News

Insuring Nature: How UK’s finance is safeguarding Mexico’s coral reefs

Our Partnerships and Business Development Lead, Juan Marcano, writes for Global Parametrics as part of the UK Department for International Trade‘s Business of Resilience thought leadership series. The Business of Resilience Campaign is promoting the UK’s capabilities in resilience insurance and associated services covering climate and natural disasters, pandemics, cyber and other related supply chain risks. 

Climate change is increasing natural hazards and extreme weather risks globally. But as these risks grow, so have the number of innovations to mitigate them. Insurance – often seen as the dull side of finance – now has a key role in providing solutions to the climate crisis.

Currently, many businesses and individuals lack formal risk transfer in areas which suffer from natural hazard and extreme weather risk. This protection gap poses a challenge, but also an opportunity for re/-insurance players to strengthen global economic resilience and to grow into these emerging markets. Harnessing innovations in technology and risk management has only increased the ability to develop such solutions and cover previously uninsurable risk.

The experience in Mexico

The Mexico Reef Protection Programme (MRPP), launched in 2018, was seen as a first step in changing how we value our natural assets, and the place of the insurance sector in protecting and restoring natural landscapes.

The programme protects a large section of the Mesoamerican reef, releasing payouts in the event of a tropical storm to be used for restoration of the reef itself.

Providing cover for the reef not only protects the reef, but has knock-on positive effects to the communities on its shore. Coral reefs act like natural sea walls; shielding nearby buildings from the devastating impacts of tropical storm surge. Preserving the reef also retains the ecosystem (beaches, dunes, marine environment) which are essential for tourism income in the area. The programme is a prominent example of a nature-based solution; conserving and protecting nature to the benefit of society and human well-being.

The Reef Programme is a parametric solution; providing a pre-agreed payment based on the probability of the pre-identified event. These methods of coverage take away the need for valuing the asset itself, meaning the policy is triggered not by financial losses, but when a pre-identified event occurs, which in this case is when wind speeds exceed 100 knots in a pre-defined area.

Parametric solutions provide an ordered and managed method to inject funds from global reinsurance and capital markets into areas impacted by natural catastrophe risk. This market solution relies on private capital to finance a gap which would otherwise be shouldered by local government and communities.

How it all works

For the MRPP, funds are paid out following a parametric trigger for a tropical storm in an area of the Mesoamerican reef. Leveraging parametrics for the programme ensures a rapid and objective payout, and transparency on payment conditions. Through the latest technology in scientific risk hazard modelling, the risk of tropical storm in the area can be more easily understood, allowing local government and affected communities to consider further pre-disaster risk assessment management and response planning.

Integrating the understanding of risk on the ground as perceived by the end user creates a better placed product. By engaging with the local government of Quintana Roo, the MRPP helps to achieve the sustainability of the programme in future, promoting knowledge sharing of the technology and infrastructure behind the programme and the creation of an inclusive and transparent system for premium collection.

Innovative programs such as the MRPP, are often initiated and subsidized via donor agencies or corporate social responsibility initiatives, which, although useful for establishing a programme’s infrastructure and mechanisms, are not focused on sustainable methods to continue and expand once the duration of the programme is complete.

By engaging the local financial sector, the state of Quintana Roo was able to renew this programme without subsidies, even during the Covid-19 Crisis. The renewal was conducted through Mexican insurer Banorte, supported by Global Parametrics and the Natural Disaster Fund – a public private partnership designated to mitigate the challenges in natural disaster resilience for low-and middle-income countries with participation from the UK and German governments and global reinsurer Hannover Re.   The local commitment and brings understanding of such a programme and its associated products to the local market, thereby increasing capacity at the local level for future renewals and scale.

The local benefits

Following Hurricane Delta on 7th October 2020, the reinsurance policy paid out 40% of the total limit within 14 days. The final payment was used to fund work dedicated to the restoration of the reef. Given these successes, the local government of Quintana Roo is looking to expand the scope of the programme to include beaches and dunes, and to scale up the geographic coverage.

As the risk of extreme weather and natural hazards grow, so does the opportunity for firms to take part in risk management solutions. Nature based solutions are an important tool to manage the effects of climate change. Risk transfer can both protect the natural and human element of these programmes and mitigate the financial impact of natural events. Linking the two creates sustainable interventions that build local resilience and capacity to help mitigate the impact of extreme weather events.

