AXA backed ClimateSecure, parametric weather risk startup launches

AXA’s specialist digital insurance and banking seed fund, AXA Seed Factory, has partnered with AXA Corporate Solutions and French climate and weather services firm Climpact-Metnext, to launch ClimateSecure, an insurance and weather-risk management platform.

The new start-up seeks to “provide tailor-made insurance and weather-risk management solutions to help its clients understand, mitigate and insure financial losses caused by weather anomalies,” explained AXA in a press release.

ClimateSecure says it will “work hand-in-hand with our clients, meteorologists, financial experts and other brokers in order to build indexes that most accurately reflect our clients’ risk.”

AXA Corporate Solutions’ extensive and dedicated focus on insurance solutions for large corporations across the globe and its expertise in parametric weather insurance solutions, coupled with Climpact-Metnext’s broad international weather consulting service, is seen by those close to the venture as an equally complimentary partnership.

ClimateSecure notes that adverse weather affects roughly three-quarters of European businesses, while record hot and cold temperatures continue to happen more often, bringing floods and droughts, contributing to the fact that around 30% of European countries’ GDPs are weather-sensitive.

ClimateSecure also states that by the year 2100 the average temperature is expected to rise by 4 degrees Celsius, coupled with a predicted five-fold increase in extreme weather events over the next 40 years, such as severe droughts, flooding and hurricanes.

In response to this AXA, through its subsidiaries, has again turned its focus to weather-based insurance solutions, and with the help of a leading European weather service seeks to mitigate the impact to businesses from weather anomalies.

Artemis wrote yesterday that AXA CS had partnered with the World Bank in order to provide parametric weather-based insurance protection to the most vulnerable regions of the globe.

And now the firm are hoping to offer businesses small and large, the opportunity to affordably and comprehensively insure their businesses against the increasing severity and frequency of adverse weather events.

“As a matter of fact, even a slight increase in temperature or greater-than-average rainfall over a short period can have a direct and often drastic impact on companies’ financial performance,” explain the firms.

To highlight just how damaging to company revenues adverse weather can be, ClimateSecure offers some interesting figures, from several sectors.

For construction, in France alone during 2013 25% of on site work interruptions were because of bad weather, creating an average delay of up to 3 months for construction sites in the region.

Transportation companies also feel the financial impact of weather events, as inaccessible roads and the inability to fly planes causes stress on profits. In the first-quarter of 2014 a U.S. airline incurred losses of €200 million during the cold wave.

Beyond this, extreme weather events that bring unusual amounts of rainfall can seriously impact the leisure sector, as it’s estimated that rainy days can cause a 20% decline in theme park visits, for example.

Whether it be down to climate change or simply weather variability and exposure to its effects, it’s clear that businesses stand to benefit from comprehensive weather-based insurance protection against the world’s perils.

All of this is aided by the ever-expanding developments within space and computer technology, including high-resolution satellite imagery, and the ability to process far more granular and larger sets of data from rainfall, drought, air quality, ice surface and so on, creating the possibility for more accurate and affordable products.

Head of Parametric Insurance at AXA CS, Tanguy Touffut said; “Beyond traditional insurance covers against natural catastrophes, many companies need to protect themselves against weather anomalies, which are increasing in frequency.

“In response to these growing needs, AXA Corporate Solutions has developed a product line based on data from weather stations and satellite imagery.”

The new venture is AXA Seed Factory’s fifth investment. ClimateSecure boasts a fully customizable product offering, stemming from in-depth analysis of the associated risks to the client’s business, the coverage required and ultimately an accurate and rapid payout response time using parametric triggers based on weather conditions and measurements.

While this scheme doesn’t focus specifically on emerging markets and developing regions of the world, AXA’s increasing focus on parametric weather solutions signals a greater understanding of the potential risks and impact weather anomalies can have on companies, as well as the opportunity that provides the insurer.

The tailor-made solutions provided by ClimateSecure reveals how advancements in technology, risk modelling and underwriting capabilities helps to provide protection against natural perils for all kinds of businesses, be it energy or tourism.

In a re/insurance market that’s rife with competition, pricing pressures and ample capacity, new, innovative ventures are a good way to help navigate the storm while adding some welcomed diversification to a portfolio.

Weather-focused index-based and parametric solutions can go a long way to minimising the longer-term consequences businesses are faced with following a testing time owing to adverse weather.

And the growth of the Big Data revolution and ongoing efforts from organisations such as NASA and risk modelling agencies will help to provide a far more comprehensive view of the potential geographical and economical impacts of severe weather events.

Minh Q. Tran, Managing Partner of AXA Seed Factory commented; “By combining the expertise of meteorologists, data scientists, and insurance specialists ClimateSecure adopts an innovative approach in order to offer its clients entirely customizable solutions.”

Finally, Patrice Massat, president of Climpact-Metnext, commented; “On the one side, AXA CS developed unique competencies in the market on the protection of weather risks and on the other side, Climpact-Metnext is a leader in weather consulting services. It was natural to create a partnership in order to offer the best possible solutions to our clients and brokerage partners.”

Essentially the startup will provide consultative weather risk management services, analysing clients exposures and defining indices against which parametric triggers can be set. AXA will provide the underwriting capacity to effect the insurance coverage.

AXA’s growing focus on parametric and index based weather insurance solutions and initiatives reflects a trend that has been emerging in both insurance and reinsurance sectors in recent years, that weather risk management is an opportunity.

There is an increasing realisation that weather risks are a good diversifying opportunity and that this business can be incremental, as these parametric solutions can be sold as supplemental covers, and designed to smooth the impact of weather on a companies earnings alongside its other insurance protection. That makes weather risk an attractive sector to get into in a competitive re/insurance market.