The Lloyd’s insurance and reinsurance market has announced the launch of a retail parametric cyclone insurance product for Northern Australia, with backing from stalwart markets Beazley, AXA XL, Hiscox and RenaissanceRe.
The product has been launched as part of the Lloyd’s Disaster Risk Facility, an initiative that launched back in 2015 and saw eight Lloyd’s of London syndicates joining together in an initiative that promised to make $400 million of natural catastrophe insurance and reinsurance capacity available to help developing economies build resilience to disaster, climate or weather risks.
Little has been heard of the Disaster Risk Facility (DRF) since and this product is one of the only ones to deserve an announcement it seems, but in targeting Northern Australia it does seem the initial focus on developing economies has now been adjusted, to enable the Facility to target other evident natural catastrophe insurance protection gaps.
The new parametric cyclone insurance product is called ‘Redicova’ (ready cover) and is brought to market led by Beazley with initial reinsurance support from AXA XL, Hiscox and RenaissanceRe who are all members of the DRF at Lloyd’s.
Redicova will make its pay-outs in relation to windspeeds from a severe tropical cyclone and is being termed an “autonomous insurance product”, meaning it will pay its claims without any need for physical claims assessment.
Of course, that’s really what practically every parametric insurance or risk transfer product has done over the last more than two-decades that parametric risk transfer has been available.
Redicova’s pay-outs will be based on cyclone track maps, leveraging underlying data from the Australian Bureau of Meteorology.
Jeremy Benn Pacific, part of JBA Group, a global science, modelling and engineering firm, will provide the data for the Redicova parametric insurance.
Chris Mackinnon, Lloyd’s Regional Head of Australia & New Zealand, commented on the launch, “We’re delighted to provide a new solution at a time where both industry and government are working on issues of affordability and availability of insurance in Northern Australia. Redicova will provide fast support for local communities and businesses in Northern Australia who are impacted by severe tropical cyclones.”
Karen Hardy, Redicova Managing Director, added, ‘It’s a privilege to work with Lloyd’s, Tysers, Beazley and others to deliver Redicova to Northern Australia. Redicova will provide fast disaster recovery cash to communities after a severe tropical cyclone, enabling resilience, so they can get on with life.”
Alex Hardy, Head of Property Covers, Beazley also said, “Our support for this new parametric cyclone product in Australia demonstrates Beazley’s commitment to providing new and responsive solutions to customers who could be adversely impacted by climate change. The application of data and insurance insight to create an insurance solution that responds quickly and efficiently at the point of a loss is a great example of taking an innovative and client-centric approach to risk mitigation to help support clients at the time when they need us most.”
Redicova is itself a coverholder at Lloyd’s and the parametric product will be marketed locally by the company.
While parametric insurance is nothing new and commercial parametric insurance solutions have long been available in the Northern Australia region, retail protection has not been so readily available.
Redicova aims to focus the parametric protection around the specific location of a customers home or business, calibrating the parametric trigger to respond to the cyclone wind conditions that pose the biggest threat to property damage and interruption.
It’s another sign of the growing popularity and acceptance of parametric triggers in insurance, as well as the recognition that traditional insurance leaves large gaps in coverage that can cause a significant economic burden when disaster strikes, leading to the opportunity to cover these using a responsive risk transfer arrangement.
Lloyd’s Disaster Risk Facility provides a useful way to bring together reinsurance capacity providers to back a product like this.