Satellite data supports the development of risk transfer solutions

Satellite data plays an important role in the establishment and success of risk transfer triggers and index insurance schemes, and as technology has advanced the use of satellites has expanded and become more efficient, supporting the growth of innovative agriculture insurance and reinsurance solutions.

The agricultural sector of many emerging, poorer countries is often vital to its financial and economic stability, and with changes in the climate and the expectation of an increase in the frequency and severity of extreme weather events, there’s a real need to protect the livelihoods of the vulnerable.

Index insurance schemes that utilise triggers and structures from the re/insurance and features common in the insurance-linked securities (ILS) space are becoming more common, as advances in technology and the affordability of satellite data has enabled companies to innovate now solutions and expand protection across the world.

In a new report, insurer and reinsurer SCOR explores satellites and the influence they have on the agricultural insurance and reinsurance space, including its limitations.

“Although the potential use of satellites for agricultural insurance was identified very early on, the development of insurance products based on satellite technology, and the incorporation of this technology into the insurance process, have proved far more difficult than expected,” says SCOR.

As with all models, datasets and other approaches to analysing weather conditions and ground moisture, for example, continue to evolve and will do so as technology advances and the world’s understanding of agricultural risks increases.

But despite still being in development, satellites are a useful tool for insurers, reinsurers, ILS players, risk managers and the broader risk transfer landscape, assisting with the development of index insurance schemes and triggers for policies.

The World Bank recently announced that it’s to back an index insurance scheme that aims to assist Kenyan farmers, and that will utilise satellite data to establish an index for when a policy is triggered.

SCOR notes, “Agricultural re/insurance has a major role to play,” and as food production will need to keep up with the burgeoning population and climate change threatens a greater number of more intense, adverse weather events, more affordable and efficient solutions will be required.

Initiatives like the World Bank’s that utilise the wealth of data available from satellites to assist with the development of insurance triggers show how technological advances can help to roll out affordable solutions to vulnerable nations.

As satellites improve and the accuracy of data available to risk transfer markets becomes more complete and comprehensive, the data will support the growth of insurance schemes and the development of triggers that enables the protection of risks where indemnity coverage is impossible.