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The InsTech perspective… a growing business model for parametric insurance tech companies
A growing business model among parametric insurance start-ups is a combined technology and product structuring offering. Rather than selling insurance themselves as MGAs, these companies help insurers offer parametric coverage by providing software and product expertise. Most are not confined to one type of peril or deal size but can work across nearly all areas of parametric coverage.
The technology offered may include data analytics, underwriting platforms, policy administration systems and pay-out calculation, while the companies are also involved in designing parametric products for insurers or connecting insurers with distribution partners. The software and product expertise are complementary offerings used by insurers to underwrite and manage parametric products.
Plover Parametrics, founded in 2022, is one example of this kind of company. Plover Parametrics was part of accelerator Y Combinator’s Winter 2022 start-up programme and has raised $5.3 million USD in pre-seed and seed funding. Some companies also operate as MGAs where needed, like Skyline Partners, which has now announced $1.75 million USD in new funding. Others, such as Raincoat, founded in 2019, start out as MGAs to prove their concept but intend to operate as technology and product structuring companies in the long term.
If you want to learn more about these and other companies using this business model, you can now sign up for a discount for our upcoming report to be released on 14 June. The report will be free to InsTech members, who can create a login to access the report. The report will provide a market overview and profile more than 150 companies in parametric insurance, more than ten of which are start-ups using this business model.
Ahead of the publication of our next report into parametric insurance, we spoke to Capital Law’s Rachel Hillier, Swiss Re’s Martin Hotz, Lockton’s Diego Monsalve and Mastercard’s Ruth Polyblank. We asked them how the parametric insurance landscape has changed since 2020 and what they expect from the parametric market in the next three years. You can read their perspectives in the article.
On 14 June at 2pm UK time, InsTech will host a live digital event to discuss the findings of our report, “Parametric Insurance in 2022: the 150+ companies to watch” with industry experts. You can register for the event now.
In the news...
UK • InsTech podcast
Skyline Partners, founded in 2017, has raised $1.75 million USD in funding from corporate finance and venture capital firm West Hill Capital. Skyline acts as a parametric insurance structuring and calculation agent as well as providing technology and being a regulated MGA. The funding will support Skyline’s work to develop new parametric products. To learn more about Skyline, listen to or read our interview with Co-founder Gethin Jones on InsTech podcast episode 146.
France • US • Temperature • Agriculture
Skyline Partners’ Co-founder Laurent Sabatié has announced that 75,000 cows are currently covered by Heat Stress Protect, a parametric insurance product protecting dairy farms in France against loss of revenue due to excess heat. The product, which is expected to be launched in the US later this year, is embedded within agriculture technology provider ITK’s herd monitoring system. SCOR is providing insurance capacity.
Caribbean • Hurricane
Yokahu, which launched its parametric hurricane insurance product for individuals in the Caribbean in November 2021, has announced four broker partnerships to support the distribution of the product. BCMG Insurance Brokers Limited will sell Yokahu’s product in Jamaica; Colina General Insurance Agents and Brokers in The Bahamas; W J M Holdings Inc in Saint Lucia; and Caribbean Risk Group LLC in the US Virgin Islands. Chaucer is providing insurance capacity for Yokahu and McKenzie Intelligence Services is the calculation agent. It is offering coverage limits of up to $10,000 USD.
Philippines • Typhoon • Catastrophe bond
The Philippines government will receive no further pay-out for 2021’s Typhoon Rai from its parametric catastrophe bond after the bond’s calculation process was completed. The catastrophe bond provides $150 million USD of protection against earthquakes and tropical cyclones. It uses modelled loss triggers from wind speed and rainfall data, calculated by Verisk AIR Worldwide. It was announced in January 2022 that the bond would pay out at least $52.5 million after wind speed calculations for Typhoon Rai were made. The rainfall calculations for the typhoon have finally been completed and no further pay-out was triggered.
Mexico • Earthquake
In this case study, Swiss Re Corporate Solutions describes how it structured a parametric earthquake insurance policy to cover cultural sites in Mexico, such as the Pyramids of the Sun and Moon and the Metropolitan Cathedral in Mexico City. The government of Mexico has $15 million of parametric coverage from Swiss Re, covering 2,000 assets in 200 locations around the country. The policies pay out based on shake intensity at pre-agreed locations.
Climate • Flood • Humanitarian aid
Global Parametrics has announced its 2021 annual impact figures. 7.2 million beneficiaries across 52 countries were covered by its risk transfer programmes in 2021, 6.4 million of which are classified as poor and vulnerable. Global Parametrics structures parametric risk transfer products and manages the Natural Disaster Fund, which provides insurance capacity for parametric products. Many programmes Global Parametrics is involved in do not insure individuals directly, but insure organisations such as community groups or aid agencies that pass on the benefits of any pay-out to individuals (the ‘beneficiaries’).
The Securities and Exchange Commission of Pakistan (SECP) will introduce the concept of parametric insurance to insurance legislation in a bill amending the country’s Insurance Ordinance 2000. The bill includes other changes to insurance legislation to support microinsurance and the use of technology such as blockchain for insurance.
Temperature • Agriculture
A recent academic paper examines how to reduce basis risk in heat index insurance for the agriculture sector. The correlation between temperature and crop yield is not always linear, which can result in heat index insurance paying out more or less than the loss incurred by farmers. The study uses data on wheat and rapeseed farming in eastern Germany to design a parametric policy. It concludes that using what is called a ‘restricted cubic spline regression’, rather than a linear pay-out function, can minimise basis risk in this example.
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