AXA CS invests in parametric insurance as transfer options grow

AXA CS announced over the past few days two initiatives related to parametric insurance, which relies on sophisticated indexes to trigger coverages. The first initiative sees AXA CS fund a start-up company in France that will provide risk management and brokerage services for weather-related threats faced by corporations. The other involves an agreement with the World Bank to bring further index insurance to developing countries. Until now agriculture and energy have been the sectors to most benefit from the development of parametric techniques and coverages. But AXA CS is one of several carriers that have identified opportunities to devise new insurance products to fight the effects of climate change on industries such as construction and transportation. "Traditional insurance schemes protect companies against natural catastrophes, but they tend not to cover them against weather anomalies," said Tanguy Touffut, Head of Parametric Insurance at AXA CS. Such anomalies might include colder than usual winters or summers that are hotter and drier than expected.hideAlthough these events do not cause enough losses to trigger nat cat insurance pools they can significantly hit companies and their supply chains by, for example, affecting crops and cattle production. Mr Touffut said that parametric solutions can bridge this gap and make it easier for buyers to transfer such risks. By collecting and crunching data from thousands of weather stations around the world, insurers have devised indexes that can be used to determine the thresholds after which an insurance policy is triggered. The thresholds are agreed with clients according to their exposures and risk retention policies. Another advantage of parametric solutions for buyers is the promise of claims paid in less time than other coverages can achieve, said Mr Touffut. "With parametric insurance solutions, claims handling costs are much lower, which makes the product more competitive in terms of pricing. You do not have to send loss adjusters to the ground to assess the damage," he said. The triggers and consequent values insured are agreed with the clients pre event. Payments are made as soon as insurance companies have the adequate data in their hands. In Europe, Mr Touffut said, data is usually delivered by weather stations about one week after the triggering event. The wide availability of data on climate change has made weather-related insurance a fertile ground for parametric techniques. But experts believe that they could spread in the near future to other segments as insurers are able to access and crunch more data. "In the case of insurance for companies, we mostly use only weather-related triggers, usually hot or cold temperature, excess of rain, snowfall and sometimes wind speed," Mr Touffut said. "In agriculture, however, we already employ indexes to set up guarantees for area yields and the production of biomass from crops such as wheat, maize and rice." He added: "Health could be a sector where parametric techniques could enable innovative solutions in the middle term as well. New satellites are being launched all over the world that will bring new types of information. This new data will include fields such as air quality and ice coverage that could help us develop new applications for parametric insurance." With an eye on such developments, AXA CS has announced that via its AXA Seeds Factory fund it is backing a start-up company that will provide weather-related risk management services for corporations. The new company is the result of a joint venture between AXA CS and Climpact-Metnex, a Paris-based consultancy on weather risks, called ClimateSecure. ClimateSecure will work with brokers and insurers, including but not exclusively AXA, to minimise the risks faced by companies in sectors sensitive to anomalous weather such as construction and transportation. According to Mr Touffut, bad weather conditions can hit between 20% to 25% of revenues at firms in industries such as energy and tourism.

AXA CS invests in parametric insurance as transfer options grow

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