Satellite data drives parametric demand: Excessweather

Excessweather, a London-based consultancy that specialises in parametric products, is seeing a surge in new opportunities due to ever-improving data provided by satellites. As such, it is seeking new partners to work with—ideally smaller brokers seeking opportunities for parametric solutions but without the in-house expertise to make them a reality.

“Companies need the opportunity to apply the data to their own loss history.”

John Warwick, Excessweather chief executive officer, formerly a senior underwriter at QBE and ILS Capital Management, told Intelligent Insurer that better data means the company is seeing ever-more innovative risk transfer solutions. That, combined with greater demand from a better-educated market, makes it an exciting time for the parametric space.

“We are seeing a gamut of opportunities due to better data—but it is also about education around how the products work. In the long run, parametric products can be a better fit than traditional covers for many parties. Companies need the opportunity to apply the data to their own loss history,” Warwick said.

One hurdle better data can overcome is the most common objection to the use of parametric products: basis risk. Warwick describes basis risk as no different from a deductible in a traditional policy. Better data allows clients to understand this. 

He stresses that parametric solutions are rarely a cheaper alternative to traditional insurance. This is partly because many of the carriers rely on reinsurance, which is more expensive now. But it can offer solutions traditional solutions cannot—and much faster payment of claims.

He notes that the use of satellite data is now so precise that it is possible to measure the health of an individual tree, or a very specific area for crops. When assessing the damage of a wildfire, for example, this exact data offers very quick analysis of the scale of the damage. “You no longer need a nearby weather station, which used to be the case,” Warwick added.

He cited some innovative examples of parametric deals Excessweather has worked on. One UK pub chain has a parametric insurance contract in place triggered by excess rainfall in the summer, which would hit profits.

“Any scenario in which there is an ultimate loss of profits could benefit from this,” he said. “It could be crops, retail, renewable energy—the list is endless.”

The meteorological events Excessweather is able to model include rain, sun, river levels and hail. It can also construct products around earthquake risk. The innovation possible in the contracts is endless, he said. 

“A client can have a contract for any length and even switch between perils: rainfall at one part of the year and sun in another,” he concluded.

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