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The InsTech perspective… parametric insurance for marine ecosystems
71% of the earth is covered by water, yet the health of the world’s oceans is under threat. As well as human activities such as pollution and overfishing, fortuitous events including tropical cyclones, harmful algae blooms and sea surface temperature anomalies damage marine ecosystems. These events contribute to biodiversity loss, reduce the amount of carbon dioxide that oceans absorb, thus worsening climate change, and harm industries such as fishing that depend on healthy oceans. Parametric insurance is becoming more widely used to protect marine ecosystems against these threats.
Because parametric pay-outs require no assessment of loss, there is no complex loss adjustment process. Fast payment of claims enables early intervention to restore ecosystems after a disaster, which can reduce overall losses. Parametric products can be structured based on indices such as wind speed, sea temperature and wave height.
In this week’s Parametric Post, marine conservation enterprise Blue finance partners with Howden and AXA Climate on parametric tropical cyclone insurance for marine protected areas in Belize and the Philippines. Stuart Martin, Disaster Risk Finance and Parametric Solutions Lead at Howden told InsTech, “The protection of marine resources is one of the UN’s Sustainable Development Goals, and parametric insurance can have an important role in making marine protected areas more resilient. This insurance solution is a great example of how parametrics can help vital ecosystems and local communities adapt to increased tropical cyclone activity, and hopefully prove a catalyst for developing similar initiatives in future.”
Coral reefs in Hawaii and several areas of the Mesoamerican Reef in the Caribbean Sea are already covered by similar parametric tropical cyclone policies, structured by WTW in partnership with local conservation organisations. In a recent InsTech interview, Cerchia explained that it is structuring parametric coverage for a mangrove reforestation project in Myanmar covering another catastrophic risk: tsunami.
Non-catastrophic risks can also cause economic damage to marine ecosystems. Arbol is among the companies offering coverage against sea temperature changes that reduce yields for aquaculture businesses. Parametric Post issue 42 described a new parametric policy Ping An has developed covering oceans in China against changes in the marine environment that diminish their ability to absorb carbon dioxide. The bespoke index is designed to trigger pay-outs whether the ocean is affected by sea temperature changes, algae blooms, cyclones or other events.
In recent weeks, a rapid rise in ocean temperatures has concerned scientists, with the global sea surface temperature hitting record highs. It is unknown whether any parametric pay-outs have been triggered. With more marine species at risk and oceans’ ability to absorb carbon dioxide reduced, events like this demonstrate the importance to the conservation of marine ecosystems of understanding, managing and transferring natural hazard risks.
Understanding disaster insurance
Climate • InsTech podcast
Carolyn Kousky, Associate Vice President for Economics and Policy, Environmental Defense Fund and author of ‘Understanding Disaster Insurance: New Tools for a More Resilient Future’, spoke to InsTech’s Ali Smedley and Henry Gale on podcast episode 243. The conversation covered effective parametric microinsurance products, community-based catastrophe insurance and how insurance can help create a nature-positive economy.
Corporate earthquake risk and building-specific risk transfer
Earthquake • InsTech report
As more corporates choose parametric insurance to cover their earthquake exposure, InsTech’s recent report, released in partnership with Safehub, looks at how parametric earthquake insurance works and how sensor technology can provide a building-specific trigger for parametric policies.
In the news…
Partnership insures marine protected areas against cyclones
Belize • Philippines • Tropical cyclone
Blue finance, an enterprise focused on supporting marine protected areas (MPAs), has partnered with broker Howden and MGA AXA Climate to insure MPA regions in Belize and the Philippines against tropical cyclones. Payouts are triggered by tropical cyclones passing within a 50-kilometre radius of the MPA and will be used to restore the ecosystem, repair equipment and cover losses. Howden is financing the first year of premiums to show its support for the programme.
Arbol partners with insurance industry consortium
Climate • Blockchain
Arbol, which provides parametric climate and weather risk management solutions, has announced a strategic partnership with The Institutes RiskStream Collaborative, an insurance industry consortium focused on blockchain technology. Arbol and RiskStream Collaborative will work together on developing new parametric solutions for the insurance industry.
