Speedwell Weather, a provider of weather data, forecasting information, analytics, software and consultancy to the weather derivatives and weather risk management market, has unveiled its awaited parametric weather risk transfer platform weatherXchange.
weatherXchange is an online technology based weather trading platform, that will enable protection buyers and sellers to meet and transact parametric or index based weather risk transfer contracts.
The platform, which is accessible at www.weatherxchange.com, already features a number of leading reinsurance and insurance linked securities (ILS) players as protection sellers, who Speedwell has lined up to offer capacity through the platform.
With insurance technology (insurtech) a hot topic in insurance and reinsurance circles, Speedwell has delivered a platform which can enable the transfer of weather risks directly to capacity, both traditional reinsurance balance-sheet backed and third-party capital markets backed, which is impressive.
weatherXchange is a free to use platform that allows protection buyers to structure weather risk protection using a wizard tool, select counterparties to request a price from (so valuing the contract), compare those prices, then close a weather hedge directly with the protection seller (or through a broker-dealer if required) and finally request settlement data and track the resulting weather risk contract.
So while not a fully automated exchange, weatherXchange is a far more efficient way for buyers of weather insurance and weather hedges to access the capacity required, in an easy to use, online system.
Speedwell Weather has been clever to launch the platform as an independent player in the market, targeting corporate weather risk protection buyers and partnering with some of the largest providers of weather risk insurance capacity.
By offering a way for protection buyers to pitch their requirements to multiple capacity providers, with the result being a price comparison (or bidding) approach to transacting weather risk, the platform will also promote transparency among market players, which could help to develop some pricing standards for the more vanilla weather risks, a positive for the market.
With weatherXchange Speedwell wants to promote parametric or index based weather risk transfer to new users, from industries such as energy, renewables, agriculture, construction and tourism, as well as improve the workflow for existing market participants.
At the moment the available contracts are focused on weather data inputs such as temperature, wind, rainfall, solar radiation, frost, ice and snowfall. It’s an impressive range of potential hedges that are already available through the platform, which should attract corporate insurance buyers who’s businesses are exposed to weather variability and extremes.
“While we have seen dramatic growth in the last two years in the volume of weather hedging contracts traded, we believe that weatherXchange can help further grow this market,” commented Stephen Doherty, Chairman at Speedwell, “weatherXchange reduces current barriers to accessing weather hedging services while improving overall market efficiency.”
Capacity providers lined up to back weather contracts placed through weatherXchange include such weather risk management, ILS and reinsurance stalwarts as Allianz Risk Transfer, AXIS Capital, City Financial, Coriolis Capital, Endurance Global Weather, Munich Re, MSI GuaranteedWeather, Nephila Capital and Swiss Re.
The approach of offering an automated RFP process, with access to valuation information and subsequent settlement data once the trade is brokered, will add efficiency to the market for weather risk transfer.
“weatherXchange will re-shape the weather market by rethinking how hedgers interact with market participants. Through the use of technology our aim is to increase the use of weather hedging as a mainstream financial tool,” explained Michael Moreno, Co-CEO of weatherXchange. “Our goal is simple: to drive market growth by increasing market efficiency and removing barriers to entry.”
In years to come, if the platform gains enough traction and users demand it, we’d anticipate the broker-dealer role also being automated, along with a clearing function, transforming the platform into a true exchange. That could be really exciting for the prospects of the weather risk transfer market.
You can also imagine that other sources of weather data that is suitable to be used as index or parametric triggers could be used to broaden the product range on the platform, perhaps to include some other specific perils the property catastrophe reinsurance market underwrites.
The weatherXchange platform is another example of how technology can make the risk transfer process more efficient and enable capital markets investors via ILS managers to get closer access to primary risks.
As insurtech developments accelerate it can only be a matter of time before similar automated RFP, valuation and settlement platforms emerge for a much broader range of risks, particularly where parametrics and data indices can be the trigger or arbiter of claims payouts.