Samsung Fire & Marine Insurance, the largest general insurer in South Korea, has launched a new weather insurance product which is aimed at industries whose revenues are influenced by unpredictable and inclement weather.
According to Korea’s meteorological agency, as much as 52% of the nations GDP is directly affected by the weather which shows the potential for products like this in the country. There have been weather insurance products in South Korea before, but they have either been specifically set up for companies or less effective than a policy tied to actual weather conditions.
The new product from Samsung Fire & Marine offers cover tied to the actual measured weather data including temperature, precipitation and snowfall. The insurer defines an index of what it deems normal conditions and then pays claims based on the number of days the weather falls outside the normal range. It sounds like it will work in a very similar manner to weather-index microinsurance but on a larger scale, with larger premiums. It’s possible that Samsung could be hedging their risks associated with this product through weather derivatives as it would make sense for their source of reinsurance or risk transfer to also be tied to weather conditions rather than being tied to their claims experience.
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