In partnership with

To learn more about the insurance industry and the positive impact it has in climate resilience join the Business of Resilience Conference 2021

2020 Global Parametrics/NDF Impact Report Released

Global Parametrics’ mission is to catalyse markets for disaster risk protection and foster impact at scale.

Through our NDF Partnership, a blend of public and private capital, we combat extreme weather and natural hazard risk.

Our 2020 Impact Report shows the key figures from our first year of partnership.

Some highlights:

  • Over 10+ million beneficiaries provided with risk protection;
  • Protection across 20 low- and middle-income countries;
  • Coverage for 6 perils, including: earthquake, flood, tropical cyclone, excess rain, drought and excess wind.

In 2021 we hope to build on these successes, grow and scale up operations in existing areas and push to new markets.

See below for the full report

GP NDF Impact Report 2020

Insights: Now is the Time for Parametric Insurance to go Mainstream

“It is becoming clear that, in this uncertain world, protecting the economic activity of customers is as important as protecting their assets and speed of payment is essential.”

Our Partnerships and Innovation Lead, Toby Behrmann, featured in Insurance Day this week. 

Toby gives an insight into the power of parametrics; outlining why 2020 created the perfect storm for extensive growth in these solutions. 

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Watch the NDF Partnership Year in Review at the Insuresilience Global Partnership Forum

In December 2019, Hannover Re, KfW and our Natural Disaster Fund announced joint collaboration, with the aim to bring sustainable risk transfer solutions to low and middle income countries. 

One year on, our partnership has reached over 10 million beneficiaries, across 21 countries in Latin America, Africa and Asia.

At the Insuresilience Global Partnership Forum on Monday 7th December, we took a look back on our first year, exploring the importance of public private partnerships for implementing actionable programmes to combat the protection gap. 

Speakers included our founder Dan Bierenbaum, Principal Portfolio Manager Stefan Hirche of KfW and Hannover Re’s Managing Director Henning Ludolphs. 

Watch the event here: 

 

Global Parametrics launches new global Water Balance Index, enabling partners to provide extreme weather protection in India and Tanzania

Global Parametrics (GP) has structured two risk transfer solutions using its new Water Balance Index (WBI), enabling partners IBISA and One Acre Fund to provide drought and excess rainfall protection in India and Tanzania. The WBI estimates changes to the proportion of water in soil, using monthly rainfall, evapotranspiration and other weather variables such as temperature and wind speed. WBI has uses worldwide: to hedge drought risks and reduce the negative impacts of water imbalance on crops, closely tied to water shortages, food insecurity and economic losses.

 

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Global Parametrics is featured in ground breaking Insurance Development Forum Report

Global Parametrics was honoured to be featured in the IDF’s report “The Development Impact of Risk Analytics“. The IDF is a partnership led by the insurance industry and supported by the UN, World Bank, NGOs and other international organisations, calling for international collaboration to develop and share capabilities in disaster risk understanding where it is needed most. The report encompasses the contributions of over 30 industry professionals, across private sector, development agencies and specialists, academia and international NGOs.  

GP’s work delivering anticipatory cash transfers with Oxfam and Plan International for the B-READY programme in the Philippines was featured. B-READY harnesses digital cash transfer and forecast parametric index to trigger payments to vulnerable households prior to tropical cyclones making impact, strengthening the resilience of local communities.

Read the IDF report here: https://www.insdevforum.org/report-development-impact-risk-analytics

Global Parametrics hires leading weather scientist and senior software engineer

GP are proud to welcome Obbe Tuinenburg PhD and Zoe Nolan to the team. Their arrival signifies our commitment to building platform independent standardised indices that can be used globally to understand climate and weather perils, and to deploy these at scale. Obbe holds a PhD in Land Atmosphere Interactions and Earth Systems Sciences from Wageningen University and Zoe’s diverse computer engineering background has seen her work within cloud services, microservices and blockchain development.

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Genesis of GP: interview with co-founder Jerry Skees

Co-founder Jerry Skees discusses how his development experience helped get Global Parametrics off the ground. In the interview with Eastern Standard’s Tom Martin, on WEKU, he touches on how his agricultural background led to opportunities traversing many corners of the world. This brought the “link between development, poverty and natural disasters into a much larger story for me to understand the economics of disasters and how it impacts the poor the most.”

 

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