Seadrif Insurance Company has launched a parametric policy for post-natural catastrophe (natcat) disaster funding for Laos, with its payout trigger linked to how many people are actually affected.
The Singapore-headquartered insurer called the structure "the first sovereign parametric insurance policy to use government-reported population impact data, rather than hazard intensity or modelled losses, as the sole trigger for payouts".
Benedikt Signer, executive director, told InsuranceERM: "An important part [of developing parametric covers] is in aligning trigger information and government decision-making. What we have needed is more decision-relevant information for governments.
"Yes, we need more information for underwriting and for risk. But we need to reduce complexity in claims, not increase it, and ... to get closer to the lived experience of the client and be more responsive to what they use for their decision making."
The two-year policy, which begins in May, covers flood, tropical cyclone, earthquake, landslide, and "ensuing perils". It has an $8m annual aggregate limit, according to Seadrif.
Gallagher Re verifies formal disaster impact reports from the Laos government using independent data to confirm qualitative and quantitative criteria are met. The validations do not override the reported number of people affected, Seadrif noted, and all disbursements happen in accordance with a pre-agreed contingency plan that Seadrif, the Laos government and World Bank have developed jointly.
Antoine Bavandi, Gallagher Re's global head of public sector, parametric & climate resilience solutions, told InsuranceERM his firm's involvement also included laying "the technical and analytical work, reviewing previous frameworks and available datasets and proposing new solutions on model choice, triggers, product design, and loss calculation.
"In that process, we evaluated whether the various parametric options were fit for purpose, to maximise reliability and the robustness of triggered payouts, as well as the attractiveness of the Seadrif reinsurance programme to international markets," Bavandi added.
"The use of a single source of information for disaster risk finance, response coordination and management also means various government and humanitarian parties involved can better align their efforts together. The risk of mismatch between parametric payouts and actual losses is also minimised, which means reinsurers can more comfortably engage."
Bavandi believes the resulting programme "could be a game-changer in terms of addressing the protection gap at scale in the region".
In each 12-month period, $1m, or 12.5% of the payout limit, is disbursed to Laos within 10 days of the moment between 200,000 and 299,999 people are affected by qualifying natcats. More payouts happen as higher trigger thresholds are met, until the complete $8m is paid when 750,000 or more people are hit.
Ellen Yong, Seadrif's chief operating and financial officer, told InsuranceERM a strength in the design was in not requiring one single large event to trigger a payout.
"Instead, the policy responds when cumulative impacts from multiple smaller events cross specific thresholds," she said. "Furthermore, this allows for incremental payouts even as large events unfold ... or when there are back-to-back events, for example monsoon rains followed by typhoon-induced rainfall. There is no need for event definition."
Seadrif said the structure "ensures transparency, simplicity, timely liquidity, and alignment with the way Lao PDR manages disaster impacts" and "reflects Lao PDR's own definition of people affected – including both direct and indirect impacts – rather than abstract technical estimates".
- Read more about Seadrif in an interview with Benedikt Signer.