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The InsTech perspective… parametric insurance for infectious disease outbreaks
Infectious disease outbreaks, like natural catastrophes, occur unexpectedly and require immediate financial response. Governments have to fund new infrastructure for testing and treatment, while communities and businesses need extra support to survive. One of the key benefits of parametric insurance is the speed of pay-out. A claim payment can be made almost immediately after the predefined triggers are met. Where low-income countries do not have the funding to contain outbreaks when they occur, parametric insurance may be able to meet that need.
Using parametric triggers to cover infectious disease risks has been controversial. In 2017, the World Bank designed a parametric catastrophe bond to fund low-income countries’ responses to pandemics. The bond relied on a number of triggers involving reported cases, deaths and growth in cases across multiple countries. It was criticised for not paying out quickly enough at the start of the COVID-19 pandemic; around half of the world’s population was already in some form of lockdown when the bond started to pay out in May 2020.
Another challenge is that pandemic is a systemic risk; it is so large in scale and global in effect that insurance is usually not suitable to cover it. Whilst it is hard to insure against the consequences of already widespread pandemics, it can be possible to use insurance to cover smaller-scale outbreaks, which are not systemic risks. If insurance pays out quickly, the funds could be used to contain a new outbreak before it becomes an epidemic or pandemic.
In this week’s Parametric Post, the African Risk Capacity (ARC) announces that Senegal is now covered against infectious disease outbreaks with a parametric policy. ARC already provides African countries with parametric disaster insurance, including drought and cyclone protection, and is planning a flood insurance product. It is unclear exactly how ARC’s new policy is structured, but ARC says that it is designed to provide funding for countries to contain ‘disease outbreaks of epidemic potential’, which suggests that it is intended to trigger at a much earlier stage than the World Bank’s catastrophe bond. This should help not only fund the response to an outbreak, but also prevent it from developing into a wider epidemic or pandemic.
Jamie Webb and James Gadbury from independent Lloyd’s broker Costero Brokers discuss their involvement in parametric insurance, crypto insurance and other lines of business in our recent interview. Costero Brokers places parametric insurance solutions and has also worked with parametric MGAs to source capacity.
It has been a challenging market for this year's 1 January 2023 reinsurance renewals, particularly for natural catastrophe risks. Have more insurers chosen reinsurance with parametric structures as a result? Vote in our LinkedIn poll and see what others think.
In the news...
Parametric insurance MGA Descartes Underwriting has launched a full-stack insurer, Descartes Insurance, domiciled in France. It is licensed to issue policies to medium-sized businesses in France, and plans to expand to other countries in the European Economic Area during 2023. Descartes Insurance will offer parametric and other insurance products for climate and emerging risks. Descartes will continue to operate as an MGA for corporates and its existing portfolio.
North America • Travel
Between 23 and 27 December, more than 11,000 flights across North America were cancelled and more than 30,000 delayed, caused by adverse weather conditions. Blink Parametric, which provides white-label parametric solutions for travel insurers, says it covered more than 60,000 Canadian and US travellers during this period. Those who were disrupted received automatic benefits, such as lounge passes or claims payments.
UK • Latin America • InsTech podcast
New York headquartered Arbol, which provides parametric climate and weather risk management solutions for businesses, has expanded its team to grow its presence in the London Market and Latin America. Former Global Parametrics CEO Hector Ibarra has joined Arbol to lead the company’s growth in Latin America. Arbol’s Founder and CEO Sid Jha spoke about the company’s growth on InsTech podcast episode 208.
US • Temperature • Supply chain
Cargo insurance MGA and insurer Parsyl has announced a strategic partnership with Lineage Logistics, a logistics solutions provider for temperature-controlled supply chains. The partnership will allow Lineage’s customers to access insurance from Parsyl. As an elective option on its cargo insurance policies, Parsyl offers a temperature-related parametric product. If Parsyl’s sensors indicate that cargo temperature has exceeded a predefined threshold, a claim is triggered.
Cerchia, which provides a parametric risk transfer marketplace between capital market investors and buyers of coverage without intermediaries, has raised 1.3 million CHF ($1.42 million USD) in seed funding. The round was led by High-Tech Gründerfonds. Cerchia says the investment will be used to grow its team and invest in technology. Cerchia plans to launch its first product in spring 2023.
Earthquake • Sensors
Safehub, which provides compact earthquake sensors, has published a white paper about estimating earthquake damage. While US Geological Survey ShakeMaps provide quick snapshots of the regional impacts of earthquakes, Safehub says they are less suited to measuring ground shaking at specific building sites. Safehub’s building-specific sensors are an alternative to ShakeMaps for estimating a building’s damage or providing a trigger for parametric earthquake insurance.
US • Cyber • Business interruption
Parametrix, an MGA protecting businesses against losses caused by IT downtime, is expanding its operations in the US with increased reinsurance capacity. Its new capacity structure was brokered by Howden and includes Hannover Re, Tokio Marine Kiln, RenaissanceRe and Apollo. Parametrix says the increased capacity will allow it to offer higher coverage limits to businesses in the US.
Africa • Drought • Agriculture
Kenya-based reinsurer ZEP-RE will use Planet’s satellite data to expand its parametric drought insurance programme for livestock farmers. The programme aims to cover over 250,000 farmers in the Horn of Africa, a peninsula on Africa’s east coast spanning several countries. Satellite data provider Planet will provide ZEP-RE with what it calls Normalised Difference Vegetation Index data. This data measures vegetation health and will trigger pay-outs under the parametric policies.
Senegal • Epidemic
The insurance policy from ARC covers Senegal against outbreaks of Ebola, Marburg and meningitis. The Swiss Agency for Development and Cooperation subsidised the insurance premium. The reinsurance for the policy was led by Munich Re, with Hiscox Re, Swiss Re and Hannover Re also participating, and placed by Aon.
US • Agriculture • Supply chain
Biotechnology start-up Aanika Biosciences has created a parametric food recall and contamination insurance policy for crop producer Satur Farms. The product uses Aanika Biosciences’ biotechnology to trace food produced by Satur Farms, so that food recall and contamination losses can be reduced. Satur Farms conducted a voluntary product recall in 2019, but its distributors could not trace its products, which left the producer more exposed to legal costs and reputational damage.
US • Weather • Travel
Sensible Weather, an MGA selling parametric weather insurance for travel and events, has announced a strategic investment from EP Golf Ventures and Elysian Park Ventures. The partnership will allow Sensible’s Weather Guarantee product to be offered to members of the Professional Golfers' Association of America. The Weather Guarantee covers golfers against rain and other disruptive weather conditions.
Indonesia • Agriculture • Weather
AXA Climate has announced a parametric product protecting smallholder maize and rice farmers in Indonesia against excess rainfall and drought. The project is funded by the InsuResilience Solutions Fund and led by Mandiri AXA General Insurance, a subsidiary of AXA Indonesia.
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