Willis, a business of broking group WTW, has launched a unique parametric insurance policy, designed in collaboration with Swiss Re Corporate Solutions, who will act as the insurer, which is introduced when a red weather warning is issued by the UK Met Office or Met Éireann, the Irish National Meteorological Service.
Weather events are known for being unpredictable, and at times, dangerous, posing risks to lives and property.
National meteorological offices play a crucial role in reducing these risks by providing colour-coded warnings (yellow, amber/orange, or red) to inform the public and companies about the likelihood of severe weather and its possible consequences.
Red Weather Warnings are issued for the most severe weather that poses a high risk to life, damages property, and substantially disrupts travel.
“In many cases, the weather warnings themselves trigger specific actions on the part of organisations to mitigate the impacts of the anticipated event, which have a financial impact irrespective of the occurrence of the event itself,” Willis explained.
Traditional insurance policies typically respond only to physical damage resulting from weather-related incidents, and do not cover the costs of pre-emptive actions taken after warnings are issued.
According to Willis, what distinguishes this new parametric policy as being a market-first is that coverage is triggered by the weather warning itself, instead of being dependent on an actual weather occurrence or its resulting damages.
The firm explained that the policy structure has broad application, notably across the hospitality sector, where events may be cancelled or facilities closed to guests as a result of a weather warning, regardless of whether the forecasted weather event actually occurs.
Such closures can also have major financial implications, especially during peak periods like weekends or school holidays.
Claire Wilkinson, Managing Director, Alternative Risk Transfer Solutions, Willis, commented: “By triggering the parametric policy on the forecast rather than the event, the insured receives a pre-agreed payout that can cover lost revenue and operational costs due to actions taken in anticipation of weather-related disruption, even if the event does not manifest itself as was forecast. The parametric style of the policy provides a transparent basis of cover, rapid claims settlement and complete flexibility in the use of claims proceeds.”
Nina Arquint, CEO UK & Ireland at Swiss Re Corporate Solutions, said: “We are very pleased with the launch of this innovative solution for our UK- and Ireland-based clients as extreme weather events are increasingly impacting their businesses. I believe this also demonstrates that parametric insurances have established themselves well in the European markets and Swiss Re Corporate Solutions is committed to leveraging its expertise in this space to help close protection gaps.”
It’s important to highlight that this isn’t the first time that we’ve seen weather forecasts being used in parametric triggers.
In the past Peru had been the target of an index-based El Niño insurance coverage, developed by GlobalAgRisk 2011. This product, the Extreme El Niño Insurance Product, was based on a parametric mechanism and hailed as the first “forecast” insurance coverage.
Utilizing an ENSO index that predicts the likelihood of El Niño conditions, the insurance product could provide payments prior to the onset of significant rainfall and flooding. This product was specifically created to safeguard a microfinance organisation from the losses stemming from loan defaults that may arise during a severe El Niño event and the resulting rainfall, which could force farmers into loan default.
Another key example is from 2018, where we saw The United Nations, World Bank and International Committee of the Red Cross, team up with technology giants Microsoft Corp., Google and Amazon Web Services to launch the Famine Action Mechanism (FAM).
The initiative was launched to help prevent future famines, by bringing together science and technology to create forecast-based financing models that can distribute capital when it is needed, in advance of famine breaking out.
We also wrote about the potential for forecast-based parametric triggers, and the key role that they can play in more detail in 2017, which you can read here.
