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The InsTech perspective… parametric risk transfer through marketplaces and exchanges
In the latest InsTech report, we identify more than 30 technology companies that have developed many-to-many risk exchanges or marketplaces, where a community of insurance buyers can trade digitally with a community of insurance sellers.
Some of the more prominent marketplaces and exchanges advertise their capabilities for parametric transactions. AkinovA, founded in 2017, has publicised two parametric cyber risk transactions involving broker Guy Carpenter and insurer Hiscox. In 2021, AkinovA partnered with weather data provider Benchmark Labs to provide indices for weather-based parametric contracts.
Vesttoo, founded in 2018, a reinsurance marketplace for non-catastrophe insurance-linked risk transfer and investments, develops its own indices that it uses for parametric transactions. Those developed so far include mortality, longevity and motor liability indices.
Other exchanges have been created that focus exclusively on parametric transactions. Ryskex (founded 2016) and Cerchia (founded 2020) aim to connect corporate buyers of insurance directly to capital markets without intermediaries. They support the transfer of natural catastrophe and weather risks.
InsTech’s report, “Marketplaces and exchanges: 10 ways they are reshaping insurance”, sets out how the risk exchange scene has evolved in the last 18 months and how new models are enabling the insurance industry to transact in new ways and access different forms of capital. This is one of our occasional free reports.
Flood • Wildfire • InsTech podcast
ICEYE, which uses synthetic-aperture-radar satellites to provide building-level flood depth data to insurers, is expanding its offering into other natural perils. Global Head of Insurance Stephen Lathrope discusses ICEYE’s technology in detail and its application to wildfire on InsTech podcast episode 197. Descartes Underwriting and AXA Climate use ICEYE’s data to trigger parametric flood insurance policies.
InsTech’s new report, “Parametric Insurance in 2022: the 150+ companies to watch”, is available to download. It includes an overview of parametric insurance trends, what has changed since our previous report in 2020 and details of more than 150 companies providing parametric insurance solutions. The report is free to InsTech corporate members, who can log in to download a copy. Everyone else can purchase the report for £500.
In the news...
UK • Weather
Water utilities are exposed to various weather and climate exposures including flood, drought and freeze/thaw events, according to MGA Descartes Underwriting’s latest article. More than £7 million GBP losses were incurred by a single utility after UK storms Ciara and Dennis in 2020. Descartes’ client Northern Ireland Water explains why it uses parametric insurance to manage its extreme weather risks.
Madagascar • Drought
The African Risk Capacity (ARC), a multi-country risk pool, will pay $797,049 USD to the government of Madagascar after its parametric drought insurance policy was triggered. Madagascar is the third southern African country to receive a drought pay-out from ARC this year after pay-outs of $14.2 million and $5.3 million USD were made to Malawi and Zambia respectively in June.
US • Hurricane • Earthquake
K2 Parametric has announced that US insurer Homesite will provide it with insurance capacity. K2 Parametric, an MGA founded in 2021 as part of K2 Insurance Services, underwrites parametric hurricane and earthquake insurance in the US, focusing on corporate and public entity clients.
Caribbean • Hurricane
The Mesoamerican Reef’s parametric hurricane insurance, structured by broker WTW, has been renewed in a syndicated transaction with AXA Climate and Munich Re providing capacity. The hurricane insurance policy for the coral reef in the Caribbean Sea was launched in 2021, underwritten by AXA Climate with capacity from AXA XL. The policy previously covered four key reef sites and the insured area has been expanded to additional sites for the renewal.
Agriculture • Weather
The African, Asian and Americas Resilience in Disaster Insurance Scheme (ARDIS) is entering its fifth year after being renewed. The scheme involves VisionFund, a microfinance network and part of humanitarian agency World Vision, and Global Parametrics. ARDIS uses parametric risk transfer to provide microfinance institutions with access to capital after a disaster. It currently operates in 27 countries for a range of perils including flood, drought, earthquake and windstorm. This interview with ARDIS’s director explains how the scheme works and its impact since 2018.
Africa • Reinsurance
Reinsurance broker Gallagher Re’s newly established “Public Sector & Climate Resilience Solutions” practice has announced a partnership with reinsurer Africa Re. The initiative includes disaster risk financing as well as parametric products for public infrastructure, energy and tourism.
Africa • Humanitarian aid • Catastrophe bonds
In a blog post, the Danish Red Cross’ Innovative Finance & System Change Lead, Adam Bornstein sets out a potential new mechanism for humanitarian aid financing for famines in Africa. The idea of the Africa Pay It Forward Famine Financing and Protection Facility is that it would encourage private-sector investment into humanitarian organisations’ daily operations and use parametric catastrophe bonds to repay investors and fund disaster response. The Danish Red Cross is looking for feedback on the approach, which was designed at a hunger crisis financing workshop.
Zimbabwe • Agriculture • Weather
Zimbabwe’s Insurance and Pensions Commission has launched a project in partnership with the International Finance Corporation to develop the index insurance market for smallholder farmers in Zimbabwe. The regulator will work with insurers and farmers to assess the demand and supply of index insurance and create a regulatory framework for agricultural index insurance.
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