month after it made landfall. With parametric risk transfer, it is critically important to structure a policy that will pay out predictably and quickly to events that cause a major loss.

Igloo extends Vietnam weather index insurance to coffee farmers

Vietnam • Agriculture • Weather

Following its weather index insurance for rice farmers launched in November 2022, Igloo has expanded its offering to coffee farmers in Vietnam. The insurance for rice farmers covers over 6,000 hectares of rice fields in eight provinces. Pay-outs are triggered by rainfall data from the Vietnam Meteorological and Hydrological Administration. Vietnamese insurer PVI Insurance provides insurance capacity and SCOR is providing reinsurance capacity.

First catastrophe bond listed on Hong Kong stock exchange

Chile • Earthquake • Catastrophe bond

The World Bank’s International Bank for Reconstruction and Development (IBRD) parametric catastrophe bond, which covers $350 million USD worth of earthquake damage to Chile, has been listed on the Hong Kong Exchanges and Clearing Limited (HKEX). This is the first catastrophe bond to be listed on the HKEX and the fourth ILS transaction to use Hong Kong’s regulatory framework for insurance-linked securities.

White Rock issues $4.6m earthquake catastrophe bond

Japan • Earthquake • Catastrophe bond

White Rock Insurance, managed by Aon, has issued a sixth transaction in the Japanese Asagao private parametric earthquake catastrophe bond series. It is assumed that this is again being transferred on a parametric basis, which has been the case with the other Asagao catastrophe bond deals.

Find out what you’ve missed…

Issue 45 – Parametric opportunities in semiconductor supply chains

Issue 44 – Building momentum for parametric flood insurance

Issue 43 – Covering business interruption losses with parametric insurance


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