Global Parametrics & Hannover Re back another Arbol-powered weather risk pilot

Global Parametrics and reinsurance giant Hannover Re are together supporting a weather risk insurance pilot scheme that is powered by Arbol’s technology and smart contract driven marketplace for weather risk transfer.

The pair are supporting the AGRIBEE Crop Insurance Pilot with capacity to enable the provision of extreme weather protection cover for smallholder rice farmers in Cambodia.

As ever, these pilot schemes tend to start off very small and so we suspect the reinsurance capital required to back it is limited at this time.

But if successful AGRIBEE, which facilitates financial and technical assistance for stakeholders in the agricultural value chain, wants to scale the program to up to approximately 20,000 farmers in 2021.

Arbol Inc., the technology driven marketplace that uses blockchain and smart contracts and which earlier this year acquired well-known specialist provider of weather risk transfer and weather hedging solutions eWeatherRisk, will sit in an intermediary position, with its platform used to connect capacity with the end-users of parametric insurance or risk transfer solutions.

Global Parametrics will provide capacity to cover the transaction from its Natural Disaster Fund (NDF), an investment fund focused on natural disaster, weather and climate risks.

Through the partnership agreement between the NDF and Hannover Re, the NDF will then cede 50% of the risk to the reinsurance company.

Here, the model used in the first collaboration between Global Parametrics and ARBOL is extended to demonstrate how additional sources of supporting reinsurance capital can be pulled into a weather risk focused transaction.

As a pilot scheme, this arrangement has the flexibility in it to scale easily as the risk pool evolves and expands, with access to all the risk capital and reinsurance it could need, especially thanks to the backing of Hannover Re.

Dan Bierenbaum, Vice President and co-founder of GP, commented on the arrangement, “The economic cost of extreme weather in Cambodia was highlighted in 2013 when severe flooding led to a 2% decline in the nation’s GDP. GP has stepped up where traditional reinsurers have been reluctant to provide cover, given the relative size of the transaction and innovative approach. We are confident that by leveraging AGRIBEE’s network and Arbol’s platform, we can help end the cycle of endemic poverty caused by extreme weather in the region.”

Siddhartha Jha, CEO of Arbol, added, “With rice farming accounting for 84% of cultivated land in Cambodia, the financial repercussions of extreme weather are being felt across the country, leading to mass migration and unemployment. Arbol’s vision is to bring accessibility, transparency, and efficiency to the weather risk market by utilizing our platform, which leverages smart contracts and blockchain technology to pay customers quickly and fairly when bad weather strikes.”

AGRIBEE’s CEO, Pakk Yourng, also said, “We are delighted to be partnering with GP and Arbol in what we hope will be a hugely successful pilot, which, in addition to protecting the livelihoods of rice farmers, will help change perceptions about formal finance in rural areas, where the ability to transfer weather risks is extremely limited.”

As we explained before, with ARBOL’s smart contract platform sitting in the middle, as a kind of intermediating marketplace, reinsurance like capital from the NDF and now Hannover Re, can more directly and simply fund the capacity needs of a direct to farmer parametric insurance scheme.

It’s a potentially revolutionary way to connect risk and demonstrates the role technology can play in connecting reinsurance capital from diverse sources more directly to protection buyers.