How Parametric Insurance Solutions can Increase resilience for the Agricultural Sector
Rapid advances are being made in our understanding of, and ability to effectively model, emerging climate-related perils. However, the complexity and level of uncertainty inherent to climate-related events (whether acute or chronic) necessitates innovative risk-transfer solutions.
Many climate-related perils are highly correlated with business interruption and financial loss, not just (most obviously) for P&C insurers, but for Life & Health insurers, banks, credit unions, and a wide variety of other financial institutions.
Some use cases for parametric insurance in the context of climate-related perils are immediately intuitive:
Natural Catastrophe: a trigger could be based on extreme temperature, or extreme rainfall.
Weather Patterns: agricultural yields and crop losses are highly correlated with weather – a year of non-extreme but nonetheless sub-optimal rainfall could cause financial loss.
Case Study: Heat Stress Solution for Livestock
Hot summers have negative impacts on dairy herds and, on aggregate, the short- and long-term output of the dairy industry. This problem could be worsening not only due to global average temperature increases, but also due to intensive selection for production among dairy herds in temperate climates (Ravagnolo, et al., 2000).
In conjunction with SCOR and ITK, Skyline Partners have developed a specialist parametric product that is based on the design of a unique thermal heat stress index, through scientific research to allow farmers and companies involved in the dairy supply chain to protect themselves against a range of perils including milk yield loss; quality losses due to loss in protein and fat content impacting price; increase in operating costs such as additive feed and ventilation etc. The solution overall provides protection against intangible such as loss of reputation and long-term health related losses through protection against short-term (lower production, reduced quality) and long-term (chronic effects on animal health) perils of heat stress.
The solution involves the automatic collection of 3rd-party weather data at a granular level, and the triggering of compensation for farmers at the end of the year where applicable. Both the terms of the guarantee and the calculation of compensation are automated using Skyline Partners’ index, allowing for at-scale deployment while preserving the local link between conditions and payout for individual farms.
One Risk Consulting is in Partnership with the leading Parametric Insurance provider Skyline Partners, which can structure solutions across a range of perils and industry sectors.
Contact me for further information: martin.massey@oneriskconsulting.com