Arbol, an insurtech platform underwriting climate and weather insurance, has delivered a $10-million parametric insurance payout to property and casualty (P&C) company Centauri Insurance, only weeks after the hurricane struck in late September.
This is the first known parametric insurance payout for damages related to Ian. It was made less than three weeks after the Category 4 storm made landfall in Florida. Arbol used a combination of “non-traditional and traditional sources of capital” for the reinsurance payout.
We structured a parametric insurance contract that customized the triggers to meet the needs of [Centauri’s] standard home insurance portfolio. The parameters are based on hurricane track data, the wind speed of the hurricane as it passes through different local points in the state, and so on.Siddharta Jha, CEO of Arbol
Arbol has the capability to track hurricane data to a high accuracy, Jha said. The Arbol CEO also co-founded dClimate, billed as the world’s first decentralized climate information marketplace.
With reliable access to weather data, Arbol can determine whether policies have been triggered and calculate the payout soon after the storm has passed. The process contrasts that of a traditional insurance policy payout, which can take months, if not years after damage was incurred.
Every aspect in parametric insurance process is fully transparent. The contract stipulates exactly what the payout will be for different triggers.
Parametric insurance is uniquely positioned to address climate risks. A non-traditional product, parametric insurance provides coverage based on a predefined set of metrics or conditions, rather than the actual value of the losses.
When a certain parameter is met – such as hurricane category or wind speed – the contract is executed and paid out. A growing staple for catastrophe reinsurers, parametric solutions are now also becoming popular in the retail, agricultural and travel spaces.
Parametrics introduce scale and efficiency to the insurance process, compared to the standard model of settling claims via a subjective loss report from an adjuster.
Rapid reinsurance payouts could potentially save insurers from spiraling losses caused by Hurricane Ian.
Florida’s property insurance market was already at the point of collapse even before the storm hit. A slew of insurers went out business in the state following a boom in fraud and lawsuits. Reinsurance pricing has also shot up due to rising hurricane risk.