Munich Re, Howden & Skyline tie-up to develop new parametric hurricane cover

Global broking group  Howden, reinsurance giant  Munich Re and UK insurtech Skyline Partners have come together to create a new parametric insurance coverage protecting against the increased frequency and severity of natural disasters.

The parametric insurance is designed to help stabilise the financial systems across the Caribbean, which it said has come under “significant stress” due to the extreme nat cat events.

The coverage will mainly protect the Jamaican Co-operative Credit Union League (JCCUL) against non-repayment of micro-loans from farmers in the event of extreme weather.

Farming is the main source of income for around 18% of the Jamaican population, and adverse weather events have increasingly put farmers at risk of not being able to repay their loans. The JCCUL supplies loans to around 100,000 smallholder farmers.

The new insurance product, based on a parametric trigger, replaces funds lost as a result of farmers defaulting on loans in the event of an extreme hurricane.

Howden has contributed to the premium for the first year to support the growth of this “proof of concept” product, which it says is part of its wider agenda to unlock private capital, including donations from individuals, corporates and foundations, “to help fund solutions for those who have limited access to traditional insurance products”.

Robin Levy, group CEO for JCCUL, said: “If farmers can’t afford to repay their loans, our ability to remain operational is put at risk. Without loans from credit unions, many farmers in Jamaica simply would not be able to afford to operate. This coverage helps to smooth out that volatility and provides them the confidence to continue to deliver the essential financial support that so many people rely upon to make a living.”

David Flandro, head of analytics,  Howden, explained: “Globally, we’re seeing an exponential increase in weather-related events versus other non-climate perils[1]. Storms in the Caribbean are becoming more powerful, with increased rainfall and higher storm surge, and Jamaica has one of the highest physical exposures to tropical cyclones in the region.”

Charlie Langdale, head of climate risk and resilience,  Howden, added: “Climate change is causing huge changes in the type and scale of risks, especially for developing nations that are both facing the most severe effects, and are least protected by insurance.”

Laurent Sabatié and Gethin Jones (pictured), co-founders and executive directors, Skyline, said: “This product demonstrates the potential for parametric insurance to take on risk challenges that don’t lend themselves to traditional insurance cover. We look forward to expanding this concept as we work with financial institutions to increase resilience against climate change and natural disasters by combining insurance innovation with technology.”

Langdale concluded: “We’re starting to see insurance being used in scenarios that it never would have been 5 years ago. By asking the right questions about the risks that people, organisations and nations are facing today, and pushing the boundaries of insurability, the insurance industry has the potential to truly face up to the challenges of climate change and protect those who are most exposed.”

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