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The InsTech perspective… COP26: the implications for parametric insurance
“The climate is already changing and it will continue to change even as we reduce emissions, with devastating effects.” - COP26 website
Parametric insurance is increasingly recognised as having the potential to be a key mechanism of achieving resilience to climate-driven catastrophes. The University of Cambridge Institute for Sustainability Leadership writes, “climate-related insurance protection in the wider financial system... should include all forms of risk sharing, including parametric and indemnity instruments,” in a report released at COP26, the ongoing UN climate change conference. Munich Re’s COP26 briefing named parametric covers as “good candidates” in countries with low mean incomes.
Several measures have been announced at COP26 that will advance the use of parametric insurance for climate resilience in the short term. Start Ready, a new risk transfer scheme for humanitarian aid, will use parametric triggers to help communities vulnerable to climate events. The German government is subsidising parametric extreme weather coverage taken out by governments in Africa. A UK government-owned fund is investing in making weather index insurance more accessible for African farmers.
Other COP26 initiatives signal that parametric insurance can be scaled further. Plans to improve the collection of weather data in vulnerable nations will make it easier to structure more effective parametric products with reliable triggers. The US National Association of Insurance Commissioners says it is also exploring parametric insurance and automated pay-outs as tools to improve climate resilience.
This week’s Parametric Post is a bumper edition, with the news from COP26, everything else that’s new in parametric insurance and our own insights at InsTech London. Remember, if you’re skimming through, you can use the tags under each header to find the stories most interesting to you.
Climate • InsTech interview
“Climate change is a mega-trend affecting livelihoods and property, and transparent and efficient risk transfer products are needed.” We spoke to CelsiusPro’s CEO and founder Mark Rueegg to learn about why he started the company, its partnerships with Aon and the World Bank and why CelsiusPro is setting up an MGA.
Crypto • InsTech report
InsTech London’s newest report dives into the insurance opportunities and challenges from crypto and is designed to be accessible to audiences new to crypto. Download the report whilst it is still free to learn why decentralised insurance alternative platforms are using parametric triggers, and how cryptocurrency could be an alternative source of insurance capital for parametric insurance products.
News from COP26...
Humanitarian aid • Weather
Start Ready, a global financial service to support the humanitarian sector to tackle the climate crisis, was launched at COP26. It is a risk pool which directs funding to aid agencies when a crisis is predicted. This is different from the usual approach to parametric insurance, when pay-outs are triggered after loss events. Start Ready is led by Start Network, a network of more than 50 humanitarian agencies including Save the Children, Oxfam and World Vision.
Start Ready will use data modelling to anticipate predictable events such as droughts, floods and heatwaves. Pay-outs will be directed to aid agencies on the basis of pre-agreed parametric triggers. Technical assistance will be provided by members of the Insurance Development Forum, including risk modelling from RenaissanceRe. Start Ready has received £3 million of funding, including £1 million from the UK government and €250,000 from the French government.
Africa • Drought • Cyclone
The German government has announced a grant of €18 million to subsidise premiums paid to the African Risk Capacity (ARC), a multi-country parametric risk pool. The grant will make it cheaper for African countries to take out parametric insurance against drought and tropical cyclones. ARC also announced at COP26 that it was the first African company to join the UN-convened Net-Zero Asset Owner Alliance.
Kenya • Agriculture • Weather
Pula, an agriculture technology company that develops index insurance products for smallholder farmers, will receive investment from the Climate Innovation Facility. The Climate Innovation Facility is a new £200 million fund set up by CDC Group, the UK’s development finance institution. The funding will be used to develop a ‘pay-at-harvest’ insurance product for African markets.
Fiji • Agriculture • Weather
“In the context of the frontline of climate risks, resilience is about access to resources - it is seawalls, it is stronger homes and schools, it is parametric insurance, it is the safe and equitable relocation of communities, it is cyclone-proofing infrastructure,” Fiji’s prime minister Frank Bainimarama said at a COP26 event. Fiji’s government launched a parametric microinsurance product for farmers earlier in 2021.
Parametric insurance in some parts of the world has been held back by a lack of accurate weather data. Increased availability of data makes parametric products workable and more effective. The UN Development Programme, UN Environment Programme and World Meteorological Organisation have established a Systematic Observations Financing Facility. The facility will fund efforts to improve the collection of weather data used for forecasting and risk modelling in areas vulnerable to climate-driven events.
Elsewhere in the news...
Caribbean • Hurricane • Satellite
Yokahu, a 2019 start-up recently approved as a Lloyd’s coverholder, is selling parametric hurricane insurance in the Caribbean. (Re)insurer Chaucer is providing insurance capacity for Yokahu. It has partnered with data provider McKenzie Intelligence Services, which combines data from satellites, drones, sensor networks and third-party sources.
AkinovA, an electronic marketplace for insurance risk transfer, has partnered with Benchmark Labs, a provider of environmental risk forecasting solutions. Benchmark Labs’ technology uses weather models and internet-of-things (IoT) technology to provide asset-specific forecasting information. This information will be used in AkinovA’s platform to reduce basis risk in parametric insurance products.
UK • Climate
Parametric MGA Descartes Underwriting is opening an office in London to expand its offerings to the UK and Irish markets and the London Insurance Market. Descartes opened new offices in Singapore and Sydney in August 2021. Look out for our podcast interview with Sébastien Piguet, Co-founder and Head of Underwriting at Descartes, coming soon.
UK • Flood
Reinsurer Munich Re is now the lead insurance capacity provider for FloodFlash, an MGA providing parametric flood insurance to UK businesses. The partnership will allow FloodFlash to offer increased coverage limits.
UK • Cargo • Embedded
UK start-up Anansi has launched its embedded shipping insurance product with support from insurer Wakam. Anansi’s Offcourse Cover product, which is integrated with Shopify, allows e-commerce businesses to protect their deliveries. The company uses parcel tracking data to trigger automated pay-outs in the event of losses or delays.
Belize • Rainfall • IoT
The Caribbean Catastrophe Risk Insurance Facility (CCRIF SPC), a parametric insurance risk pool, has provided a $43,140 grant to the Government of Belize to enhance its early warning systems for extreme rainfall events. In 2017, a $100,000 grant from CCRIF was used to build 30 weather stations in Belize, bringing the total number of weather stations with high quality rain gauges in the country to 52. The new grant will fund additional rain gauges and air temperature sensors on the weather stations. CCRIF CEO Isaac Anthony says the new measures “will provide better rainfall data to support CCRIF’s Excess Rainfall model and parametric insurance product”. We examined CCRIF’s risk pooling model in an article in September 2021.
Vietnam • Typhoon • Blockchain
Software start-up Hillridge Technology has been awarded $200,000 to create a blockchain-based parametric insurance platform for tropical storms. The platform will be piloted on typhoons in Vietnam. The grant comes from the NEAR Foundation, a not-for-profit affiliated with the NEAR Protocol, a blockchain that claims to be climate-neutral.
Weather • Blockchain
Parametric insurance platform Arbol has established Arbol Underwriters, a reinsurance MGA in Bermuda. It will operate with reinsurance capacity from reinsurer SIG Re.
US • Supply chain
OTONOMI, an MGA founded in 2020 creating parametric cargo insurance products, has closed a seed round of $1.04 million. Its investors include SoundBoard Venture Fund, Blackhorn Ventures and REFASHIOND Ventures.
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