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The InsTech perspective… parametric insurance in practice
Parametric insurance has been used for large-scale reinsurance and catastrophe bond transactions for more than 20 years. In recent years the availability of new data sources has enabled smaller-scale transactions for commercial and personal lines. This week’s issue features news of parametric claims from excess rainfall in Trinidad, a hurricane in the US and an earthquake in Mexico being paid to governments, businesses and households. In all these examples, pay-outs were received within days: evidence that parametric insurance is working on large and small scales.
Trinidad and Tobago • Rainfall
The Caribbean Catastrophe Risk Insurance Facility (CCRIF SPC) has paid $2.4 million to Trinidad and Tobago following an excess rainfall event in Trinidad between 18 and 20 August. The heavy rainfall caused flooding and landslides. The government of Trinidad and Tobago has received excess rainfall pay-outs each year since it first purchased coverage in 2017. We examined CCRIF’s risk pooling model in a recent article after it paid out $40 million following Haiti’s earthquake last month.
In the news...
Mexico • Earthquake
On 8 September, a magnitude 7.0 earthquake struck the Pacific coast of Mexico, damaging more than 1,800 structures. Mexican MGA Súper paid out a claim for the first time, three days after the event. Súper, backed by Munich Re and Seguros Atlas, provides parametric earthquake insurance to households and businesses. We spoke to co-founder Dario Luna recently for an interview to be published soon. The Mexican government also has protection against earthquakes from a parametric catastrophe bond facilitated by the World Bank, but Artemis reports that this earthquake was not strong enough to trigger a pay-out from the bond.
US • Hurricane
Berkshire Hathaway Specialty Insurance’s (BHSI) Chris Colahan recently revealed that BHSI’s first Hurricane Ida pay-out was the full limit on a parametric policy. Swiss Re Corporate Solutions has also paid out a claim within days to one of its clients on a parametric policy. According to early estimates from InsTech London members, the hurricane is likely to cause insured losses of between $14 billion and $35 billion.
Germany • Drought • Agriculture
Insurer Wakam and analytics company Wetterheld have developed a parametric drought insurance product for farmers in Germany. In Wakam’s interview with Wetterheld CEO and co-founder Nikolaus Haufler, he explains how the onboarding and claims processes work and why rain during the vegetation period is crucial for farmers.
Lloyd's • Business interruption • Cyber
The Lloyd’s Lab innovation accelerator programme highlights MGA Parametrix as one of the programme’s success stories. Parametrix provides parametric coverage for IT downtime in Israel, the US, Asia and Europe. Lloyd’s Lab Senior Manager Ed Gaze says, “This is the Lab’s purpose – to enable innovation that helps businesses manage new types of risk.” The Lab has worked with other parametric providers including Parsyl, Skyline Partners, Blink Parametric, and in its current cohort, BirdsEyeView Technologies. Ed Gaze explained how the Lab works on podcast episode 150, which also features insights from companies in a recent Lloyd’s Lab cohort.
Cambodia • Drought • Flood
After disasters, microfinance institutions may pull back from lending, hurting the recovery of their community. Global Parametrics and impact investor Enabling Qapital have developed a parametric product to provide microfinance institutions with emergency financing after a climate event. This aims to assist business continuity and increase community resilience. The first policyholder for the CRED product is a microfinance institution in Cambodia, which has purchased protection against severe drought and flooding. Global Parametrics’ Dan Bierenbaum said, “With growing vulnerability to climate risks in emerging economies, we see the CRED product as an ideal way to get targeted financing into these communities post-disaster.” A write-up of our popular digital event with Global Parametrics is available here.
Côte d'Ivoire • Drought
Parametric insurance can be used to support the resilience of vulnerable communities. Côte d’Ivoire has been a member state of the African Risk Capacity (ARC), a multi-country parametric risk facility, since 2014. The country’s government has received over $2.9 million from the ARC following droughts in 2019 and 2020. ARC’s recent blog post records perspectives from communities that benefited from the pay-outs. ARC has paid out $65 million to member countries in drought relief efforts since 2014.
Canada • Agriculture • Temperature
Excessive heat hurts the development of canola (rapeseed) plants during the flowering stage and reduces yield. Canadian analytics company Global Ag Risk Solutions, backed by reinsurers Northbridge Insurance and Fairfax, has partnered with agriculture company Corteva Agriscience. The partnership will provide parametric insurance included in the purchase of canola seeds. The seeds are available to purchase from Brevant seeds, a Corteva Agriscience affiliate, from 2022. Satellite and radar systems are used to track temperature and trigger payouts of up to CA$100 per acre.
US • ESG • Reputation
Companies are facing increasing societal, regulatory and reporting pressure to set stringent ESG goals. US-based insurer Steel City Re, which provides parametric insurance against reputational risk, has announced a product that would protect companies against reputational damage caused by failing to meet those targets. Tokio Marine Kiln is providing capacity for the product.
Africa • Epidemic
The African Risk Capacity (ARC) is working on a parametric insurance product to protect member states against outbreaks of Ebola, Marburg, Lassa fever and Meningitis. As part of this ARC has signed a memorandum of understanding with Senegal biomedical research facility Institut Pasteur de Dakar. The agreement’s measures will support contingency planning for disease outbreaks.
The government of Chile has sent a “fintech bill” to congress to modernise financial regulation. The legislation includes new insurance rules which would support the growth of parametric insurance and microinsurance in the country.
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