The World Bank continues to aid in the fight against severe weather and climate change’s impact on developing regions of the globe, with the announcement of a new partnership with AXA Corporate Solutions on parametric weather insurance.
The agreement sees AXA work with the World Bank Group’s Global Index Insurance Facility (GIIF) to provide innovative and affordable parametric and weather-index linked insurance protection for the world’s most vulnerable, developing regions.
The news comes just several weeks after Artemis reported that reinsurance giant Swiss Re’s efforts with the World Bank in Africa, has now safeguarded two million African smallholder farmers against natural perils, via insurance offerings.
“AXA is one of the largest insurers in the world. Our calling is to invest in innovative products that protect our clients every day. Index-insurance is one such product. By protecting the most vulnerable farmers against weather anomalies, we contribute to resolving the issue of food security, which remains a global challenge,” said Philippe Rocard, AXA’s Chief Executive Officer (CEO).
Smallholder farmers in Asia, Africa and Latin America are among the poorest in the world, surviving on an extremely low budget that often means insurance protection is unaffordable. And as the severity and frequency of droughts, flooding and other natural perils continues to rise, the livelihood of these farmers becomes more endangered than ever before.
The introduction of index-based insurance products in these regions can greatly enhance the financial stability of individuals and the wider local economy.
AXA explains the benefits of index-based or parametric insurance as a significantly cheaper option than other models, advising that; “the payment is triggered based upon weather data, meaning no need for a loss adjuster, which greatly limits claims handling costs and accelerates the entire process.”
A hike in global catastrophe events combined with advancements in satellite imagery and the Big Data revolution, has seen a boom in weather-based index-insurance.
Artemis discussed recently how Nigeria has pledged to protect 15 million of its smallholder farmers from adverse weather by 2017, through agricultural weather-index insurance schemes.
“Big Data allows us to go beyond the borders of insurable risk and contribute to the improvement of food security in developing countries,” notes AXA.
From the inception of the project AXA will make roughly €50 million (£37 million) of reinsurance capacity available for weather-index insurance, and the firm look to offer protection to certain European regions in the future, as well as Africa, Asia and Latin America, as it seeks to take the weather insurance cover beyond just developing or emerging markets.
AXA aims to leverage increasing volumes of satellite and weather data, in order to get the best possible views of drought, flood and other weather risks that affect crop yields for the emerging market schemes. The learnings from this microinsurance work with the World Bank will likely fuel the development of its weather offerings for developed markets as well, with this data-first approach.
As the reinsurance market remains flooded with alternative and traditional capacity, it would be mutually beneficial to deploy some of the excess funds into weather-focused index-insurance schemes. In fact increasingly ILS managers and reinsurers are looking to weather linked products as potential new avenues to put capital to work.
The new AXA and World Bank venture aims to “contribute to the economic development of the most poverty-stricken countries,” and joins the growing list of weather-based parametric insurance schemes and providers around the globe.
As more and more vulnerable, underdeveloped and uninsured areas gain access to affordable, vital re/insurance protection, the gap between their economic and insured losses narrows post-disaster. Additionally the rapid payouts possible under a parametric or index-based insurance solution enable the money to get to the people who need it more quickly.
Improving the financial and social resilience of a country following a serious drought, significant flood or other natural peril is paramount to the sustainability of its economy.
Without the type of protection offered by AXA and the World Bank and the insurance and reinsurance market, each time disaster strikes those impacted in the developing world are often financially crippled, and it can take years for them to get back to where they were prior to the event.
Leader of the World Bank’s GIIF operations, Giles Galludec commented; “This partnership with AXA represents a further widening of our engagement with the private sector. AXA’s contribution will be critical in scaling up index insurance solutions across regions as well as creating a sustainable knowledge base on index-insurance for practitioners to enhance their technical learning and further develop this market.”