The Parametric Post, the only newsletter dedicated to parametric insurance.
Thought for the day… why the parametric insurance market grew in 2023
Privately owned insurance companies don’t often release specific details about how their products are performing, but we’ve recently seen a few statistics that hint at the growth in parametric insurance transactions in 2023.
In a recent interview, Amwins’ Executive Vice President of Alternative Risk says the number of parametric submissions from the broker increased by 500% this year. Meanwhile, the proportion of those submissions that led to policies being issued tripled. Brazil-based insurer Newe, which received $5.3 million USD investment in January to expand its parametric product range, expects parametric to make up between 2.5% and 5% of its overall business at the end of this year, an increase of 900%.
These figures show that a proven way for insurers and brokers to grow their businesses is by investing in designing parametric solutions for their clients, usually to cover risks not included in traditional policies. It also reflects a wider trend of more organisations purchasing parametric insurance. Munich Re recently surveyed its LinkedIn followers—out of more than 200 respondents, 18% said they used parametric insurance to mitigate the effects of extreme weather and natural catastrophes.
The understanding of parametric insurance is going up, while examples of successful pay-outs help build trust that the solution works. WTW writes in its Insurance Marketplace Realities 2024 report that many North American parametric products paid claims in 2023, which are likely to drive some premium increases in 2024. We’re aware of parametric claims paid on every continent this year—with one example from Colombia in this week’s Parametric Post.
There’s still room for the awareness of parametric insurance to grow, especially beyond the natural catastrophe examples which are most prominent. This issue features news about parametric insurance for supply chains and InsTech’s upcoming research reports feature examples of coverage for wildfire and non-damage business interruption risks. One way to make sure your colleagues are aware of all the ways parametric can help their clients is to share the Parametric Post with them—the only newsletter with focused, relevant updates on parametric insurance transactions and market insights.
Arbol: managing climate risks – parametric and beyond
Climate • Carbon • InsTech podcast
Arbol’s Co-founder & CEO Sid Jha joins InsTech’s Henry Gale on podcast episode 274 to discuss use cases of parametric for sectors including renewable energy and agriculture, a new product to help corporates understand their exposure to climate risks and the importance of data in the carbon markets.
What NDBI risks does parametric insurance cover today?
Business interruption • InsTech poll
Dozens of events in recent years have caused billions of dollars in non-damage business interruption (NDBI) losses. Around 50 of you have already responded to our poll about which sources of NDBI risk organisations are addressing with parametric solutions today. Find out the results so far and join the conversation on LinkedIn.
In the news…
Insurer to use CelsiusPro’s platform for Pacific cyclone cover
Pacific • Cyclone
New Zealand-based insurer Tower Insurance will use CelsiusPro’s platform to offer its parametric cyclone insurance product in the Pacific region. Tower piloted the product in Fiji for the 2022/23 cyclone season and has now launched it across Fiji, with a pilot underway in Tonga.
Raincoat enables pay-outs to farmers in Colombia
Colombia • Agriculture • InsTech podcast
Technology company Raincoat, which designs and operates parametric disaster insurance programmes at scale around the world, has processed pay-outs for insured farmers in Colombia following droughts and floods. Raincoat’s Co-founder and CEO Jonathan Gonzalez explained how the company is collaborating with brokers and insurers in InsTech podcast episode 268.
Arbol launches UK MGA for international expansion
UK • Climate
Arbol has launched an MGA in the UK to serve the international insurance market. The new MGA offers parametric insurance for the agriculture, renewable energy and construction industries covering climate risks. Arbol launched its US MGA earlier this year.
Otonomi partners with embedded cargo insurance start-up
Supply chain • Business interruption • Embedded
Otonomi, an MGA which offers parametric coverage for air cargo delays, has partnered with RedKik to embed its insurance product into the online systems used by shippers and logistics companies. Greenlight Re is providing insurance capacity to Otonomi.
Reask: why ‘wind-at-location’ cyclone cover is cheaper
Cyclone
There are two common approaches to structuring parametric insurance for tropical cyclones: ‘cat in the circle’ and ‘wind speed at location’. Reask’s video explains the two products and demonstrates why wind-speed-at-location coverage is less expensive than cat-in-the-circle when insuring a property against category 3 winds.
WTW: applications of parametric insurance in the power market
UK • Energy
WTW’s Power Market Review 2023 includes an article from Julian Roberts, Managing Director, Risk & Analytics (Alternative Risk Transfer Solutions), discussing how parametric solutions can be used to manage catastrophic and weather risks for companies in the power market. Temperature indices are widely used to hedge against the effects of temperature on demand for power, but parametric risk transfer can also be used to cover production risks and extreme weather.
Loss and damage: scaling up protection for the Global South
COP28
Ahead of the COP28 climate conference, The University of Cambridge Institute for Sustainability Leadership has published a report, in partnership with Howden, setting out how parametric risk transfer could be used to compensate vulnerable low-income countries when disasters strike. We expect more parametric programmes for the Global South to be announced at COP28; make sure you’re signed up to the Parametric Post to keep track of the latest news.
TMHCC, Liberty and Arch back Anansi goods-in-transit cover
UK • Supply chain
MGA Anansi has secured capacity from insurers Tokio Marine HCC, Liberty Mutual and Arch Insurance for its parametric goods-in-transit insurance for large retailers. Anansi’s solution triggers pay-outs automatically if parcels are lost in transit. This capacity partnership raises the available coverage limits to £100,000 GBP per parcel.
UNCDF seeks data and model provider for parametric scheme
Pacific
The United Nations Capital Development Fund (UNCDF) runs a parametric insurance programme, in partnership with Howden, covering vulnerable populations in the Pacific against climate hazards. As the programme expands across the region, the UNCDF is asking for proposals for risk modelling and calculation agent services.
Niue purchases parametric cyclone cover from PCRIC
Niue • Cyclone
The government of Niue has purchased parametric tropical cyclone insurance from the Pacific Catastrophe Risk Insurance Company (PCRIC), a multi-country risk pool. Parametric cyclone policies from PCRIC also cover other Pacific Island Countries, including Fiji, Tonga and Vanuatu.
UK government supports parametric growth in aid strategy
UK • Humanitarian aid
The UK government has published a white paper setting out its new international development strategy. It argues that pre-agreed finance mechanisms, such as parametric insurance, are quicker and more efficient at assisting low and middle-income countries after natural disasters. The UK says it supports expanding regional parametric risk pools CCRIF SPC in the Caribbean and ARC in Africa and commits to partnering with the London Insurance Market to develop more insurance schemes for disaster risks.
Find out what you’ve missed…
Issue 60 – Why parametric insurance suits shock events
Issue 59 – Why brokers are launching parametric teams
Issue 58 – Parametric insurance: not just for physical losses
Sign up here to receive the latest news, stories and insights on parametric insurance every two weeks.