Global Parametrics, the parametric and index-based risk transfer start-up has secured the rest of its initial financing round, with a £7.9 million investment from the UK Government’s Department for International Development (DFID).
Global Parametrics aims to provide its parametric risk transfer solutions to organisations which are largely unprotected today, designing products to solve identified opportunities to provide protection on layers of risk that are often not covered by the traditional insurance and reinsurance markets.
The vision behind the investment for the UK Government and DFID is to increase access to disaster protection against the impacts of climate change for as many as 60 million of the most vulnerable people in developing countries by 2020.
The goal is to achieve this through working with firms and non-governmental organisations (NGO’s), providing services to poor and vulnerable people.
The investment secured by Global Parametrics will complement the rest of its first financing round, which consisted of its first equity investor, the German Government, through its development finance bank KfW and the Climate Insurance Fund.
Through provision of indirect insurance products, Global Parametrics will support small banks or agricultural cooperatives, who lend to the poor in the developing world, to continue or even increase lending after a natural disaster (such as tropical cyclone, drought, earthquake) strikes, increasing resilience for households and communities in the process.
With parametric insurance products supporting the lenders, or other financing groups and NGO’s, they can secure their ability to support the exposed communities after disasters, rather than seeing their financing abilities eroded with no way to replenish them.
Global Parametrics is already working with NGO VisionFund International, which operates a network of microfinance institutions in developing regions, to implement this type of risk transfer programme in nine countries.
Solutions for the humanitarian sector are also envisioned, such as through the use of climate data to forecast extreme drought conditions and parametrics in order to trigger payouts as early as possible, before a disaster intensifies.
Global Parametrics is working with the Start Network, a group of 42 national and international aid agencies from five continents, to design appropriate parametric risk transfer mechanisms to address these challenges.
The firm will utilise its own proprietary weather data and risk modelling platform to design these parametric, indirect insurance solutions for corporate clients and NGOs. Global Parametrics will also advise its clients on risk and financial engineering solutions that can be help them increase their resilience, through optimisation of the risk mitigation, management and transfer of natural disaster risk.
The interesting aspect of this for the insurance-linked securities (ILS) market and its investors is that Global Parametrics will leverage a fund of its own, the Natural Disaster Fund (NDF) to ensure it has the risk capital necessary to support the roll-out of its parametric risk transfer solutions.
The Natural Disaster Fund, (NDF) will be part capitalised through the investments Global Parametrics has received, but in time the company has the desire to be agnostic as to capital providers, which could be ILS funds or direct ILS investors who see the benefit in supporting this work and who would find the risks covered an attractive diversifier.
The UK’s DFID sees its investment in Global Parametric as building on the country’s leadership in developing innovative insurance mechanisms, helping exposed countries around the world to fast and reliable financing in the event of catastrophic shocks such as natural disasters and severe weather events.