After two severe haze events that affected Singapore resulted in total economic losses of around US $1.3 billion, Swiss Re Corporate Solutions has structured a parametric insurance solution to help businesses transfer the risk of losses from future haze outbreaks.
The product from the commercial and corporate risk arm of global reinsurance firm Swiss Re is dubbed HazeShield and has been designed to address an evident gap in standard insurance coverage in the event of a haze incident affecting Singapore.
Severe haze outbreaks have hit the Southeast Asian region in recent years, largely caused by the burning off of peat forests in countries in the area. Significant efforts have been made by governments and corporates to reduce haze, but Swiss Re notes that these will need time to take effect.
On top of this, meteorological factors and regional weather patterns can make the effects of haze much worse, adding uncertainty to the phenomena.
Nearly $900 million of economic losses resulted from a single haze event in 2015, with impacts felt the most in the transportation, tourism, health and education sectors.
The HazeShield product has been designed using a parametric trigger based on data from Singapore’s National Environmental Agency (NEA) which will be used to trigger any pre-agreed claims payout.
The insurance product can be purchased as a financial mechanism to protect against potential loss of income and reduced trade, caused by a haze event that impacts Singapore.
“The financial consequences of a haze event can be severe, especially when businesses need to suspend operations or close,” explained Didier Bélot, Head Southeast Asia at Swiss Re Corporate Solutions. “Up until now, conventional property insurance did not cover the financial losses resulting from a haze event. We designed HazeShield to bridge this gap, address a local issue and provide an extra layer of resilience.”
The use of a parametric trigger means that pay-out amounts are pre-agreed with the insured and matched to their needs, while the trigger for pay-outs is based on the Singapore’s National Environment Agency (NEA) Pollutant Standard Index (PSI) levels, rather than the actual loss or damage caused.
As a result pay-outs can be made quickly and insureds can use the product to protect against business interruption as well, while no lengthy claims assessment process is required.
“In developing the solution with clients, we found that a range of industries, including transportation and tourism, are concerned about the financial impact from a severe haze event,” Andre Martin, Head of Innovative Risk Solutions Asia Pacific at Swiss Re Corporate Solutions commented. “HazeShield complements traditional property insurance policies, giving clients a broader coverage with claims payment certainty and quick access to liquidity.”
The product is another good example of parametric triggers being used to protect against real-world corporate exposures, while the delivery is another way for reinsurance firm Swiss Re to provide additional value to its commercial risk clients.