Global Parametrics puts NDF capacity behind Arbol-powered weather risk pilot

Global Parametrics, the parametric and index-based disaster risk transfer company, is putting capacity from the Natural Disaster Fund (NDF) that it manages behind a new weather insurance pilot for coffee farmers in Costa Rica that is powered by Arbol’s technology and smart contract driven marketplace for weather risk transfer.

To launch this pilot weather risk transfer and insurance scheme, Global Parametrics has teamed up with up with Arbol Inc., a technology driven marketplace that uses blockchain and smart contracts, and Propina, a platform that connects coffee consumers to coffee farmers around the world.

The ultimate goal is to provide weather risk insurance coverage to smallholder coffee farmers in Costa Rica, but the way this is being achieved demonstrates a novel and innovative way to channel capacity from an investment fund (the NDF in this case) into parametric insurance and reinsurance opportunities.

Propina has partnered with Harvest, an online marketplace that launches in May, and each sale will provide a 5% donation or ‘tip’ to cover participating coffee farmers aggregated working capital and weather insurance needs, the companies explained today.

Arbol is acting as an intermediary marketplace, sitting between parties, leveraging its new weather risk platform that uses smart contract technology to bring buyers and sellers of protection together.

As we explained earlier this month, Arbol has acquired well-known specialist provider of weather risk transfer and weather hedging solutions eWeatherRisk, as the company looks to revolutionise the way weather risk transfer contracts are bought and sold with its marketplace.

The Arbol platform as intermediary enables Propina to provide needed support to its network of farmers so that they can hedge their exposure to rainfall deficits and also invest in resilience measures.

The Natural Disaster Fund (NDF (UK) LP), the capitalised risk transfer vehicle managed by Global Parametrics, will provide the necessary risk capacity for this transaction, presumably as a reinsurance like arrangement to support the smart weather risk contracts that Arbol creates.

It’s an initial pilot collaboration between the parties, but it is hoped that this will form the basis of an ongoing partnership to bring climate and weather risk insurance and reinsurance protection to historically hard-to-reach markets at what the partners see as a pivotal time in terms of climate change and macroeconomic stress.

Dan Bierenbaum, Vice President and Co-founder of Global Parametrics commented, “Extreme weather and natural disasters are a key cause of an endemic poverty cycle in many emerging markets and with the onset of climate change, the situation can only get worse. GP, through The Natural Disaster Fund and its commercial partnerships, is proud to champion a systemic change by providing both the innovative products and access to risk capital to organisations, such as Propina, that directly impact the lives of those on the ground.

“We are pleased to take on this pilot cover in support of innovative disaster risk financing programs and to give the market additional confidence to support this and future initiatives.”

Crawford Hawkins, founder of non-profit Propina and the producer-focused market, Harvest, added, “Agricultural producers in many emerging markets have limited access to traditional insurance products, which can be costly and inefficient. Our experience has shown that innovative parametric concepts with fast claims payment processes are most effective when it comes to mitigating the impact of extreme weather events and natural disasters that are particularly devastating in low-and-middle income countries.

“We are delighted to share a vision with GP for creating and offering sustainable financial solutions for disaster resilience in emerging markets and look forward to future collaborations.”

Siddhartha Jha, CEO of Arbol also said, “Arbol’s vision is to bring accessibility, transparency, and efficiency to the weather risk market, which so far has mostly been restricted to large clients. Over the coming decades, rising weather volatility will increase challenges for farmers across crops and regions, especially coffee. Arbol aims to provide proactive solutions to changing weather patterns and help farmers achieve financial security in a cost effective manner.”

What’s interesting is how the use of a smart contract platform in the middle, as a king of intermediating marketplace, enables reinsurance like capital from the NDF, managed and priced by Global Parametrics, to more directly and simply fund the capacity needs of a direct to farmer insurance scheme that is distributed using another technology platform in Propina / Harvest.

That’s a potentially revolutionary way to connect risk and capital and while these pilot weather risk schemes tend to be small, it does demonstrate the role that technology can play in connecting reinsurance capital from an investment fund more directly to protection buyers.