Parametric flood insurance launched in Kenya
Kenya • Flood
Insurer Britam is piloting a new parametric flood insurance product for smallholder farmers in Tana River County, Kenya, with Swiss Re providing reinsurance. A combination of satellite imagery and river gauge data is being used to determine payouts. The programme has been developed in partnership with charity Oxfam, which is providing premium financing support, AB Consultants and actuarial firm Risk Shield.
Catastrophe coverage for overhead power lines
Philippines • Tropical cyclone
Severe weather and natural catastrophe events can cause physical damage to overhead power transmission and distribution (T&D) lines, as well as business interruption losses until power is restored. Descartes Underwriting, which can structure parametric policies to protect an entire network of T&D lines against natural peril risks, describes a parametric cyclone solution for a telecommunications company in the Philippines in its latest case study.
Hurricane coverage launched in Dominica and Grenada
Caribbean • Hurricane • Blockchain
A parametric hurricane insurance product for households, businesses and communities, first piloted in Dominica in 2021, has been launched across Dominica and Grenada. The Flexible Hurricane Protection product is offered by MGA Global Parametrics and insurer Corp-EFF in partnership with the Climate Resilience Execution Agency for Dominica, Diagon Consulting and start-up vlinder. Howden is providing premium financing support.
New York transport authority seeks $75m parametric cover
US • Hurricane • Catastrophe bond
The New York Metropolitan Transportation Authority (MTA), which has purchased parametric catastrophe bonds since 2013, is seeking $75 million USD of parametric storm surge coverage in a new catastrophe bond transaction. The MTA first purchased a parametric catastrophe bond after Hurricane Sandy caused billions in damage from storm surges in 2012. GC Securities is the structuring agent and CoreLogic is the calculation agent for the bond.
InsuResilience parametric insurance initiatives grow
Colombia • Kenya • Nicaragua
The InsuResilience Global Partnership, which supports inclusive insurance programmes worldwide, has published updates on projects in Colombia, Kenya and Nicaragua. As of December 2022, 30,000 poor and vulnerable people are covered by parametric weather and catastrophe insurance in Colombia. In Kenya, InsuResilience found that selling parametric drought insurance in ‘family’ units (where payouts depend on the number of people in the household) was a key factor in decreasing the protection gap among women. In Nicaragua, challenges in scaling indemnity-based insurance to remote areas have led InsuResilience to pilot a parametric product in 2023.
New satellite data solution for wildfire monitoring
US • Wildfire
ICEYE, which uses synthetic-aperture-radar satellites for catastrophe monitoring, has announced the beta release of its Wildfire Insights product. The tool provides building-level impact data for wildfires in near-real time. ICEYE’s existing flood data offering is used by Descartes Underwriting, Swiss Re and AXA Climate for parametric insurance.
Colombia law authorises parametric insurance
Colombia • Regulation
Colombia’s House of Representatives and Senate have passed a law that authorises insurers to offer parametric insurance products and defines parametric insurance in law. Many countries do not specifically mention parametric insurance in their legal framework for insurance, which can create regulatory challenges. This law is likely to support the growth of the parametric insurance market in Colombia. The law is pending approval by Colombia’s president.
Cyclones and droughts trigger African Risk Capacity payouts
Africa • Cyclone • Drought
The African Risk Capacity (ARC), a multi-country parametric risk pool, has paid $2.5 million USD and $4.6 million USD respectively to the governments of Togo and Niger after recent droughts. Following Cyclone Freddy’s impact on Madagascar, ARC has also paid $300,000 USD to the United Nations World Food Programme to fund emergency aid, in addition to the $1.2 million USD pay-out the Madagascar government received as detailed in Parametric Post issue 45.
Earthquake modeller plans to offer parametric coverage
Earthquake • Blockchain
Swiss-based earthquake modelling company Quantectum has revealed it is working on offering parametric earthquake insurance to individuals and businesses. Its policies will be smart contracts on a blockchain, using data from the US Geological Survey to trigger payouts. Quantectum plans to sell its insurance directly to consumers.
Find out what you’ve missed…
Issue 47 – Who cares about parametric insurance?
Issue 46 – Parametric solutions for corporate earthquake risk
Issue 45 – Parametric opportunities in semiconductor supply chains
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